-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FfAR6Oa5EdScklvx633nsPOrY6LPa8YVc/ktSLRgTOJsMzMzg02ZsFHMtOrCwjiD E2dmYuosAgEC7HCD6ijPgg== 0000912057-00-003167.txt : 20000203 0000912057-00-003167.hdr.sgml : 20000203 ACCESSION NUMBER: 0000912057-00-003167 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 20000131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELEVIDEO INC CENTRAL INDEX KEY: 0000353779 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 942383795 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11552 FILM NUMBER: 518371 BUSINESS ADDRESS: STREET 1: 550 E BROKAW RD STREET 2: PO BOX 49048 CITY: SAN JOSE STATE: CA ZIP: 95161 BUSINESS PHONE: 4089548333 FORMER COMPANY: FORMER CONFORMED NAME: TELEVIDEO SYSTEMS INC DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED: OCTOBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM ________________ TO _________________ COMMISSION FILE NUMBER: 0-11552 TELEVIDEO, INC. -------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-2383795 ------------------------------- ------------------- (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2345 HARRIS WAY, SAN JOSE, CALIFORNIA 95131 ------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 954-8333 --------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE --------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE ----------------------------- (TITLE OF CLASS) ------------------ INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES NO X --- --- THE APPROXIMATE AGGREGATE MARKET VALUE OF REGISTRANT'S COMMON STOCK HELD BY NON-AFFILIATES ON JANUARY 12, 2000 (BASED UPON THE CLOSING SALES PRICE OF SUCH STOCK AS REPORTED IN THE OVER THE COUNTER MARKET AS OF SUCH DATE) WAS $5,948,750. AS OF JANUARY 12, 2000, 11,271,085 SHARES OF REGISTRANT'S COMMON STOCK WERE OUTSTANDING. DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the Registrant's Definitive Proxy Statement to be used in connection with Registrant's Annual Meeting of Stockholders to be held on April 18, 2000 have been incorporated by reference into Part III of this Annual Report on Form 10-K. INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ] 1 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K for the fiscal year ended October 31, 1999 includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, other than statements of historical facts, included in this Annual Report that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future, including, but not limited to, such matters as future product development, business development, marketing arrangements, future revenues from contracts, business strategies, expansion and growth of the company's operations and other such matters are forward-looking statements. These kinds of statements are signified by words such as "believes," "anticipates," "expects," "intends," "may," "will" and other similar expressions. However, these words are not the exclusive means of identifying such statements. These statements are based on certain assumptions and analyses made by the company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, including the risk factors discussed below, general economic and business conditions, the business opportunities (or lack thereof) that may be presented to and pursued by the company, changes in law or regulations and other factors, many of which are beyond control of the company. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. (Remainder of this page was intentionally left blank) 2 INTRODUCTORY STATEMENT References in this Form 10-K to "TeleVideo," the "Registrant" or the "Company" refer to TeleVideo, Inc. and its subsidiaries unless the context indicates otherwise. This report contains registered and unregistered trademarks of other companies. PART I ITEM 1. BUSINESS THE COMPANY Founded in 1975, TeleVideo is a market leader providing innovative high performance terminal and network computer products to the business and consumer markets. The Company markets its products worldwide primarily through distributors, value-added resellers ("VARs"), systems integrators and original equipment manufacturers ("OEMs"). The Company first became a leader in the video display terminal industry by introducing a new generation of "smart" terminals based on the Intel microprocessor at a time when dumb terminals were the industry standard. TeleVideo holds a number of proprietary terminal emulations, including the TV910 and TV9425, which have been an industry standard for more than 15 years and are currently used in millions of terminals worldwide. Today, TeleVideo is utilizing its expertise in server-based network computing to forge new ground in delivering thin-client solutions. TeleVideo operates in one industry segment. PRODUCTS TeleCLIENT Family TeleVideo's TeleCLIENT products consist of a family of thin-client Windows-based terminals. The TC7000 is a stand alone design that can be connected to a variety of monitors to meet specific needs. The TC7150 and TC7170 are integrated units with 15 and 17 inch color CRT monitors, respectively. The TeleCLIENT TC7300 Series is a fully-integrated Windows-based thin-client with a built-in high resolution TFT LCD screen. Bundled as an all-in-one design, the TC7300 Series is designed for use in limited workspaces. The TeleCLIENT family of products is designed for use in the healthcare, government, education, retail and other task-oriented client/server based computing environments. TeleVideo's thin-clients are accelerated by a Pentium-class 233MHz microprocessor. TeleCLIENT thin-clients are powered by Windows CE, enabling fast and easy access to business-critical applications. The TeleCLIENT family of products also provides flexibility to choose the Remote Desktop Protocol that executes either the Windows NT 4.0 Terminal Server Edition, or the Citrix ICA protocol through Citrix MetaFrame or WinFrame. Windows CE gives the TC7000, TC7150, TC7170 and the TC7300 Series server-side access to popular Windows-based business applications such as the Microsoft Office suite and Java, as well as the Internet. Video Display Terminals 3 The 990 is a general purpose terminal with ASCII, ANSI and PC TERM operating modes. For maximum versatility and flexibility, the terminal is compatible with a wide variety of keyboard styles and allows users to interface to a bar code scanner, wand reader, credit card reader, electronic scale or other specialized keyboards for point-of-sale or point-of-transaction processing. The TeleVideo 995-65 14-inch monochrome terminal allows the user AlphaWindowing capability at a non-windowing price for new or existing software applications. The windows capability provides increased productivity for applications running on UNIX. The 995 also has a power management screen saver which protects the environment and promotes energy conservation. iTelePC Televideo's iTelePC iT2000 is an "internet appliance," a new and relatively low-cost PC designed for Internet access and specialized business use, but without the full capabilities of a personal computer. The iT2000 comes integrated with a 15-inch monitor that brings the Internet to the household or business in a small, easy-to-use design. Powered by Microsoft Windows CE, the 233 MHz iT2000 comes with no set-up required. PRODUCT DEVELOPMENT TeleVideo serves markets that are characterized by rapid technological change and the Company has continuous ongoing programs to develop new products. Although the Company's research and development staff consists of 10 employees as of January 12, 2000, various joint projects of the Company are supported by engineers from participating companies. During fiscal 1999, TeleVideo spent approximately $0.6 million on Company-sponsored research and development. Company-sponsored research and development expenses for fiscal 1998 and 1997 were approximately $0.4 million and $0.8 million, respectively. The Company did not engage in any customer-sponsored research and development program during such years. Because of the fast pace of technological advances, the Company must be prepared to design, develop and manufacture new and more powerful low-cost products in a relatively short time. TeleVideo believes it has had mixed success to date in accomplishing these goals simultaneously. Like other companies in the computer industry, it will continue to experience delays in completing new product design and tooling. There is no assurance that the Company will be able to design and manufacture new products, including its iTelePC and TeleCLIENT family of products, that respond to the rapid changes in the marketplace. SALES, MARKETING AND CUSTOMERS North American sales are handled from TeleVideo sales offices located in San Jose, California; Lake Forest, California; Wharton, New Jersey; Hoffman Estates, Illinois; Gainsville, Georgia; and Dallas, Texas. Products are sold through distributors, mass merchants, retail stores, VARs, systems integrators and OEMs. Products sold in Europe, Asia Pacific, Africa and Latin America are handled by the Company's office in San Jose, California through distributors, OEMs and international representatives. The Company also appointed an agent in the United Kingdom in fiscal 1999 to manage existing customer relationships and to build new ones throughout Europe. TeleVideo distributors generally do not have exclusive geographic territories. Distributor contracts can generally be terminated by either party without cause upon advanced written notice of 30 days or 60 days. TeleVideo's distributors typically handle a variety of computer-related products, including products competitive with those of TeleVideo. The typical distribution 4 arrangement requires the distributor to purchase TeleVideo products with certain limited stock rotation rights. Distributors may also exercise price protection rights should the Company's product price be reduced. TeleVideo, through its headquarters' marketing and supporting staff, continues to work closely with its distributors, mass merchants, retail stores, VARs, systems integrators and original OEMs. TeleVideo's marketing staff also provides the customers with training, sales and promotional materials, cooperative advertising programs, trade show participation and sales leads. The marketing organization also leads the product marketing role giving direction to product management and competitive positioning. The Company spent approximately 9% ($0.7 million), 7% ($1.1 million) and 7% ($1.3 million) of its net revenues on advertising in fiscal 1999, 1998 and 1997, respectively. TeleVideo's customers typically purchase the Company's products on an as-needed basis. Therefore, the Company will continue to manufacture its products based on sales forecasts and upon customer orders. As a result of this strategy, the Company believes that backlog is not material to its business taken as a whole. Because of the possibility of customer changes in delivery schedules or cancellation of orders, which is not uncommon in the computer industry, the Company's backlog as of any particular date may not be indicative of actual net sales for any succeeding period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." For the fiscal year ended October 31, 1999, TeleVideo's largest customer (Savior, Inc.) accounted for 10% of the Company's sales, while another customer accounted for 9%. TeleVideo's sales terms are primarily cash in advance or upon delivery, or on credit terms that are typically net 30 or net 45 days. INTERNATIONAL SALES The Company had export sales (primarily to Europe, Asia and Latin America) of approximately $1.6 million in fiscal 1999 (representing 19.8% of total net sales), $2.1 million in fiscal 1998 (14.2% of total sales) and $2.7 million in fiscal 1997 (13.6% of total net sales). In fiscal 1999, the Company appointed an agent in the United Kingdom to manage existing customer relationships and to build new ones throughout Europe. The Company is evaluating the feasibility of establishing a fully equipped TeleVideo presence in Europe but has made no commitments in this regard. TeleVideo's international sales are subject to certain risks common to non-United States operations, including but not limited to governmental regulations, import restrictions and export control regulations, changes in demand resulting from fluctuations in exchange rates, as well as risks such as tariff regulations. TeleVideo's international sales are generally U.S. dollar-denominated and, therefore, are not directly subject to international currency fluctuations. The strength of the dollar in relation to certain international currencies may, however, adversely affect the Company's sales to international customers. FOREIGN JOINT VENTURE ACTIVITY TELEVIDEO-RUS In January 1996, TeleVideo established a company called "TeleVideo-RUS" in the Commonwealth of Independent States with an initial investment of $150,000. In fiscal 1997, the Company sold this investment for $250,000 and recognized a profit of $100,000. THREE H 5 Three H Partners, owned equally by TeleVideo and a Russian entity, was formed in fiscal 1991. The Company invested a total of $76,000 into Three H. The Company wrote off this investment in fiscal year 1996. TLK, INC. In November 1996, the Company invested $150,000 in exchange for a 20% ownership in TLK, Inc. for the China Power Plant projects in Lin Zhang, Quin Yuan and Henan Provinces in China. The Company wrote off this investment in fiscal year 1997. KORAM, INC. On March 3, 1997, the Company deposited $224,820 in escrow in Korea, which amount was used to purchase a 50% interest in a restaurant venture in Seoul, Korea. The amount deposited has been written down to $109,820 due to the devaluation of the Korean won. The Company accounts for this investment on the equity basis of accounting. COMPETITION TeleVideo believes that brand recognition, product quality, availability, extensive standard product features, service and price are significant competitive factors in the Company's markets. In addition to the factors listed above, the principal considerations for distributors and resellers in determining which products to offer include profit margins, immediate delivery, product support, and credit terms. TeleVideo has continued and in the future will likely continue to face significant competition, with respect to these factors, particularly from the large international manufacturers. Most of these companies have significantly greater financial, marketing and technological resources than the Company, and may be able to command better terms with their suppliers due to higher purchasing volumes. Therefore, there is no assurance that the Company will be able to successfully compete in the future. PRODUCTION The Company subcontracts substantially all of the manufacture of its products to manufacturers in Taiwan, The People's Republic of China and South Korea. The testing, inspection and some minor assembly work are done at its California headquarters. The Company believes its current manufacturing facilities in California will continue to be adequate for its purposes for the foreseeable future. The Company generally uses standard parts and components for its products, although certain components are presently available and secured only from a single source. The Company's largest supplier accounted for approximately 61% (approximately $3.2 million) of net purchases in fiscal 1999. Loss of this supplier might have an adverse effect on the product supply of the Company. The Company believes, however, that in most cases, alternative sources of supply could be arranged as and when needed by the Company. To date, TeleVideo has not experienced any significant difficulties or delays in production of its terminal products. PROPRIETARY RIGHTS The Company regards certain aspects of its products as proprietary and relies upon a combination of trademark and copyright laws, trade secrets, confidentiality procedures and 6 contractual provisions to protect its proprietary rights. The Company has registered trademarks in the United States and in over 20 foreign countries for "TeleVideo" and the TeleVideo logo. The continuing development of the Company's products and business is dependent, primarily, on the knowledge and skills of certain of its employees. To protect its rights to its proprietary information, the Company requires all employees and consultants to enter into confidentiality agreements that prohibit the disclosure of confidential information to persons unaffiliated with the Company. There can be no assurance, however, that these agreements will provide meaningful protection for the Company's technology or other confidential information in the event of any unauthorized use or disclosure. There also can be no assurance that third parties will not independently develop products similar to or duplicative of products of the Company. The Company believes that due to the rapid pace of technological change in its industry, the Company's success is likely to depend more upon continued innovation, technical expertise, marketing skill and customer support than on legal protection of the Company's proprietary rights. GOVERNMENT REGULATIONS Most of the Company's products are subject to regulations adopted by the Federal Communications Commission ("FCC"), which establishes radio frequency emanation standards for computing equipment. TeleVideo believes that all of the Company's products that are subject to such regulations comply with these regulations. Although there can be no assurance, the Company has no reason to believe that new products will not also be approved. Failure to comply with the FCC specifications could preclude the Company from selling non-complying systems in the United States until appropriate modifications are made. To date, the Company has not encountered any FCC compliance problems. EMPLOYEES As of January 19, 1999, the Company's full-time employees totaled 43, as compared with 41 reported at the end of fiscal 1998. Of the total number of employees, 20 are engaged in product research, engineering, development and manufacturing; 14 in marketing and sales; and 9 in general management and administration. The Company believes that its future success will depend, in part, on its ability to continue to attract and retain highly skilled technical, marketing and management personnel. None of the Company's employees is subject to a collective bargaining agreement or represented by a union, and the Company has never experienced a work stoppage. The Company believes that its employee relations are good. ITEM 2. PROPERTIES The Company's headquarters, research and development and administrative operations are housed in a 69,630 square foot building located on 2.5 acres in San Jose, California, which was owned by the Company. On December 28, 1998, the Company sold the building and has leased it back. The aggregate monthly lease amounts to $104,000. Please refer to Note 6 of the financial statements ("Sale and Leaseback of Building") for additional details. The lease expires on December 31, 2013. The Company leases domestic sales offices in Hoffman Estates, Illinois; Lake Forest, California; Wharton, New Jersey; Gainsville, Georgia; and Dallas, Texas. The lease terms range from month-to-month tenancy to a term of three years. Management believes that the Company would be able to secure an extension to the leases if such an extensions are deemed necessary in the future. All of the leases are operating leases. 7 ITEM 3. LEGAL AND OTHER PROCEEDINGS TAX AUDITS On July 14, 1997, the State of Massachusetts issued to the Company a certificate of withdrawal to do business in the state. Consequently, $250,000 was removed from deferred taxes and was recognized as other income. OTHER LEGAL PROCEEDINGS None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1999. EXECUTIVE OFFICERS The following sets forth certain information with regard to executive officers of TeleVideo (ages are as of January 19, 2000):
Executive Officer Age Position - ----------------- --- -------- Dr. K. Philip Hwang 64 Chairman of the Board and Chief Executive Officer TeleVideo, Inc. Jun Keun Yum 48 Vice President of Operations, Chief Technology Officer and Director of TeleVideo, Inc. James D. Wheat 42 Vice President of Finance and Chief Financial Officer TeleVideo, Inc. Joseph Burroughs 61 Vice President of Worldwide Sales TeleVideo, Inc.
- ---------------- Dr. K. Philip Hwang, age 64, is the founder of the Company and has been Chairman of the Board and Chief Executive Officer since October 1976. From August 1990 to April 1991, he served as the Acting Chief Financial Officer. Since 1992, Dr. Hwang has also served as Chairman of AdMOS (Advanced MOS Systems), an engineering firm specializing in ASIC chip design. AdMOS is a private corporation in which TeleVideo holds a 20% interest. Jun Keun Yum, age 48, joined TeleVideo in January 1999 as Vice President of Operations and Chief Technology Officer. Prior to that, Mr. Yum was a General Manager and Executive Director of Samsung Electronics Co., Ltd., Seoul, Korea from January 1993 to December 1998. Previously from October 1986 to December 1992, he was co-founder and President of Pixelab, Inc. of Lisle, Illinois. Mr. Yum has a BS degree in Electrical Engineering from Han Yang University of Seoul, Korea and an MS degree in Electrical Engineering from Illinois Institute of Technology. James D. Wheat, age 42, joined TeleVideo in March 1999 as Vice President of Finance and Chief Financial Officer. Prior thereto, from November 1997 to February 1999, Mr. Wheat served as Vice President and Corporate Controller of Sunterra, a public timeshare company. From 1991 to November 1997, Mr. Wheat served as internal auditor, division controller and external reporting manager of Raychem Corporation, a materials manufacturing company. Mr. Wheat is a Certified Public Accountant, Certified Management Accountant, Certified Internal Auditor and is a licensed real estate broker in California. He received a B.B.A. degree from the University of Michigan and an M.B.A. degree from The Wharton School of Business at the University of Pennsylvania. Joseph Burroughs, age 61, joined TeleVideo in July 1999 as Vice President of Worldwide Sales. Prior to joining TeleVideo, beginning in January 1997, Mr. Burroughs was President of B&A Channel Consultants, San Ramon, California, a consulting company owned by Mr. Burroughs. From February 1997 to October 1998, he served as channel manager with Meridian Data, Inc., Scotts Valley, California, a networking storage company. From August 1995 to September 1996, Mr. Burroughs served as Channel Marketing and Sales Director for SBE, San Ramon, California, a networking products company. From July 1993 to August 1995, Mr. Burroughs served as Channel Marketing Manager for Networth, Inc., Irving, Texas, a networking products company. Mr. Burroughs received a B.S. in marketing from the Rochester Institute of Technology. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded in the over-the-counter market and quoted on the NASD electronic bulletin board under the symbol "TELV". The following table sets forth for the periods indicated the high and low last sales prices for the Common Stock. The prices quoted below reflect inter-dealer prices, without retail mark-ups, markdowns or commissions and may not necessarily represent actual transactions.
High Low -------- ------- FISCAL 1998: First Quarter $3.3750 $1.7500 Second Quarter 3.1250 1.3750 Third Quarter 2.0625 0.9688 Fourth Quarter 1.0313 0.7188 FISCAL 1999: 8 First Quarter $1.0000 $0.6250 Second Quarter 1.0938 0.3750 Third Quarter 1.0312 0.3750 Fourth Quarter 0.8125 0.5625
There were 746 holders of record of the Company's Common Stock at January 12, 2000. On January 12, 2000, the closing price of the Company's Common Stock in the over-the-counter market, was $1.4375 per share. The Company has never paid cash dividends on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. The Company presently intends to retain any earnings for use in its business. (The remainder of this page was left blank intentionally.) ITEM 6. SELECTED FINANCIAL DATA The following selected financial data reflect the continuing operations of TeleVideo. The data below has been derived from the Company's audited consolidated financial statements for the fiscal years presented and should be read in conjunction with such audited financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" presented elsewhere herein.
(IN THOUSANDS, EXCEPT PER SHARE DATA) Year Ended October 31, --------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- ---------- ---------- --------- -------- STATEMENT OF OPERATIONS DATA: Net sales $ 8,070 $14,751 $19,884 $21,576 $16,914 Income (loss) from continuing operations (4,570) (4,727) (3,115) (4,638) (4,741) Net (loss) income (3,707) (8,881)(1) (3,444)(2) (2,993)(3) 415(4) Net (loss) income (per share), Basic and diluted (0.33) (0.79) (0.31) (0.26) 0.04 BALANCE SHEET DATA: Cash and cash equivalents $ 4,487 $ 1,640 $ 3,604 $ 4,496 $5,145 Working capital 5,596 2,533 9,208 13,239 13,035 Total assets 18,317 10,433 17,692 23,014 24,600 Stockholders' equity 2,504 6,211 15,062 18,468 21,435
See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the accompanying Notes to Consolidated Financial Statements for a discussion of operating results, liquidity needs and acquisitions and dispositions during the periods. (1) Includes net loss from investment in APT venture of $4,076,903. 9 (2) Includes net gains(loss) from the following (in thousands): (A) Loss from investment in APT venture $ (623) (B) Gain from Russian investment 100 (C) Gain from tax settlement 250 (D) Korean currency valuation adjustment (115) (E) Loss from write-off of TLK (150) ----- $ (538) ------ ------
(3) Includes net gain from the sale of InterTerminal joint venture interest of $1,370,000. (4) Includes net gains (loss) from the following (in thousands): (A) Sale of building $1,350 (B) Disposition of Russian joint venture interest 1,910 (C) Sale of interest in Kabil Electronics 1,422 (D) Disposal of SMS product line (346) ------ $4,336 ------ ------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company continues to focus its efforts toward providing high-performance Windows-based terminals to the business and consumer markets. In recent years, the Company has phased out the sale of multimedia products and monitors to focus on utilizing its expertise in server-based network computing to forge new ground in delivering thin-client solutions. In November 1998, the Company launched its Windows-based terminal products. The Company has strengthened its sales organization in fiscal 1999 to provide more efficient geographical coverage and market penetration for its thin-client products. The Company faces strong competition in the marketplace and continues to look for ways to improve operating efficiency. In order to lower the production costs, the Company has continued to negotiate with its suppliers and has also shifted many production processes overseas. RESULTS OF OPERATIONS FISCAL 1999 COMPARED TO FISCAL 1998 Net sales for fiscal year 1999 were approximately $8.1 million, compared with $14.8 million in fiscal 1998, a decrease of $6.7 million, or 45%. The decrease in net sales reflects the Company's continued shift away from the sale of monitors and multimedia products. In fiscal 1999, monitor and multimedia sales totaled $1.0 million as compared with fiscal 1998, when sales 10 of monitors and multimedia products totaled $6.3 million. Sales of terminals decreased in fiscal 1999 to $6.0 million from $7.5 million in fiscal 1998. Cost of sales for fiscal year 1999 was approximately $8.1 million, compared with $13.4 million in fiscal 1998, a decrease of $5.3 million, or 40%. However, cost of sales as a percentage of net sales increased from 90.7% in 1998 to 100.1% in 1999. The increase in cost of sales as a percentage of sales in 1999 is due in part to royalty payments that the Company began making in fiscal 1999 under a licensing agreement for the operating system software used in the Company's TeleCLIENT products, which the Company began selling in fiscal 1999. For accounting purposes, the royalty expense is being amortized on a straight line basis over the life of the licensing agreement which results in a larger proportion of expense, relative to sales, during the initial months when the TeleCLIENT product is being introduced into the marketplace. The Company also recorded a provision for obsolescence in the fourth quarter of fiscal 1999 for multimedia products and monitors, which the Company is in the process of phasing out. Sales and marketing expenses for fiscal year 1999 were approximately $2.2 million, compared with $2.4 million in fiscal 1998, a decrease of $0.2 million, or 8%. As a percentage of net sales, sales and marketing expenses increased to 27% in fiscal 1999 from 16% in fiscal 1998. The increase primarily represents costs incurred by the Company to launch its TeleCLIENT product line in fiscal 1999. Research and development expenses were $0.6 million in fiscal 1999, compared with $0.4 million in fiscal 1998. As a percentage of net sales, research and development expenses increased to 7% in fiscal 1999 compared with 3% in fiscal 1998. The increase represents increased costs associated with the continued development of new products, including the Company's TeleCLIENT product line. General and administrative expenses were $1.8 million in fiscal 1999, compared with $3.3 million in fiscal 1998, a decrease of $1.5 million or 45%. As a percentage of net sales, general and administrative expenses were 22% in fiscal 1999 and 1998. In fiscal 1999, the Company began incurring lease expenses in accordance with the sale and leaseback of the Company's headquarters facility. Additional details about the sale and leaseback transaction can be found in "Liquidity and Capital Resources" and in Note 6 to the financial statements, "Sale and Leaseback of Building." In fiscal 1998, the Company incurred a charge of approximately $2.0 million to reflect a write-off of its accounts and notes receivable from Applied Computer Technology, Inc. The Company's loss from operations was approximately $4.6 million in fiscal 1999 as compared with $4.7 million in fiscal 1998. Interest income, net of interest expense, was $30,000 in fiscal 1999, as compared with $77,000 in fiscal 1998. Other income was $0.5 million in fiscal 1999 as compared with none in fiscal 1998. Other income represents primarily the amortization of the deferred gain on the December 1998 sale of the Company's building. The net loss for fiscal year 1999 was approximately $3.7 million, compared with a net loss of $8.9 million in fiscal 1998, a decrease of $5.2 million, or 58%. In fiscal 1998, the Company recorded a loss of approximately $4.1 million from its equity investment in Applied Photonics Technology, Inc. Net loss per share in fiscal 1999 was $0.33 based on 11,271,085 weighted average shares outstanding, compared to a net loss per share in fiscal 1998 of $0.79 based on 11,267,685 weighted average shares outstanding. 11 An income tax credit of 0.4 million was recorded in fiscal 1999 as the Company reduced its tax liability originally set up for various tax exposure. The Company has approximately $102 million in federal net operating loss and credit carryovers and approximately $34 million in state net operating loss carryovers to offset future federal and state corporate income tax liabilities. No net deferred tax asset has been recognized by the Company for any future tax benefit to be provided from the loss carry forwards since realization of any such benefit is not assured. FISCAL 1998 COMPARED TO FISCAL 1997 Net sales for fiscal year 1998 were approximately $14.8 million, compared with $19.9 million in fiscal 1997, a decrease of $5.1 million, or 26%. The decrease in net sales reflects the decrease in the sale of multimedia products, which the Company is gradually phasing out, from approximately $6.5 million in 1997 to approximately $1.9 million in 1998, a decrease of 71%. Additionally, there were decreases in the sales of OMTI boards, spares, repairs and miscellaneous products from approximately $2.3 million in 1997 to $1.2 million in 1998, or 48%. Sales of OMTI boards have decreased as demand from customers has shifted toward newer technologies. Sales of spares, repairs and miscellaneous products decreased in 1998 as price decreases made it more cost effective for customers to replace, rather than to repair, their related equipment. However, net sales of monitors increased from $3.5 million in 1997 to $4.4 million in 1998, an increase of 26%, to partially offset the decrease in net sales of multimedia and other products. Cost of sales for fiscal year 1998 were approximately $13.4 million, compared with $17.8 million in fiscal 1997, a decrease of $4.4 million, or 25%. Cost of sales as a percentage of net sales increased from 89.5% in 1997 to 90.7% in 1998, due primarily to lower profit margins on sales of both multimedia products and monitors. During 1998, the Company phased out its multimedia product lines and sold most of its multimedia inventory at below average gross margins to reduce its excess stock. The Company's net inventory level decreased by 21% in 1998, to $2.3 million, from $2.9 million at October 31, 1997. The Company also experienced competitive pricing pressure on the sale of monitors, leading to lower gross margins in fiscal 1998 as compared with fiscal 1997. Manufacturing expenses (which are included in cost of sales) decreased from approximately $1.3 million in fiscal 1997 to approximately $1.1 million in fiscal 1998, a decrease of $0.2 million or 15%. The decrease was mainly due to the decrease in number of employees from 27 in 1997 to 17 in 1998. Sales and marketing expenses for fiscal year 1998 were approximately $2.4 million, compared with $3.0 million in fiscal 1997, a decrease of $0.6 million, or 20%. As a percentage of net sales, sales and marketing expenses increased slightly to 16% in fiscal 1998 from 15% in fiscal 1997. The decrease in actual expenses was primarily due to a decrease in employee headcount in the sales and marketing departments and a reduction in advertising expenses. Research and development expenses were $0.4 million in fiscal 1998, compared with $0.8 million in fiscal 1997. As a percentage of net sales, research and development expenses decreased to 3% in fiscal 1998 compared with 4% in fiscal 1997. The decrease was due mainly to a reduction in engineering headcount in fiscal 1998. General and administrative expenses were $3.3 million in fiscal 1998, compared with $1.5 million in fiscal 1997, an increase of $1.8 million or 120%. As a percentage of net sales, general and administrative expenses increased to 22% in fiscal 1998 compared with 7% in fiscal 1997. The increase was due primarily to the increase in bad debts from approximately $293,000 in fiscal 1997 to approximately $2.3 million in 1998. This increase reflected the Company's write-off of its accounts and notes receivable balance from Applied Computer Technology, Inc., of approximately $2.0 million in fiscal 1998. 12 The Company's loss from operations was approximately $4.7 million in fiscal 1998 as compared with $3.1 million in fiscal 1997. The increase was primarily due to the increase in general and administrative expenses resulting from the increase in bad debt expense, and the decrease in net sales from $19.9 million in fiscal 1997 to $14.8 million in fiscal 1998. The net loss for fiscal year 1998 was approximately $8.9 million, compared with a net loss of $3.4 million in fiscal 1997, an increase of $4.5 million, or 55%. In fiscal 1998, the Company recorded a loss of approximately $4.1 million from its equity investment in Applied Photonics Technology, Inc. Net loss per share in fiscal 1998 was $0.79 based on 11,267,685 weighted average shares outstanding, compared to a net loss per share in fiscal 1997 of $0.31 based on 11,254,810 weighted average shares outstanding. No income tax expense or credit was provided for in fiscal 1998. At October 31, 1998, the Company had approximately $98 million in federal net operating loss and credit carryovers and approximately $32 million in state net operating loss carryovers to offset future federal and state corporate income tax liabilities. No net deferred tax asset has been recognized by the Company for any future tax benefit to be provided from the loss carry forwards since realization of any such benefit is not assured. LIQUIDITY AND CAPITAL RESOURCES At October 31, 1999, the Company had $4.5 million in cash and cash equivalents, an increase of approximately $2.9 million over the balance of $1.6 million at October 31, 1998. This includes a $1.0 million certificate of deposit which the Company purchased in fiscal 1999. Approximately $1.0 million in certificates of deposit were pledged as collateral for comparable amounts of stand-by and sight letters of credit. At October 31, 1999, the Company had no outstanding letters of credit which were secured by the pledged deposits under this agreement. In December 1998, the Company sold its 69,360 square foot headquarters building in San Jose, California, including land and improvements, to TVCA, LLC, an unaffiliated Delaware limited liability company ("TVCA") for $11.0 million. The nature of the consideration was $8.25 million in cash and a $2.75 million promissory note. The note bears interest at 7.25% per annum. Principal and accrued interest are payable in equal monthly installments of $21,735 on the first day of each month, commencing January 1, 1999. If not earlier paid in full, any unpaid principal and all accrued interest is due and payable to the Company on December 1, 2013. In December 1998, the Company sold its main facility (land and building) for approximately $11.0 million and concurrently leased back this facility over a 15 year lease term expiring in December 2013. The land component has been recorded as an operating leaseback. The building component has been accounted for as a capital lease, whereby a leased building asset and capital lease obligation were recorded at the fair value of approximately $6.27 million. As a result of the sale for $11.0 million (which includes a $2.75 million note receivable), a deferred gain of approximately $8.0 million was recorded. The deferred gain attributable to the land element, which approximates $3.44 million, is being amortized over the 15 year lease life on a straight line method. The deferred gain attributable to the building element, which approximates $4.56 million, is being amortized over leased building asset life, which has been determined to be the 15 year lease term, on a straight line method. Net accounts receivable were $1.5 million at October 31, 1999, compared with $2.4 million at October 31, 1998, a decrease of $0.9 million, or 38% while net inventories were $1.5 million 13 at October 31, 1999, as compared with $2.3 million at October 31, 1998, a decrease of $0.8 million. Working capital at the end of the fiscal 1999 was approximately $5.6 million, an increase of $3.1 million, or 124%, from the fiscal 1998 year-end level of approximately $2.5 million, primarily as a result of the proceeds from the sale of the Company's headquarters facility. The Company believes that, with respect to its current operations, the Company's cash balance of approximately $4.5 million at October 31, 1999, which includes its $1.0 million certificate of deposit, plus revenues from operations and other non-operating cash receipts, will be sufficient to meet the Company's working capital and capital expenditure needs for the next twelve months. FACTORS THAT MAY AFFECT FUTURE RESULTS COMPETITIVE MARKETS The terminal market is intensely competitive. The principal elements of competition are pricing, product quality and reliability, price/performance characteristics, compatibility, marketing and distribution capability, service and support, and reputation of the manufacturer. TeleVideo competes with a large number of manufacturers, most of which have significantly greater financial, marketing and technological resources than TeleVideo. There can be no assurance that the Company will be able to continue to compete effectively. PRODUCT DEVELOPMENT The computer market is characterized by rapid technological change and product obsolescence, often resulting in short product life cycles and rapid price declines. The Company's success will continue to depend primarily on its ability to continue to reduce costs through manufacturing efficiencies and price negotiation with suppliers, the continued market acceptance of its existing products and its ability to develop and introduce new products. There can be no assurance that TeleVideo will successfully develop new products or that the new products it develops will be introduced in a timely manner and receive substantial market acceptance. There can also be no assurance that product transitions will be managed in such a way to minimize inventory levels and product obsolescence of discontinued products. The Company's operating results could be adversely affected if TeleVideo is unable to manage all aspects of product transitions successfully. SINGLE SOURCED PRODUCTS The Company generally utilizes standard parts and components available from multiple suppliers. However, certain parts and components used in the Company's products are available from a single source. If, contrary to its expectations, the Company is unable to obtain sufficient quantities of any single-sourced components, the Company will experience delays in product shipments. RELIANCE ON FORECASTS The Company offers its products through various channels of distribution. Changes in the financial condition of, or in the Company's relationship with, its distributors could cause actual operating results to vary from those expected. Also, the Company's customers generally order products on an as-needed basis. Therefore, virtually all product shipments in a given fiscal quarter result from orders received in that quarter. The Company anticipates that the rate of new orders will vary significantly from month to month. The Company's manufacturing 14 plans and expenditure levels are based primarily on sales forecasts. Consequently, if anticipated sales and shipments in any quarter do not occur when expected, expenditure and inventory levels could be disproportionately high and the Company's operating results for that quarter, and potentially future quarters, would be adversely affected. FACTORS THAT COULD AFFECT STOCK PRICE The market price of TeleVideo's common stock could be subject to fluctuations in response to quarter to quarter variations in operating results, changes in analysts' earnings estimates, market conditions in the computer technology industry, as well as general economic conditions and other factors external to the Company. FOREIGN CURRENCY AND POLITICAL RISK The Company markets its products worldwide. In addition, a large portion of the Company's part and component manufacturing, along with key suppliers, are located outside the United States. Accordingly, the Company's future results could be adversely affected by a variety of factors, including without limitation, fluctuation in foreign currency exchange rates, changes in a specific country's or region's political or economic conditions, trade protection measures, import or export licensing requirements, unexpected changes in regulatory requirements and natural disasters. (Remainder of this page was intentionally left blank) ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company believes that its exposure to market risk for changes in interest rates is not significant because the Company's investments are limited to highly liquid instruments with maturities of three months or less. At October 31, 1999, the Company has approximately $4.5 million of short-term investments classified as cash and equivalents. All of the Company's transactions with international customers and suppliers are denominated in US dollars. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE NO. IN 10-K --------- Report of Independent Certified Public Accountants.................. 16 Consolidated Balance Sheets - October 31, 1999 and 1998................................................................ 17 Consolidated Statements of Operations for the Years Ended October 31, 1999, 1998 and 1997..................................... 18 Consolidated Statement of Stockholders' Equity for the Years Ended October 31, 1999, 1998 and 1997..................................... 19 Consolidated Statements of Cash Flows for the Years Ended October 31, 1999, 1998 and 1997..................................... 20 Notes to Consolidated Financial Statements ......................... 21
(Remainder of page left blank intentionally) 15 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors TeleVideo, Inc. We have audited the accompanying consolidated balance sheets of TeleVideo, Inc. and Subsidiaries as of October 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended October 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TeleVideo, Inc. and Subsidiaries as of October 31, 1999 and 1998, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended October 31, 1999, in conformity with generally accepted accounting principles. /s/ GRANT THORNTON LLP - ----------------------- Grant Thornton LLP San Jose, California December 10, 1999 16 TELEVIDEO, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
October 31, ---------------------------- ASSETS 1999 1998 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents (including restricted cash of $1,000 in 1999 and 1998) $ 4,487 $ 1,640 Accounts receivable, less allowance of $1,383 in 1999 and $1,352 in 1998 1,523 2,420 Inventories 1,464 2,275 Prepayments and other 987 420 Notes receivable - current 67 0 ----------- ----------- Total current assets 8,528 6,755 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT: Land 0 890 Building 0 1,035 Production equipment 624 530 Office furniture and equipment 1,152 1,146 Building improvements 0 1,105 Leased property under capital lease 6,270 0 ----------- ----------- 8,046 4,706 Less accumulated depreciation and amortization 2,010 2,138 ----------- ----------- Property, plant and equipment, net 6,036 2,568 INVESTMENTS IN AFFILIATES 1,117 1,110 NOTE RECEIVABLE, LESS CURRENT PORTION 2,636 0 ----------- ----------- Total assets $ 18,317 $ 10,433 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Obligation under capital lease - current $ 270 $ 0 Accounts payable 964 541 Notes payable 0 2,500 Accrued liabilities 1,160 820 Income taxes - 361 Deferred gain on sale of land and building - current 538 0 ----------- ----------- Total current liabilities 2,932 4,222 ----------- ----------- Obligation under capital lease, less current portion 5,812 0 Deferred gain on sale of land and building, less current portion 7,069 0 ----------- ----------- Total liabilities 15,813 4,222 ----------- ----------- ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value; Authorized--75,000,000 shares Outstanding--11,271,085 shares at October 31, 1999 and 1998, respectively (net of 120,000 treasury shares) 453 453 Additional paid-in capital 95,703 95,703 Accumulated deficit (93,652) (89,945) ----------- ----------- Total stockholders' equity 2,504 6,211 ----------- ----------- Total liabilities and stockholders' equity $ 18,317 $ 10,433 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 17 TELEVIDEO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended October 31, ------------------------------------ 1999 1998 1997 -------- -------- -------- NET SALES $ 8,070 $ 14,751 $ 19,884 COST OF SALES 8,082 13,381 17,785 -------- -------- -------- GROSS PROFIT (LOSS) (12) 1,370 2,099 OPERATING EXPENSES: Sales and marketing 2,183 2,438 2,995 Research and development 598 370 762 General and administrative 1,777 3,289 1,457 -------- -------- -------- Total operating expenses 4,558 6,097 5,214 -------- -------- -------- Loss from operations (4,570) (4,727) (3,115) EQUITY IN GAIN/(LOSS) OF AFFILIATES 7 (4,077) (888) INTEREST AND OTHER INCOME (EXPENSE), net 495 (77) 559 -------- -------- -------- Loss before income taxes $ (4,068) $ (8,881) $ (3,444) Benefit for income taxes 361 -- -- Net Loss $ (3,707) $ (8,881) $ (3,444) -------- -------- -------- -------- -------- -------- Net loss per share, Basic and diluted $ (0.33) $ (0.79) $ (0.31) -------- -------- -------- -------- -------- -------- Shares used in computing basic and diluted net loss per share 11,271 11,268 11,255 -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements. 18 TELEVIDEO, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS) THREE YEARS ENDED OCTOBER 31, 1999, OCTOBER 31, 1998, OCTOBER 31, 1997
Common Stock Additional Total ------------------- Paid in Accumulated Srockkholders' Shares Amount Capital Deficit Equity -------- -------- ---------- - ------------ ------------- Balance - October 31, 1996 11,230 $ 449 $95,639 $ (77,620) $ 18,468 Exercise of employee stock options 25 1 37 - 38 Net loss - - - (3,444) (3,444) -------- -------- -------- --------- -------- Balance - October 31, 1997 11,255 450 95,676 (81,064) 15,062 Exercise of employee stock options 16 3 27 - 30 Net loss - - - (8,881) (8,881) -------- -------- -------- ---------- -------- Balance - October 31, 1998 11,271 453 95,703 (89,945) 6,211 Net loss - - - (3,707) (3,707) -------- -------- -------- ---------- -------- Balance - October 31, 1999 11,271 $453 $95,703 $(93,652) $ 2,504 -------- -------- -------- ---------- -------- -------- -------- -------- ---------- --------
The accompanying notes are an integral part of this financial statement. 19 TELEVIDEO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Year Ended October 31, ------------------------------ 1999 1998 1997 ------ ------ ------- INCREASE (DECREASE) IN CASH: CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $(3,707) $(8,881) $(3,444) Charges (credits) to operations not affecting cash: Provision for bad debts on receivables 572 2,300 293 Amortization of deferred gain (470) - - Provision for excess and obsolete inventories 680 123 (379) Net loss on sales of property and investment - - 12 Loss on investment in unconsolidated affiliates - 4,077 888 Depreciation and amortization 370 204 362 Income tax settlement - - (250) Changes in operating assets and liabilities: Accounts receivable 323 564 (697) Inventories 131 524 3,290 Prepayments and other (567) (200) (159) Accounts payable 423 (998) (1,540) Accrued liabilities 342 90 (126) Income taxes (361) - - ------- ------- ------- Net cash used in operating activities (2,264) (2,197) (1,750) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sale of land and building 7,859 - - Additions to property, plant and equipment (100) (12) (55) Loans to affiliate and other (7) (1,700) (2,300) Increase in investments in affiliates 0 (1,000) (3,225) Payments received on notes receivable from affiliate and other 47 415 6,400 ------- ------- ------- Net cash provided by (used in) investing activities 7,799 (2,297) 820 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 0 30 38 Proceeds from note payable - affiliate 0 500 - Proceeds from note payable - other 0 2,000 - Payments on notes payable and lease obligations (2,688) 0 - ------- ------- ------- Net cash (used in) provided by financing activities (2,688) 2,530 38 ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,847 (1,964) (892) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 1,640 3,604 4,496 ------- ------- ------- CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 4,487 $ 1,640 $ 3,604 ------- ------- ------- ------- ------- ------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Income taxes - $ - $ - Interest $ 444 $ 98 $ -
The accompanying notes are an integral part of these financial statements. 20 TELEVIDEO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1999, 1998 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and certain of its majority owned subsidiaries, after elimination of inter-company accounts and transactions. INVESTMENTS IN AFFILIATES All of the Company's unconsolidated affiliates are accounted for using either the equity or the cost method. REVENUE RECOGNITION The Company recognizes revenue when products are shipped. The Company performs periodic evaluations of its customers' financial condition and maintains a reserve for potential credit losses and adjusts the reserve periodically to reflect both actual and potential credit losses. Product warranties are based on the ongoing assessment of actual warranty expenses incurred. BASIC AND DILUTED NET LOSS PER SHARE The Company adopted SFAS No. 128 "Earnings per Share" during the year ended October 31, 1998. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of the incremental common shares issuable upon conversion of convertible securities (using the if-converted method) and shares issuable upon the exercise of stock options and warrants (using the treasury stock method). Common equivalent shares are excluded from the computation if their effect is anti-dilutive. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. Actual results could differ from those estimates. ADVERTISING COSTS 21 Advertising costs are expensed as incurred. Advertising expense totaled approximately $0.7 million in fiscal 1999, approximately $1.1 million in fiscal 1998 and $1.3 million in fiscal 1997. RESEARCH AND DEVELOPMENT COSTS Costs incurred for the development and enhancement of new products and services are charged to expense as incurred. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of cash and cash equivalents, accounts receivable, trade payables and notes payable approximates carrying value due to the short term nature of such instruments. INVENTORIES Inventories are stated at the lower of cost or market. Cost is computed on a currently adjusted standard basis (which approximates average cost) for both finished goods and work-in-process and includes material, labor and manufacturing overhead costs. Amounts shown are net of reserves for obsolescence of $1.0 million and $0.6 million as of October 31, 1999 and 1998, respectively (in thousands):
October 31, ------------------- 1999 1998 ------ ------ Purchased parts and subassemblies $ 216 $1,196 Work-in-process 313 91 Finished goods 935 988 ------ ------ $1,464 $2,275 ------ ------ ------ ------
PROPERTY, PLANT AND EQUIPMENT, INCLUDING LEASED PROPERTY Depreciation and amortization are provided over the estimated useful lives of the assets using both straight-line and accelerated methods. Building 40 years Production equipment 1-10 years Office furniture 1-10 years Leased property 15 years RECLASSIFICATIONS Certain reclassifications have been made to conform to the 1999 presentation, including changes which effect comparability of the annual financial information to previously filed quarterly information. None of such reclassifications are material to the financial statements taken as a whole. 22 2. ACQUISITIONS AND DIVESTITURES MYSIMON, INC. In September 1998, the Company invested $1 million in the online comparison shopping Internet company, mySimon, Inc., receiving convertible preferred stock. Televideo's investment in mySimon currently represents an ownership interest of between 3% and 4%. The investment has been accounted for on the cost method. mySimon, Inc. uses proprietary intelligent agent technology called Virtual Learning Agent (VLA) to assist online shoppers by searching the Internet to find the best prices on products from among thousands of online merchants. KORAM, INC. On March 3, 1997, the Company deposited $224,820 in escrow in Korea, which amount is to be used to purchase a 50% ownership in a restaurant venture in Seoul, Korea. In February 1998, the Company completed its purchase of a 50% interest in Koram, Inc. The Company's investment has been written down to $109,820 due to the devaluation of the Korean won. This investment is accounted for under the equity method of accounting. APPLIED PHOTONICS TECHNOLOGY, INC. On April 16, 1997, the Company entered into a Common Stock Purchase agreement with Applied Photonics Technology, Inc. (APT), a California corporation, whereby the Company purchased a 30% interest in APT for $3.0 million. Founded in October 1996, APT is a developmental stage enterprise specializing in the development of electronics display technology. The anticipated markets for APT's outdoor media display system include the billboard and illuminated sign markets, sports stadiums and arenas, transportation terminals, volume retailers and malls, and safety/public information displays. The Company accounts for its investment in APT using the equity method of accounting. During the fiscal year ended October 31, 1998, the Company wrote off its equity investment, related goodwill, and note receivable of approximately $4.1 million. In December 1998, the Company loaned APT $176,000. In September 1999, the Company loaned APT $125,000. The $125,000 note bears interest at the rate of 6% per annum and was due on December 1, 1999. As of January 19, 2000, the Company has not yet received payment on the note, nor has APT received financing. In September 1999, the Company entered into a consulting agreement with APT in which APT agreed to undertake two engineering development projects for the Company. The Company made an advance payment of $125,000 under the Agreement, which is the entire amount of the Company's obligation. The Company has written off the $426,000 in loans and advances to APT as of October 31, 1999. The Company has not guaranteed any obligations of APT and has made no commitments to provide additional financial support to APT. 23 3. LETTER OF CREDIT AGREEMENT The Company has one letter of credit agreement with the bank whereby the bank will issue up to a total of $1.0 million of standby and sight letters of credit. These agreements are contingent upon the Company maintaining time deposits (CD's) at the bank as collateral in a total amount no less than the outstanding borrowings. At October 31, 1999, the Company had no letters of credit outstanding. 4. RELATED PARTY TRANSACTIONS During 1999, 1998, and 1997 the Company has had transactions with its affiliates as follows (in thousands):
1999 1998 1997 --------- --------- --------- Note receivable at October 31: AdMOS (1) $ 4 $ 4 $ 4 AdMOS (1) 180 180 4 Interest receivable at October 31: AdMOS (1) 69 69 68 AdMOS (1) 94 77 60
(1) Amounts are fully reserved. The Company acquired a 20% interest in AdMOS Technologies in fiscal 1991 and the investment was written off in fiscal 1992. The Company also borrowed $500,000 from Gem Management, Inc., a company owned by the majority shareholder's spouse, on September 15, 1998. The unsecured loan bears annual interest at a prime rate with principal and interest due on demand. On February 16, 1999, the outstanding loan principal and interest was paid in full. 24 5. TRANSACTIONS WITH MAJOR CUSTOMERS The Company has entered into the following transactions with one of its major customers, Applied Computer Technology, Inc., (ACT). 1) In June 1997, the Company loaned ACT $2,300,000. Interest on the loan accrues at 2% per month. All interest income accrued on the loan is being deferred by the Company until the amounts are received. As of October 31, 1997, the loan principal balance was $900,000. Since then the loan has been paid down to $485,000, which was the loan balance at October 31, 1998 prior to the write-off discussed below. 2) At October 31, 1997, ACT had owed the Company approximately $2.1 million in trade receivables, which represented approximately 41% of net trade receivables. Subsequently, the Company agreed to exchange $900,000 of outstanding trade receivables for $900,000 of Series A convertible preferred stock of ACT. The preferred shares were convertible into common stock at the option of the holder, based on the 5 day average closing bid price of ACT common stock prior to conversion, subject to a floor of $2.50 per share and a ceiling of $4.25 per share. The conversion rate was subsequently changed. ACT had the obligation to register the shares by filing a registration statement with the Securities and Exchange Commission (SEC) and the preferred shares would have been automatically converted once the registration statement became effective. However, ACT failed to register the shares with SEC. The preferred shares were issued in December 1997. As of October 31, 1997, the Company had reflected the $900,000 as a long term receivable and had further provided a reserve of $292,500 against the $900,000 to reflect the fair value of the preferred shares ultimately issued, taking into consideration the lack of liquidity of the securities. Additionally, $864,620 was outstanding as trade receivables due from ACT at October 31, 1998. ACT has experienced a significant downturn in its business and the Company has written off a total amount of $1,957,120 as uncollectible receivables as of October 31, 1998, which includes $864,620 trade receivables, $607,500 long term note receivable and $485,000 note receivable. 6. SALE AND LEASEBACK OF BUILDING In December 1998, the Company sold its main facility (land and building) for approximately $11.0 million and concurrently leased back this facility over a 15 year lease term expiring in December 2013. The land component has been recorded as an operating leaseback. The building component has been accounted for as a capital lease, whereby a leased building asset and capital lease obligation were recorded at the fair value of approximately $6.27 million. As a result of the sale for $11.0 million (which includes a $2.75 million note receivable), a deferred gain of approximately $8.0 million was recorded. The deferred gain attributable to the land element, which approximates $3.44 million, is being amortized over the 15 year lease life on a straight line method. The deferred gain attributable to the building element, which approximates $4.56 million, is being amortized over leased building asset life, which has been determined to be the 15 year lease term, on a straight line method. The aggregate monthly lease amounts to $104,000. These payments escalate to $126,000 through 2013. Future aggregate minimum lease payments are as follows October 31, $ ---------- ----------- 2000 $ 1,231,774 2001 1,241,628 2002 1,241,628 2003 1,293,358 2004 1,303,704 Thereafter 12,958,068 ----------- $19,270,160 The $2.75 million note receivable bears interest at 7.25% per annum. Principal and accrued interest is payable in equal monthly installments of $21,735 each on the first day of each month, which the Company began receiving on January 1, 1999. If not earlier paid in full, any unpaid principal and all accrued interest shall be due and payable to TeleVideo, Inc. on December 1, 2018. 25 7. CAPITAL STOCK The Company effected a 4-for-1 reverse stock split of its outstanding common stock on April 23, 1998. All shares and per share amounts have been retroactively adjusted for such reverse stock split. PREFERRED STOCK The Company has authorized 3,000,000 shares of preferred stock. No preferred stock has been issued to date. STOCK OPTION PLANS The Company has three stock option plans, the 1991 ISO Plan ("1991 ISO Plan"), the 1981 ISO Plan ("1981 ISO Plan") and the 1981 Supplemental Plan (the "Supplemental Plan") accounted for under the APB Opinion 25 and related interpretations. The 1991 ISO Plan provides for the granting of incentive options to employees, including officers, for up to 4,000,000 shares. The outstanding options have a term of ten years when issued. The exercise price of each option equals the market price of the Company's stock on the date of grant. Both the 1981 ISO Plan and the Supplemental Plan expired in October 1991 and the exercise price for options granted under those plans was re-priced at $0.22 per share in November 1991, the market price of the Company's common stock at that date. Accordingly, no compensation cost has been recognized for any of the plans. Had compensation cost for the plans been determined based on the fair value of the options at the grant dates consistent with the method of Statement of Financial Accounting Standards 123, Accounting for Stock-Based Compensation ("SFAS 123"), the Company's net loss and loss per share would have been changed to the pro forma amounts indicated below. Pro forma results for 1998 and 1997 may not be indicative of the pro forma results in the future periods because the pro forma amounts do not include pro forma compensation cost for options granted prior to November 1, 1995.
OCTOBER 31, ---------------------- 1999 1998 ------- ------- Net loss (in thousands) As reported ($3,707) ($8,881) Pro forma ($3,826) ($8,987) Loss per share, basic and diluted As reported ($0.33) ($0.79) Pro forma ($0.34) ($0.80)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for grants in 1999 and 1998 respectively: no expected dividends; weighted average risk-free interest rate of 6.00% and 6.69%; stock volatility 219% in 1999 and 164% in 1998; and expected lives of 10 years. The weighted average fair value of options granted were $0.84, $1.49 and $1.24 in 1999, 1998 and 1997, respectively. 26 A summary of the status of the Company's stock option plans as of October 31, 1999, and changes during the three years ending October 31, 1999 is presented below:
OPTIONS OUTSTANDING OCTOBER 31, 1999 OUTSTANDING EXERCISABLE --------------------------------------- --------------------------- WTD AVG. WTD AVG. WTD AVG. RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING CONT. LIFE PRICE EXERCISABLE PRICE --------------- ----------- ---------- -------- ----------- -------- 1991 ISO PLAN $0.75 - $0.84 205,500 9.42 $0.84 - - $0.88 - $1.32 61,750 5.36 $0.98 54,438 $0.99 $1.52 - $2.12 17,375 5.79 $1.72 13,562 $1.67 $2.64 - $2.88 2,875 5.56 $2.77 2,031 $2.78 ------- ---- ----- ------ ----- Totals 287,500 8.29 $1.06 70,031 $1.18 ------- ---- ----- ------ ----- ------- ---- ----- ------ ----- 1981 SUPPLEMENTAL PLAN $0.88 37,500 2.06 $ 0.88 37,500 $ 0.88 1981 ISO PLAN $0.88 250 2.06 $ 0.88 750 $ 0.88
Summary of Changes: 1981 ISO PLAN
WEIGHTED AVERAGE OUTSTANDING EXERCISE PRICE ------------ -------------- Balance, October 31, 1996 3,156 $0.88 Granted - - Exercised (844) $0.88 Canceled (1,083) $0.88 ------ Balance, October 31, 1997 1,250 $0.88 Granted - - Exercised (500) $0.88 Canceled - - ------ Balance, October 31, 1998 750 $0.88 Granted - Exercised (500) $0.88 Canceled - - -------- 27 Balance, October 31, 1999 250 $0.88 ------ ------
1981 SUPPLEMENTAL PLAN
WEIGHTED AVERAGE OUTSTANDING EXERCISE PRICE ----------- -------------- Balance, October 31, 1996 37,500 $0.88 Exercised - - Canceled - - ------ Balance, October 31, 1997 37,500 $0.88 Exercised - - Canceled - - ------ Balance, October 31, 1998 37,500 $0.88 Exercised - - Canceled - - ------ Balance, October 31, 1999 37,500 $0.88 ------ ------
1991 ISO PLAN
WEIGHTED AVERAGE AVAILABLE OUTSTANDING EXERCISE PRICE --------- ----------- -------------- Balance, October 31, 1996 575,219 332,750 $2.08 Granted (12,250) 12,250 $1.24 Exercised - (23,688) $1.58 Terminated/Canceled 110,125 (110,125) $2.20 -------- -------- Balance, October 31, 1997 673,094 211,187 $1.96 Granted (111,875) 111,875 $1.37 Exercised - (10,775) $1.64 Terminated/Canceled 128,288 (128,288) $2.43 -------- -------- Balance, October 31, 1998 688,507 184,000 $1.27 Granted (205,500) 205,500 $0.84 Exercised - - - Terminated/Canceled 102,000 (102,000) $1.37 -------- -------- Balance, October 31, 1999 585,007 287,500 -------- -------- -------- --------
28 8. INCOME TAXES At October 31, 1999, the Company had tax loss carryforwards of approximately $97 million for federal income tax and approximately $15.5 million for state income tax reporting purposes, respectively. The net operating loss carryforwards expire through fiscal 2013. The Tax Reform Act of 1986 contains provisions which may limit the net operating loss carryforwards to be used in any given year upon occurrence of certain events, including significant changes in ownership interests. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. No deferred tax asset or benefit was recorded at October 31, 1999, as all amounts have been fully reserved. The valuation allowance increased by $1,488 in fiscal 1999 and increased by $3,823 in fiscal 1998. The components are as follows (in thousands):
1999 1998 -------- -------- Net operating loss $ 36,192 $ 35,168 Other 1,350 1,328 -------- -------- 37,542 36,496 Less valuation allowance (37,542) (36,496) -------- -------- Net benefit $ - $ - -------- -------- -------- --------
The following is a reconciliation of expected tax expense (benefit) to actual for each of the years ended October 31 (in thousands):
1999 1998 1997 --------- --------- --------- Book loss $(3,707) $(8,881) $(3,444) ------- ------- ------- Expected tax benefit 1,353 3,020 1,170 ------- ------- ------- Adjustments to reconcile expected to actual benefit: Reduction of estimated tax liability 361 - - Effect of change in valuation allowance (net) (1,353) (3,020) (1,170) ------- ------- ------- Actual tax benefit $ 361 $ - $ - ------- ------- ------- ------- ------- -------
The Company had pending a California Franchise tax exposure estimate of $361,000 resulting from previous income tax audits. The Company believes that no further liability exists at October 31, 1999. This amount has been recorded as a tax benefit in the accompanying statement of operations. 29 9. CONCENTRATIONS The Company, which operates in a single industry segment, designs, produces and markets high performance terminals and monitors designed for office and home automation both domestically and internationally. The Company had export sales primarily to Europe, Asia and Latin America of approximately 19.8% ($1.6 million), 14.2% ($2.1 million) and 13.5% ($2.7 million) of net sales during fiscal 1999, 1998, and 1997, respectively. For the fiscal year ended October 31, 1999, one customer accounted for 10% of the Company's sales (Savoir, Inc.), while another customer accounted for 9%. For the fiscal year ended October 31, 1998, one customer accounted for 12% and another customer accounted for 11% of net sales. For the fiscal year ended October 31, 1997, one customer accounted for 17% and another customer accounted for 16% of net sales. Information about the Company's operations in different geographic locations is as follows:
---------------------------------------------------------------------------- United Europe Other Total (in thousands) States ---------------------------------------------------------------------------- 1999 Total revenues $ 6,503 $1,023 $ 544 $ 8,070 Operating (Loss)/income (5,024) 253 201 (4,570) Identifiable assets 18,317 0 0 18,317 1998 Total revenues $12,681 $1,685 $ 385 $14,751 Operating (Loss)/income (5,188) 354 107 (4,727) Identifiable assets 10,433 0 0 10,433 1997 30 Total revenues $17,197 $2,242 $ 445 $19,884 Operating (Loss)/income (3,657) 408 134 (3,115) Identifiable assets 17,692 0 0 17,692
10. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS In the fourth quarter of fiscal 1999, the Company wrote off $426,000 in loans and advances to APT (refer to Note 2). The Company also recorded a $353,000 expense for inventory obsolescence for certain of its computer monitors in inventory at October 31, 1999. The Company has reduced its estimated tax liability of $361,000 as any such tax exposure has been reduced to zero. 11. ACCRUED LIABILITIES Accrued liabilities consist of the following at October 31: (in thousands)
1999 1998 -------- -------- Employee compensation and benefits $ 209 $173 Warranty 169 169 Legal reserve 200 200 Accrued sales and use tax 0 1 Professional fees 77 60 Royalties 175 0 Other 330 217 ------ ---- $1,160 $820 ------ ---- ------ ----
12. VALUATION AND QUALIFYING ACCOUNTS The Company's reserves for doubtful accounts receivable and inventory obsolescence consist of the following: (in thousands)
CHARGED BALANCE AT (CREDITED) BALANCE AT BEGINNING TO COSTS & END OF OF PERIOD EXPENSE DEDUCTIONS PERIOD ---------- ---------- ---------- ---------- YEAR ENDED OCTOBER 31, 1997: Reserve for doubtful accounts $1,280 $ 293 $(530)(1) $ 1,043 Reserve for inventory obsolescence $ 663 $ 379 $(519)(2) $ 523 YEAR ENDED OCTOBER 31, 1998: Reserve for doubtful accounts $1,043 $2,300 $(1,991)(1) $ 1,352 Reserve for inventory obsolescence $ 523 $ 813 $ (690)(2) $ 646 YEAR ENDED OCTOBER 31, 1999: Reserve for doubtful accounts $1,352 $ 572 $ (541)(1) $ 1,383 Reserve for inventory obsolescence $ 646 $ 680 $ (289)(2) $ 1,037
(1) Deductions represent write-offs of fully reserved receivables. (2) Reductions due to sales or scrap of fully reserved inventory. 31 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE. PART III The following items included in the Company's Definitive Proxy Statement dated February 28, 2000 used in connection with the Company's Annual Meeting of Stockholders to be held on April 18, 2000 are incorporated herein by reference:
PAGES IN PROXY STATEMENT --------------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 4 ITEM 11. EXECUTIVE COMPENSATION 8 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 3 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10
(The remainder of this page was left blank intentionally.) PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report. 1. FINANCIAL STATEMENTS. The Consolidated Financial Statements, Notes thereto and the Report of Grant Thornton LLP, Independent Public Accountants, thereon are included in Part II of this Report on Form 10-K. 2. FINANCIAL STATEMENT SCHEDULES. All schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the accompanying Consolidated Financial Statements. 3. EXHIBITS. The following exhibits have been or are being filed herewith and are numbered in accordance with Item 601 of Regulation S-K: EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------------------------------------------------------------------------------- 3.1 (1) Restated Certificate of Incorporation of Registrant, as amended and currently in effect 3.2 (2) Bylaws of the Registrant 10.1 (3) TeleVideo, Inc. 1991 Incentive Stock Option Plan and form of Incentive Stock Option Agreement 10.2 (3) TeleVideo, Inc. 1992 Outside Directors' Stock Option Plan+ 10.3 (4) Management Bonus Plan effective fiscal 1984, as amended 10.4 (2) Form of Distributor and Licensing Agreement 10.5 (2) Form of Original Equipment Manufacturer Agreement 10.6 (5) Real Estate Purchase Agreement dated December 28, 1998 and accompanying Lease and Agreement of Lease, Escrow Agreement, Pledge and Security Agreement and Assignment between the Registrant and TVCA, LLC, dated December 28, 1998 10.7 (1) Continuing Letter of Credit Agreement with Comerica Bank 21.1 (1) Subsidiaries 23.1 (1) Consent of Grant Thornton LLP 27.1 (1) Financial Data Schedule + Denotes a management contract or compensatory plan or arrangement. - --------------- (1) Filed herewith. (2) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1987, filed on January 29, 1988. (3) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1991, filed January 27, 1992. (4) Incorporated by reference from the Registrant's Annual Report on Form 10-K, filed January 29, 1985 and Annual Report on Form 10-K, filed January 28, 1986. (5) Incorporated by reference from the Registrant's Current Report on Form 8-K, filed on January 2, 1999. 32 (b) Reports on Form 8-K. No report on Form 8-K was filed by the Company with respect to the quarter ended October 31, 1999. 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. TELEVIDEO, INC. ----------------------------------- (Registrant) Date: January 31, 2000 By: /s/ K. Philip Hwang ----------------------------------- K. Philip Hwang Chairman of the Board and Chief Executive Officer 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 on the dates indicated.
Signature Title Date - --------------------------- ----------------------------- ---------- /s/ K. Philip Hwang Chairman of the Board and January 31, 2000 - --------------------------- Chief Executive Officer K. Philip Hwang (Principal Executive Officer) /s/ James D. Wheat Chief Financial Officer January 31, 2000 - -------------------------- (Principal Financial and James D. Wheat Accounting Officer) /s/ Robert E. Larson Director January 31, 2000 - ------------------------------ Robert E. Larson /s/ Woo K. Kim Director January 31, 2000 - ------------------------------ Woo K. Kim
33 EX-3.1 2 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF TELEVIDEO SYSTEMS, INC. TeleVideo Systems, Inc. a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is TeleVideo Systems, Inc., and the date of filing of its original certificate of incorporation with the Secretary of State was January 13, 1987. 2. The text of the Certificate of Incorporation is hereby amended and restated to read in full as follows: ARTICLE 1 The name of the Corporation is TeleVideo Systems, Inc. ARTICLE 2 The address of the registered office of the Corporation in the State of Delaware is 1219 Orange Street, in the city of Wilmington, County of New Castle. The name of its registered agent at that address is The Corporation Trust Company. ARTICLE 3 The purpose of the Corporation is to engage in any lawful act or activity for which the corporations may be organized under the General Corporation Law of Delaware. ARTICLE 4 The total number of shares of stock of all classes which the Corporation has authority to issue is 78,000,000 shares, consisting of 75,000,000 shares of common stock with a par value of $0.01 per share, and 3,00,000 shares of Preferred Stock with a par value of $0.01 per share. The Board of Directors is authorized to provide for the issuance of the shares of the Preferred Stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding). ARTICLE 5 Stockholders of the Corporation holding a majority of the Corporation's outstanding voting stock shall have the power to adopt, amend or repeal Bylaws. The Board of Directors of the Corporation shall also have the power to adopt, amend or repeal Bylaws of the Corporation, except as such power may be expressly limited by Bylaws adopted by the shareholders. ARTICLE 6 Election of Directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE 7 A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of the foregoing provisions of this Article 7 shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification. 3. This Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, TeleVideo Systems, Inc., has caused this certificate to be signed and attested by its duly authorized officers this 21 day of January, 1987. TELEVIDEO SYSTEMS, INC. By: /s/ K. Philip Hwang --------------------------- K. Philip Hwang Chairman of the Board Attest: By: /s/ Allan D. Smirni ------------------------------- Allan D. Smirni Secretary -2- CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION TeleVideo, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware: DOES HEREBY CERTIFY: FIRST: That by unanimous written consent of the Board of Directors, resolutions were duly adopted setting forth a proposed amendment of the Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and declaring that the matter should be brought before the stockholders for consideration at its next annual meeting of the stockholders or otherwise brought before the stockholders for consideration. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Restated Certificate of Incorporation of this corporation be amended by changing the first paragraph of the Article thereof numbered "4" so that, as amended, said first paragraph of such Article shall be and read as follows: "The total number of shares of stock of all classes which the Corporation has authority to issue is 78,000,000 shares, consisting of 75,000,000 shares of Common Stock with a par value of $0.01 per share, and 3,000,000 shares of Preferred Stock with a par value of $0.01 per share. Upon the amendment of this article to read as herein set forth, each four shares of Common Stock outstanding shall be combined and converted into one share of Common Stock. In lieu of fractional shares, the Company shall pay in cash the fair market value of any fractional shares based on the last sale price on the last trading day preceding the date of this amendment." SECOND: That thereafter, pursuant to resolution of its Board of Directors, the corporation's Annual Meeting of Stockholders was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said corporation has caused this certificate to be signed by K. Philip Hwang, its authorized officer, this 21st day of April, 1998, and such amendment is effective on the date of filing in the Office of the Delaware Secretary of State. /s/ K Philip Hwang ------------------------------------- K. Philip Hwang PRESIDENT AND CHIEF EXECUTIVE OFFICER Attest: /s/ Kathy K. Cleveland - ------------------------------------- Kathy K. Cleveland SECRETARY 2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION TeleVideo Systems, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware: DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors on March 24, 1997, resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and declaring that the matter should be brought before the stockholders for consideration at its next annual meeting of the stockholders. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "1" so that, as amended, said Article shall be and read as follows: "The name of the Corporation is TeleVideo, Inc." SECOND: That thereafter, pursuant to resolution of its Board of Directors, that the corporation's Annual Meeting of Stockholders was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said corporation has caused this certificate to be signed by K. Philip Hwang, its authorized officer, this 4th day of April, 1997. /s/ K. Philip Hwang -------------------------------------- K. Philip Hwang Chairman & CEO Attest: /s/ Kathy Cleveland - ------------------------------------ Kathy Cleveland Assistant Secretary EX-10.7 3 EXHIBIT 10.7 EXHIBIT 10.7 CONTINUING LETTER OF CREDIT AGREEMENT (Security Agreement) Date: Oct. 25, 1999 ----------------- TO: COMERICA BANK-CALIFORNIA International Banking Department 333 W. Santa Clara Street San Jose, California 95113 Gentlemen: In consideration of your issuance of letters of credit at your option from time to time substantially in accordance with our applications therefor, as the same may be amended with our agreement or consent, we hereby agree that, except as you and we shall otherwise specifically agree in writing in each instance, the Terms and Conditions hereinafter set forth shall apply to each such application and to each letter of credit issued pursuant to such application. TELEVIDEO, INC. - -------------------------------------------------------------- (Applicant) 2345 HARRIS WAY - -------------------------------------------------------------- (Address) SAN JOSE, CA 95131 - -------------------------------------------------------------- /s/ [ILLEGIBLE], CEO & CHAIRMAN - -------------------------------------------------------------- (Authorized Signature) (Title) PLEASE SIGN OFFICIALLY TERMS AND CONDITIONS In these provisions: (1) The "Applicant" means the party or parties identified as such on page 1. (2) "Application" means each application by the Applicant for a letter of credit from the Bank, as such application may be amended or modified from time to time in accordance with the provisions hereof or with the written agreement or consent of the Applicant. (3) The "Bank" means Comerica Bank-California. (4) An "instrument" means any draft, receipt, acceptance or cable or written demand for payment. (5) "Property" means goods and merchandise and any and all documents relative thereto, securities, funds, choses in action, and any and all other forms of property, whether real, personal or mixed and any right or interest therein. (6) "Uniform Customs and Practice" means the Uniform Customs and Practice for Documentary Credits approved by the International Chamber of Commerce and in effect and adhered to by the Bank as of the date of issuance of the Credit. In consideration of the issuance by the Bank, upon application by the Applicant from time to time, at the Bank's option, of one or more letters of credit (each such letter of credit as from time to time amended or modified with the consent of the Applicant being hereinafter referred to as the "Credit"), the Applicant hereby agrees with the Bank as follows with respect to each Credit: 1. The Applicant will reimburse the Bank at its principal office, in cash, the amount required to pay each instrument, such reimbursement to be made on demand in the case of each sight draft or receipt, with interest from the date of payment of the instrument to the date of reimbursement. If the instrument is in foreign currency, such reimbursement shall be in United States currency at the Bank's selling rate for cable transfers to the place of payment of the instrument current on the date of reimbursement or of the Bank's settlement of its obligation, as the Bank may require. If, for any cause, on the date of reimbursement or settlement there is no rate of exchange generally available for effecting such cable transfers, the Applicant will reimburse the Bank on demand in an amount in United States currency equivalent to the Bank's actual cost of settlement of its obligation as the Bank shall make such settlement, with interest from the date of settlement to the date of reimbursement. The Applicant will comply with all governmental exchange regulations now or hereafter applicable to the Credit or instruments or payments related thereto and will pay the Bank, on demand, in United States currency, such amount as the Bank may be required to expend on account of such regulations. Upon the occurrence of an event of default the Applicant shall pay the Bank in cash an amount sufficient to pay all monies that are or will be due to be paid at any time by the Bank or its correspondents to meet disbursements of any kind made or they may be required to be made pursuant to the Letter of Credit regardless of whether the beneficiary under the Letter of Credit has requested payment or whether those obligations have matured or remain contingent. 2. The Applicant will pay the Bank such commission as has been agreed to, the reasonable fees and expenses of the Bank in connection with the Credit according to the Bank's standard practice, as in effect from time to time, and interest on the amount paid by the Bank and. not reimbursed as provided in paragraph 1 hereof including all charges and expenses paid or in-curred by the Bank in connection therewith, at the rate of three (3%) percent above the Bank's base rate; and effect shall be given to any change in the interest rate resulting from a change in the base rate on the date of such change in the base rate. The "base rate" shall mean the rate of interest established by the Bank from time to time as its base rate, which may not necessarily be the lowest interest rate charged by the Bank to its borrowers. Interest shall be computed on the basis of the actual number of days elapsed, but computed as if each year consisted of three hundred sixty (360) days. However, if the actual amount of interest charged for and collected shall ever exceed the maximum amount permitted by applicable law, interest shall be calculated on a per diem basis of a year of 365 or 366 days, as the case may be. The Bank is authorized to charge Applicant's deposit account for all required payments. 3. Upon any transfer, sale, delivery, surrender or endorsement of any bill of lading, warehouse receipt or other document at any time(s) held by the Bank, or held for its account by any of its correspondents, relative to the Credit, the Applicant will indemnify and hold the Bank, and any such correspondent(s) harmless from and against each and every claim, demand, action or suit which may arise against the Bank, or any such correspondent(s), by reason thereof. 4. The Applicant agrees to indemnify and hold the Bank and its correspondents harmless from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which the Bank or its correspondents may incur (or which may be claimed against the Bank or its correspondents by any person) by reason of, or in connection with, the execution and delivery or transfer of, or payment or failure to pay under, the Credit, or by reason of, or in connection with, any other matters arising under this Application, or any of the transactions contemplated hereby; provided, however, the Applicant shall not be required to indemnify the Bank or its correspondents for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by such party's willful and wrongful misconduct or gross negligence. 5. The Applicant will pay on demand all reasonable costs and expenses (including without limitation, reasonable attorneys' fees and legal expenses) incurred by the Bank in connection with the enforcement of this Agreement and such other documents which may be delivered in connection with this Agreement or any Application or any action or proceeding relating to a court order, injunction or other process or decree restraining or seeking to restrain the Bank from paying any amount under the Credit. 6. These Terms and Conditions and the Credit shall be subject to the Uniform Customs and Practice (a copy of which is available upon request), and, in the event any provision of the Uniform Customs and Practice is or is construed to vary from or be in conflict with any provision of the California Uniform Commercial Code, as from time to time amended and in force (the "Commercial Code"), the Uniform Customs and Practice shall prevail. In addition to other rights of the Bank hereunder or under application for the Credit, any action, inaction or omission taken or suffered by the Bank, or by any of its correspondents, under or in connection with the Credit or the relative instruments, documents, or property, if in good faith and in conformity with such foreign or domestic laws, regulations, or customs as the Bank or any of its correspondents. may deem to be applicable thereto, shall be binding upon the Applicant and shall not place the Bank or any of its correspondents under any liability to the Applicant. 7. Except insofar as instructions may be given by the Applicant in writing or by a Request (as defined in paragraph 8 below) expressly to the contrary with regard to, and prior to, the Bank's issuance of the Credit: (a) although shipment(s) in excess of the quantity called for under the Credit are made, the Bank may honor the relative instrument(s) in an amount or amounts not exceeding the amount of the Credit, and (b) the Bank may, but shall not be required to, honor, as complying with the terms of the Credit and of the application therefor, any instruments or other documents otherwise in order signed or issued by an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver or other legal representative of the party authorized under the Credit to draw or issue such instruments or other documents. 8. The Applicant authorizes the Bank to honor the Applicant's orders to issue, amend or pay the Credit for the Applicant's account and risk upon a request communicated to the Bank by telegram, telex, computer, facsimile transmission,, or other electronic means (a "Request") subject to the following: (a) a Request shall be made only by those persons authorized by the Applicant in accordance with the Bank's established requirements and the Bank shall not be obligated to identify such persons so authorized beyond the use of the authorized name or code identification if any is established; (b) all Requests will be confirmed by the Bank in writing by sending to the Applicant a copy of the documents authorized or requested by the Applicant and the Applicant agrees promptly to examine such documents and to report any discrepancies promptly upon receipt of such continuation; (c) if delinquent Requests are to be made, the Bank may, but shall not be obligated to, assign a unique code number or word and require that such code be used by the Applicant (and if such a code number or word is established, all further Requests shall refer to such code); (d) the Bank shall not be liable for any loss that the Applicant may incur as a result of the Bank's compliance with a Request in accordance with this Application even if unauthorized, provided that the Bank acted in good faith, and the Applicant indemnifies the Bank and holds the Bank harmless for any such losses; (e) the Bank will not be liable for any delays in honoring any Request, nor for any delays caused by others to whom the Bank may transmit such Request either at the Applicant's direction or otherwise and the Bank will not be required to honor Requests on the day on which Requests are received unless the Bank has agreed to do so and the Applicant has caused such Request to be received before the time the Bank has specified to honor such Request; (f) the Bank shall not be obligated to honor any Requests provided that the Bank has notified the Applicant by telephonic or other prompt means (g) all Requests shall be subject to the terms of this Agreement and any other written or electronic agreement entered into with the Bank by the Applicant in connection with any transaction relating to such Request. Bank may record any Request made by telephone and any other telephonic communications between the Applicant and the Bank regarding the Credit. 9. Applicant agrees that the user(s) of the Credit shall be deemed agents of the Applicant and neither the Bank nor its correspondents shall be responsible for: (a) the use which may be made of the Credit or for any acts or omissions of the user(s) of the Credit; (b) the time, place, manner or order in which shipment is made; (c) partial or incomplete shipment, or failure or. omission to ship any or all of the property referred to in the Credit; (d) losses resulting from the Credit providing that a complete set of shipping documents including one original bill of lading be forwarded by the beneficiary directly to Applicant or its customs brokers; (e) the solvency, responsibility or relationship to the property of any party issuing any documents in connection with the property; (f) delay in arrival or failure to arrive of either the property or any of the documents relating thereto; (g) delay in giving or failure to give notice of arrival or any other notice; (h) any breach of contract between the shipper(s) or vendor(s) and the consignee(s) or buyer(s); (i) failure of any instrument to bear any reference or adequate reference to the Credit, or failure of documents to accompany any instrument at negotiation, or failure of any person to note the amount of any instrument on the reverse of the Credit, or to surrender or take up the Credit or to send forward documents apart from instruments as required by the terms of the Credit, each of which provisions, if contained in the Credit itself, it is agreed may be waived by the Bank; (j) the validity, sufficiency or genuineness of documents, or of any endorsements thereof, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (k) payment by the Bank made against presentation of documents which substantially comply with the terms of the Credit; or (l) any other circumstances whatsoever in making or failing to make payment under the Credit. In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to be in order, without responsibility for timber investigation, regardless of any notice or information to the contrary. The Bank shall not be responsible for any act, error, neglect or default, omission, insolvency or failure in business of any of its correspondents. The occurrence of any one or more of the contingencies referred to in this paragraph shall not affect, impair or prevent the vesting of any of the Bank's rights or powers hereunder or the Applicant's obligation to make reimbursement. The Applicant will promptly examine (i) the copy of the Credit (and of any amendments thereof) sent to it by the Bank and (ii) all documents and instruments delivered to it from time to time by the Bank, and, in the event of any claim of noncompliance with Applicant's instructions or other irregularity, will immediately notify the Bank thereof in writing, the Applicant being conclusively deemed to have waived any such claim against the Bank and its correspondents unless such notice is given as aforesaid. 10. The Applicant will promptly procure any necessary import, export or other licenses for the import, export or shipping of the property shipped under or pursuant to or in connection with the Credit, and comply with all foreign and domestic governmental regulations in regard to the shipment of inch property or the financing thereof; and furnish such certificates in that respect as the Bank may at any time require, and keep such property adequately covered by insurance in amounts, against risks and in companies satisfactory to the Bank, and assign the policies or certificates of insurance to the Bank, or make the loss or adjustment, if any, payable to the Bank, at its option, and furnish the Bank, on its demand, with evidence of acceptance by the insurers of such assignment. Should the insurance upon such property for any reason be unsatisfactory to the Bank, the Bank may, at the Applicant's expense, obtain insurance satisfactory to the Bank. 11. As security for the payment or performance of any and all of the Applicant's obligations and/or liabilities hereunder, absolute or contingent, and also for the payment or performance of any and all other obligations and/or liabilities, absolute or contingent, due or to become due, which are now, or may at any time(s) hereafter be owing by the Applicant to the Bank, or which are now or hereafter existing, the Applicant hereby assigns, pledges, and grants the Bank a security interest and lien upon, and the right of possession and disposal to the following property (the "Collateral"): (a) where applicable, any and all shipping documents, warehouse receipts, policies or certificates of insurance or other documents or instruments accompanying or related to drafts drawn under the Credit and in and to all property shipped, stored or otherwise disposed of under or pursuant to or in connection with the Credit, or in any way relating thereto or to any of the drafts drawn thereunder (whether or not such documents, goods, or other property be released to Bank or upon Bank's order and whether or not any such release shall be on trust or bailee's receipt), and in and to the proceeds of each and all of the foregoing; (b) all Applicant's rights and causes of action against all parties arising from or in connection with the contract, sale or purchase of any Collateral covered by the Credit, or any guarantees, agreements or other undertaking (including those in effect between Applicant and any account party named in the Credit), credits, policies of insurance or other assurances in connection therewith; and (c) all property rights, choses in action, claims and demands of every kind now or thereafter belonging to Applicant and which may now or hereafter be in the posses-sion, custody or control of, or in transit to or set apart for Bank, Bank's agents, or correspondents for any purpose. Further, Applicant agrees at any time and from time to time, on demand, to deliver, convey, transfer or assign to the Bank additional security of a value and character satisfactory to the Bank, or to make such payment as the Bank may require. The Applicant execute, deliver and file such financing statements and other documents as may be requested by Bank from time to time to create, perfect and preserve the security interest created hereby; and the right is granted Bank, to be exercised at its option, to file from time to time financing statements signed by Bank alone and naming Bank as the secured party and the Applicant as the debtor, and indicating the types, or describing the items, of collateral covered hereby, all at the expense of the Applicant. 12. Upon the failure of the Applicant at any time to keep a margin of security with the Bank satisfactory to the Bank; or upon the death of any Applicant; or if any of the obligations and/or liabilities of the Applicant to the Bank shall not be paid or performed when due; or if there is a breach in any warranty or representation herein; or if the Applicant shall become insolvent (however such insolvency may be evidenced) or commit any act of bankruptcy or insolvency, or make a general assignment for the benefit of creditors, or if the Applicant shall suspend the transaction of its usual business or be expelled or suspended from any exchange; or if an application is made by any judgment creditor of the Applicant for an order directing the Bank to pay over money or to deliver other property; or if a petition in bankruptcy shall be filed by or against the Applicant; or if a petition shall be filed by or against the Applicant or any proceeding shall be instituted by or against the Applicant for any relief under any bankruptcy or insolvency laws or any law relating to the relief of debtors, readjustment of indebtedness, reorganization, composition or extensions; or if any governmental authority, or any court at the instance of any governmental authority, shall take possession of any substantial pan of the property of the Applicant or shall assume control over the affairs or operations of the Applicant; or if a receiver shall be appointed of, or a writ of order of attachment or garnishment shall be issued or made against, any of the property or assets of the Applicant; or if the Bank shall in good faith deem itself insecure at any time; thereupon, unless the Bank shall otherwise elect, any and all obligations and liabilities of the Applicant to the Bank, whether now existing or hereafter incurred, shall. become and be due and payable forthwith without presentation, demand or notice, all of which are waived. 13. If any event described in paragraph 12 above shall have occurred and be continuing, Bank may exercise in respect to the Collateral all the rights and remedies of a secured party under the Commercial Code and any other applicable law and also may, without notice except as specified below, sell such Collateral or any part thereof in one or more parcels at public or private sale, at any of Bank's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Bank may deem commercially reasonable. The Applicant will pay to Bank on demand all costs and expenses (including without limitation, reasonable attorneys' fees and legal expenses) related or incidental to the repossession, custody, preservation, protection, preparation for sale or sale of, or collection from, or other realization upon, any such Collateral, or related or incidental to the establishment, preservation or enforcement of Bank's rights and remedies in respect of any such Collateral. 14. That if the Applicant is a banking institution, the Applicant hereby appoints the Bank its agent to issue the Credit in accordance with, and subject to, these Terms and Conditions and the Application for the Credit. 15. The Applicant submits, in any legal proceeding related to this Agreement, any Application or the Credit, to the nonexclusive jurisdiction over the person of the Applicant of any court of competent jurisdiction sitting in the State of California and agrees to a suit being brought in any such court; waives any objection that it may now have or hereafter have to the venue of such proceeding in any such court or that such proceeding was brought in an inconvenient court; agrees that service of process and any such legal proceeding may be made, and shall be conclusively deemed sufficient and adequate, by mailing of copies thereof (by registered or certified mail, if practicable) postage prepaid, or by teletransmission to the Applicant at its address set forth herein or such other address of which the Bank shall be notified in writing, in which event, service shall be deemed complete upon the filing with the court of a copy of the process mailed or sent and an affidavit attesting the mailing or sending. The Applicant agrees that nothing herein shall affect the Bank's right to affect service or process in any other manner permitted by law. 16. If any law or regulation or the interpretation or implementation thereof by any court or administrative or governmental authority charged with the administration thereof shall either: (a) impose, modify or deem applicable any reserve, capital adequacy, special deposit, limitation or similar requirement against letters of credit issued by, or assets held by, or deposits in or for the account of; the Bank, or (b) impose on the Bank any insurance premium or other condition regarding this Agreement or the Credit, and the result of any event referred to in clause (a) or (b) above shall be to increase the cost of issuing or maintaining the Credit over that which the Bank assumed in determining its fees or decrease the yield to the Bank of issuing or maintaining the, Credit, then, upon demand by the Bank, the Applicant shall immediately pay to the Bank, from time to time as specified by the Bank, additional amounts which shall be sufficient to compensate the Bank for such increased cost or decrease in yield, together with interest on each such amount from the date demanded until payment in full thereof at the rate and on the. terms set forth in paragraph 2 above. A certificate as to such increased cost or decrease in yield incurred by the Bank as a result of any event mentioned in clause (a) or (b) above, submitted by the Bank to Applicant, shall be conclusive, absent manifest error, as to the amount thereof. 17. The Bank shall not be deemed to have waived any of its rights hereunder, unless the Bank or its authorized agents shall have signed such waiver in writing. No such waiver unless expressly as stated therein, shall be effective as to any transaction which occurs subsequent to the date of such waiver, nor as to any continuance of a breach after such waiver. 18. The obligations hereof shall bind the successors and assigns of the Applicant, and all rights, benefits and privileges conferred on the Bank shall be and are extended to and conferred upon and may be enforced by its successors and assigns. If the Applicant is a partnership, the obligations hereof shall continue in force and apply, notwithstanding any change in the membership of such partnership, whether arising from the death or retirement of one or more partners or the accession of one or more new partners. If this Agreement is signed by two or more Applicants, it shall be the joint and several agreement of each Applicant. 19. Except as otherwise provided herein, any notice from the Bank to the Applicant, if mailed, shall be deemed given when mailed, postage paid, addressed to the Applicant at its address set forth herein or such other address of which the Bank shall be notified in writing. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 20. Subject to the provisions of paragraph 6 above, this Agreement and all rights, obligations and liabilities arising hereunder shall be both governed by, and construed in accordance with the law of the State of California. 21. This Agreement, any collateral documents relating to security for the Credit and any Requests constitute the entire agreement of the parties with respect to the subject matter hereof, and except as provided in paragraph 8, this Agreement may not be amended except in writing signed by both parties. 22. The Applicant acknowledges and agrees that Credits requested will not be collateral or security for any obligation secured by real property and thatCredits requested are not intended to guaranty or relate in any way to any obligation secured by real property. The Applicant further acknowledges and agrees that Credits requested will not be governed by the California antideficiency statutes (Code Civ. Proc., sections 580a, 580b, and 580d), the One-Action Rule (Code Civ. Proc., section 726) or the Security-First Rule (Code Civ. Proc., section 726), and that they will constitute a separate and independent obligation. 23. Applicant Warrants that any Request submitted hereunder and any shipment related to such request is not in violation of U.S. Treasury Foreign Assets Control or Cuban Assets Control Regulations. 24. The Applicant agrees that the Bank may provide information relating to any Request, Credit or relating to the Applicant to the Bank's parent, affiliates, subsidiaries and service providers. Security Agreement - -------------------------------------------------------------------------------- As of OCTOBER 12, 1999, for value received, the undersigned ("Debtor") grants to COMERICA BANK CALIFORNIA ("Bank"), a CALIFORNIA banking corporation, a continuing security interest in the Collateral (as defined below) to secure payment when due, whether by stated maturity, demand acceleration or otherwise, of all existing and future indebtedness ("Indebtedness" to the Bank of TELEVIDEO, INC. ("Borrower") and/or Debtor. Indebtedness includes without limit any and all obligations or liabilities of the Borrower and/or Debtor to the Bank, whether absolute or contingent, direct or indirect, voluntary or involuntary, liquidated or unliquidated, joint or several, known or unknown; any and all obligations or liabilities for which the Borrower and/or Debtor would otherwise be liable to the Bank were it not for the invalidity or unenforceability of them by reason of any bankruptcy, insolvency or other law, or for any other reason; any and all amendments, modifications, renewals and/or extensions of any of the above; all costs incurred by Bank in establishing, determining, continuing, or defending the validity or priority of its security interest, or in pursuing its rights and remedies under this Agreement or under any other agreement between Bank and Borrower and/or Debtor or in connection with any proceeding Involving Bank as s result of any financial accommodation to Borrower and/or Debtor; and all other costs of collecting Indebtedness, including, without limit attorney fees. Debtor agrees to pay Bank all such costs incurred by the Bank, immediately upon demand, and until paid all costs shall bear interest at the highest per annum rate applicable to any of the Indebtedness, but not in excess of the maximum rate permitted by law. Any reference in this Agreement to attorney fees shall be deemed a reference to reasonable fees, costs, and expenses of both in-house and outside counsel and paralegals, whether or not a suit or action is instituted and to court costs if a suit or action is instituted, and whether attorney fees or court costs are incurred at the trial court level, on appeal, in a bankruptcy, administrative or probate proceeding or otherwise. 1. Collateral shall mean all of the following property Debtor now or later owns or has an interest in, wherever located: - specific item listed below and/or on attached Schedule A, if any, is/are also included in Collateral: A CERTIFICATE OF DEPOSIT (#859750000023582) DATED SEPTEMBER 29, 1999, IN THE NAME OF TELEVIDEO, INC., IN THE CURRENT AMOUNT OF $1,000,117.80 AND ANY AND ALL SUBSEQUENT RENEWALS THEREOF. - all goods, instruments, documents, policies and certificates of insurance, deposits, money or other property (except real property which is not a fixture) which are now or later in possession of Bank, or as to which Bank now or later controls possession by documents or otherwise, and - all additions, attachments, accessions, parts, replacements, substitutions, renewals, interest, dividends, distributions, rights of any kind (including but not limited to stock splits, stock rights, voting and preferential rights), products, and proceeds of or pertaining to the above including, without limit, cash or other property which were proceeds and are recovered by a bankruptcy trustee or otherwise as a preferential transfer by Debtor. 2. Warranties, Covenants and Agreements. Debtor warrants, covenants and agrees as follows: 2.1 Debtor shall furnish to Bank, in form and at intervals as Bank may request, any information Bank may reasonably request and allow Bank to examine, inspect, and copy any of Debtor's books and records. Debtor shall, at the request of Bank, mark its records and the Collateral to clearly indicate the security interest of Bank under this Agreement. 2.2 At the time any Collateral becomes, or is represented to be, subject to a security interest in favor of Bank, Debtor shall be deemed to have warranted that (a) Debtor is the lawful owner of the Collateral and has the right and authority to subject it to a security interest granted to Bank; (b) none of the Collateral is subject to security interest other than that in favor of Bank and there are no financing statements on file, other than in favor of Bank; and (c) Debtor acquired its rights in the Collateral in the ordinary course of its business. 2.3 Debtor will keep the Collateral free at all times from all claim, liens, security interests and encumbrances other than those in favor of Bank. Debtor will not, without the prior written consent of Bank, sell, transfer or Lease, or permit to be sold, transferred or Leased, any or all of the Collateral, except where inventory is pledged as Collateral) for Inventory in the ordinary course of its business and will not return any Inventory to its supplier. Bank or its representatives may at all reasonable times inspect the Collateral and may enter upon all premises where the Collateral is kept or might be located. 2.4 Debtor will do all acts and will execute or cause to be executed all writings requested by Bank to establish, maintain and continue a perfected and first security interest of Bank in the Collateral. Debtor agrees that Bank has no obligation to acquire or perfect any Lien on or security interest in any asset(s) whether realty or personalty, to secure payment of the Indebtedness, and Debtor is not relying upon assets in which the Bank may have a lien or security interest for payment of the Indebtedness. 2.5 Debtor will pay within the time that they can be paid without interest or penalty all dues, assessments and similar charges which at any time are or may become a Lien, charge, or encumbrance upon any Collateral, except to the extent contested in good faith and bonded in a manner satisfactory to Bank. If Debtor fails to pay any of these taxes, assessments, or other charges in the time provided above, Bank has the option (but not the obligation) to do so and Debtor agrees to repay all amounts so expended by Bank immediately upon demand, together with interest at the highest lawful default rate which could be charged by Bank on any Indebtedness. 2.6 Debtor will keep the Collateral in good condition and will protect it from loss, damage, or deterioration from any cause. Debtor has and will maintain at all times (a) with respect to the Collateral, insurance under an "all risk" policy against fire and other risks customarily insured against, and (b) public liability insurance and other insurance as may be required by law or reasonably required by Bank, all of which insurance shall be in amount, form and content, and written by companies as may be satisfactory to Bank, containing a lender's loss payable endorsement acceptable to Bank. Debtor will deliver to Bank immediately upon demand evidence satisfactory to Bank that the required insurance has been procured. If Debtor fails to maintain satisfactory insurance, Bank has the option (but not the obligation) to do so and Debtor agrees to repay all amounts so expended by Bank immediately upon demand, together with interest at the highest lawful default rate which could be charged by Bank on any indebtedness. 2.7 If Accounts Receivable are pledged as Collateral under this Agreement, then on each occasion on which Debtor evidences to Bank the account balances on and the nature and extent of the Accounts Receivable, Debtor shall be deemed to have warranted that except as otherwise indicated (a) each of those Accounts Receivable is valid and enforceable without performance by Debtor of any act; (b) each of those account balances are in fact owing, (c) there are no setoffs, recoupments, credits, contra accounts, counterclaims or defenses against any of those Accounts Receivable, (d) as to any Accounts Receivable represented by a note, trade acceptance, draft or other instrument or by any chattel paper or document, the same have been endorsed and/or delivered by Debtor to Bank, (e) Debtor has not received with respect to any Account Receivable, any notice of the death of the related account debtor, nor of the dissolution, liquidation, termination of existence, insolvency, business failure, appointment of a receiver for, assignment for the benefit of creditors by, or filing of a petition in bankruptcy by or against, the account debtor, and (f) as to each Account Receivable, the account debtor is not an affiliate of Debtor, the United States of America or any department, agency or instrumentality of it, or I citizen or resident of any jurisdiction outside of the United States. Debtor will do all acts and will execute all writings requested by Bank to perform, enforce performance of, and collect all Accounts Receivable. Debtor shall neither make nor permit any modification, compromise or substitution for any Account Receivable without the prior written consent of Bank. Debtor shall, at Bank's request, arrange for verification of Accounts Receivable directly with account debtors or by other methods acceptable to Bank. 2.8 Debtor at all times shall be in strict compliance with all applicable laws, including without limit any laws, ordinances, directives, orders, statutes, or regulations an object of which is to regulate or improve health, safety, or the environment ("Environmental Laws"). 2.9 If marketable securities are pledged as Collateral under this Agreement and if at any time the outstanding principal balance of the Indebtedness exceeds N/A of the value of the Collateral, as such value is determined from time to time by Bank (herein called the "Margin Requirement"), Debtor shall immediately pay, or cause to be paid to Bank an amount sufficient to reduce the Indebtedness such that the remaining principal outstanding thereunder is equal to or less than the Margin Requirement. Bank shall apply payments made under this paragraph in payment of the Indebtedness in such order and manner of application as Bank in its sole discretion elects. In the alternative, Debtor may provide or cause to be provided to Bank additional collateral in the form of cash or other property acceptable to Bank and with a value, as determined by Bank, that when added to the Collateral will constitute compliance with the Margin Requirement. 2.10 If Bank, acting in its sole discretion, redelivers Collateral to Debtor or Debtors designee for the purpose of (a) the ultimate sale or exchange thereof; or (b) presentation, collection, renewal, or registration of transfer thereof; or (c) loading, unloading, storing, shipping, transshipping, manufacturing, processing or otherwise dealing with it preliminary to sale or exchange; such redelivery shall be in trust for the benefit of Bank and shall not constitute a release of Bank's security interest in it or in the proceeds or products of it unless Bank specifically so agrees in writing. If Debtor requests any such redelivery, Debtor will deliver with such request a duly executed financing statement in form and substance satisfactory to Bank. Any proceeds of Collateral coming into Debtor's possession as a result of any such redelivery shall be held in trust for Bank and immediately delivered to Bank for application on the Indebtedness. Bank may (in its sole discretion) deliver any or all of the Collateral to Debtor, and such delivery by Bank shall discharge Bank from all liability or responsibility for such Collateral. Bank, at its option, may require delivery of any Collateral to Bank at any time with endorsements or assignments of the Collateral as Bank may request. 2.11 At any time and without notice, Bank may, as to Collateral other than Equipment, Fixtures or Inventory, (a) cause any or all of such Collateral to be transferred to its name or to the name of its nominees; (b) receive or collect by legal proceedings or otherwise all dividends, interest, principal payments and other sums and all other distributions at any time Payable or receivable on account of such Collateral, and hold the same as Collateral, or apply the same to the Indebtedness, the runner and distribution of the application to be in the sole discretion of Bank; (c) enter into any extension, subordination, reorganization, deposit, merger or consolidation agreement or any other agreement relating to or affecting such Collateral, and deposit or surrender control of such Collateral, and accept other property in exchange for such Collateral and hold or apply the property or money so received pursuant to this Agreement. 2.12 Bank may assign any of the Indebtedness and deliver any or all of the Collateral to its assignee, who then shall have with respect to Collateral so delivered all the rights and powers of Bank under this Agreement, and after that Bank shall be fully discharged from all liability and responsibility with respect to Collateral so delivered. 2.13 Debtor delivers this Agreement based solely on Debtor's independent investigation of (or decision not to Investigate) the financial condition of Borrower and is not relying on any information furnished by Bank. Debtor assumes full responsibility for obtaining any further information concerning the Borrower's financial condition, the status of the Indebtedness or any other matter which the undersigned may deem necessary or appropriate now or later. Debtor waives any duty on the part of Bank, and agrees that Debtor is not relying upon nor expecting Bank to disclose to Debtor any fact now or later known by Bank, whether relating to the operations or condition of Borrower, the existence, liabilities or financial condition of any guarantor of the Indebtedness, the occurrence of any default with respect to the Indebtedness, or otherwise, notwithstanding any effect such fact may have upon Debtor's risk or Debtor's rights against Borrower. Debtor knowingly accepts the full range of risk encompassed in this Agreement, which risk includes without limit the possibility that Borrower may incur Indebtedness to Bank after the financial condition of Borrower, or Borrower's ability to pay debts as they mature, has deteriorated. 2.14 Debtor shall defend, indemnify and hold harmless Bank, its employees, agents, shareholders, affiliates, officers, and directors from and against any and all claims, damages, fines, expenses, liabilities or causes of action of whatever kind, including without limit consultant fees, legal expenses, and attorney fees, suffered by any of them as a direct or indirect result of any actual or asserted violation of any law, including, without limit, Environmental Laws, or of any remediation relating to any property required by any law, including without limit Environmental Laws. 3. Collection of Proceeds. 3.1 Debtor agrees to collect and enforce payment of all Collateral until Bank shall direct Debtor to the contrary. Immediately upon notice to Debtor by Bank and at all times after that, Debtor agrees to fully and promptly cooperate and assist Bank in the collection and enforcement of all Collateral and to hold in trust for Bank all Payments received in connection with Collateral and from the sale, lease or other disposition of any Collateral, all rights by way of suretyship or guaranty and all rights in the nature of a lien or security interest which Debtor now or later has regarding Collateral. Immediately upon and after such notice, Debtor agrees to (a) endorse to Bank and immediately deliver to Bank all Payments received on Collateral or from the sale, lease or other disposition of any Collateral or arising from any other rights or interests of Debtor in the Collateral, in the form received by Debtor without commingling with any other funds, and (b) immediately deliver to Bank all property in Debtor's possession or later coming into Debtor's possession through enforcement of Debtor's rights or interests in the Collateral. Debtor irrevocably authorizes Bank or any Bank employee or agent to endorse the name of Debtor upon any checks or other item which are received in payment for any Collateral, and to do any and all things necessary in order to reduce these items to money. Bank shall have no duty as to the collection or protection of Collateral or the proceeds of it, nor as to the preservation of any related rights, beyond the use of reasonable care in the custody and preservation of Collateral in the possession of Bank. Debtor agrees to take all steps necessary to preserve rights against prior parties with respect to the Collateral. Nothing in this Section 3.1 shall be deemed a consent by Bank to any sale, lease or other disposition of any Collateral. 3.2 If Accounts Receivable are pledged as Collateral, this Section 3.2 shall be applicable and Debtor agrees that immediately upon Bank request (whether or not any Event of Default exists) the indebtedness shall be on a "remittance basis" as follows: Debtor shall at its sole expense establish and maintain (and Bank, at Bank's option, may establish and maintain at Debtor's expense): (a) an United States Post Office lock box (the "Lock Box") to which Bank shall have exclusive access and control. Debtor expressly authorizes Bank, from time to time, to remove contents from the Lock Box, for disposition in accordance with this Agreement. Debtor agrees to notify all account debtors and other parties obligated to Debtor that all payments made to Debtor (other than payments by electronic funds transfer) shall be remitted, for the credit of Debtor, to the Lock Box, and Debtor shall include a like statement on all invoices; and (b) a non-Interest bearing deposit account with Bank which shall be titled at designated by Bank (the "Cash Collateral Account") to which Bank shall have exclusive access and control. Debtor agrees to notify all account debtors and other parties obligated to Debtor that all payments made to Debtor by electronic funds transfer shall be remitted to the Cash Collateral Account, and Debtor, at Bank's request, shall include a like statement on all invoices. Debtor shall execute all documents and authorizations as required by Bank to establish and maintain the Lock Box and the Cash Collateral Account. 3.3 If Accounts Receivable are pledged as Collateral, this Section 3.3 shall be applicable, and all items or amounts which are remitted to the Lock Box, to the Cash Collateral Account, or otherwise delivered by or for the benefit of Debtor to Bank on account of partial or full Payment of, or with respect to, any Collateral shall, at Bank's option, (i) be applied to the Payment of the Indebtedness, whether then due or not, in such order or at such time of application as Bank may determine in its sole discretion, or, (ii) be deposited to the Cash Collateral Account. Debtor agrees that Bank shall not be liable for any loss or damage which Debtor may suffer as a result of Bank's processing of items or its exercise of any other rights or remedies under this Agreement, including without limitation indirect, special or consequential damages, loss of revenues or profits, or any claim, demand or action by any third party arising out of or in connection with the processing of items or the exercise of any other rights or remedies under this Agreement. Debtor agrees to indemnify and hold Bank harmless from and against all such third party claims, demands or actions, and all related expenses or liabilities, including, without imitation, attorney fees. 4. Defaults, Enforcement and Application of Proceeds 4.1 Upon the occurrence of any of the following events (each an "Event of Default"), Debtor shall be in default under this Agreement: (a) Any failure to pay the indebtedness or any other indebtedness when due, or such portion of it as may be due, by acceleration or otherwise; or (b) Any failure or neglect to comply with, or breach of or default under, any tern of that Agreement, or any other agreement or commitment between Borrower, Debtor, or any guarantor of any of the indebtedness ("Guarantor") and Bank; or (c) Any warranty, representation, financial statement, or other information made, given or furnished to Bank by or on behalf of Borrower, Debtor, or any Guarantor shall be, or shall prove to have been, false or materially misleading when made, given, or furnished; or (d) Any loss, theft, substantial damage or destruction to or of any Collateral, or the issuance or filing of any attachment, levy, garnishment or the commencement of any proceeding in connection with any Collateral or of any other judicial process of, upon or in respect of Borrower, Debtor, any Guarantor, or any Collateral; or (e) Sale or other disposition by Borrower, Debtor, or any Guarantor of any substantial portion of its assets or property or voluntary suspension of the transaction of business by Borrower, Debtor, or any Guarantor, or death, dissolution, termination of existence, merger, consolidation, insolvency, business failure, or assignment for the benefit of creditors of or by Borrower, Debtor, or any Guarantor; or commencement of any proceedings under any state or federal bankruptcy or insolvency laws or laws for the relief of debtors by or against Borrower, Debtor, or any Guarantor; or the appointment of a receiver, trustee, court appointee, sequestrator or otherwise, for all or any part of the property of Borrower, Debtor, or any Guarantor; or (f) Bank deems the margin of Collateral insufficient or itself insecure, in good faith believing that the prospect of payment of the indebtedness or performance of this Agreement is impaired or shall fear deterioration, removal, or waste of Collateral. 4.2 Upon the occurrence of any Event of Default, Bank may at its discretion and without prior notice to Debtor declare any or all of the indebtedness to be immediately due and payable, and shall have and may exercise any one or more of the following rights and remedies: (a) Exercise all the rights and remedies upon default, in foreclosure and otherwise, available to secured parties under the provisions of the Uniform Commercial Code and other applicable law; (b) Institute legal proceedings to foreclose upon the lien and security interest granted by the Agreement, to recover judgment for all amounts then due and owing as indebtedness, and to collect the same out of any Collateral or the proceeds of any sale of it; (c) Institute legal proceedings for the sale, under the judgment or decree of any court of competent jurisdiction, of any or all Collateral; and/or (d) Personally or by agents, attorneys, or appointment of a receiver, enter upon any premises where Collateral may then be Located, and take Possession of all or any of it and/or render it unusable; and without being responsible for Loss or damage to such Collateral, hold, operate, sell, lease or dispose of all or any Collateral at one or more public or private sales, leasings or other disposition, at places and times and on terms and conditions as Bank may deem fit, without any previous demand or advertisement; and except as provided in this Agreement, all notice of sale, lease or other disposition and advertisement, and other notice or demand, any right or equity of redemption, and any obligation of a prospective purchaser or Lessee to inquire as to the power and authority of Bank to sell, lease, or otherwise dispose of the Collateral or as to the application by Bank of the proceeds of sale or otherwise, which would otherwise be required by, or available to Debtor under, applicable law are expressly waived by Debtor to the fullest extent permitted. At any sale pursuant to this Section 4.2, whether under the power of sale, by virtue of judicial proceedings or otherwise, it shall not be necessary for Bank or a public officer under order of a court to have present physical or constructive possession of Collateral to be sold. The recitals contained in any conveyances and receipts made and give by Bank or the public officer to any purchaser at any sales made pursuant to this Agreement shall, to the extent permitted by applicable law, conclusively establish the truth and accuracy of the matters stated (including, without limit, as to the amounts of the principal of and interest on the prerequisites to the sale shall be presumed to have been satisfied and performed. Upon any sale of any Collateral, the receipt of the officer making the sale under judicial proceedings or of Bank shall be sufficient discharge to the purchaser for the purchase money, and the purchaser shall not be obligated to see to the application of the money. Any sale of any Collateral under this Agreement shall be a perpetual bar against Debtor with respect to that Collateral. 4.3 Debtor shall at the request of Bank, notify the account debtors or Obligors of Bank's security interest in the Collateral and direct payment of it to Bank. Bank may, itself, upon the occurrence of any Event of Default so notify and direct any account debtor or obligor. 4.4 The proceeds of any sale or other disposition of Collateral authorized by this Agreement shall be applied by Bank first upon all expenses authorized by the Uniform Commercial Code and all reasonable attorney fees and legal expenses incurred by Bank; the balance of the proceeds of the sale or other disposition shall be applied in the payment of the indebtedness, first to interest, then to principal, then to remaining indebtedness and the surplus, if any, shall be paid over to Debtor or to such other person(s) at may be entitled to it under applicable law. Debtor shall remain liable for any deficiency, which it shall pay to Bank immediately upon demand. 4.5 Nothing in this Agreement is intended, nor shall it be construed, to preclude Bank from pursuing any other remedy provided by law for the collection of the indebtedness or for the recovery of any other sum to which Bank may be entitled for the breach of this Agreement by Debtor. Nothing in this Agreement shall reduce or release in any way any rights or security interests of Bank contained in any existing agreement between Borrower, Debtor, or any Guarantor and Bank. 4.6 No waiver of default or consent to any act by Debtor shall be effective unless in writing and signed by an authorized officer of Bank. No waiver of any default or forbearance on the part of Bank in enforcing any of its rights under this Agreement shall operate as a waiver of any other default or of the same default on a future occasion or of any rights. 4.7 Debtor irrevocably appoints Bank or any agent of Bank (which appointment is coupled with an interest) the true and Lawful attorney of Debtor (with full power of substitution) in the name, place and stead of, and at the expense of Debtor: (a) to demand, receive, sue for, and give receipt, or acquittances for any moneys due or to become due on any Collateral and to endorse any item representing any payment on or proceeds of the Collateral; (b) to execute and file in the name of and on behalf of Debtor all financing statements or other filings deemed necessary or desirable by Bank to evidence, perfect, or continue the security interests granted in this Agreement; and (c) to do and perform any act on behalf of Debtor permitted or required under this Agreement. 4.8 Upon the occurrence of an Event of Default, Debtor also agrees, upon request of Bank, to assemble the Collateral and make it available to Bank at any place designated by Bank which is reasonably convenient to Bank and Debtor. 5. Miscellaneous. 5.1 Until Bank is advised in writing by Debtor to the contrary, all notices, requests and demands required under this Agreement or by law shall be given to, or made upon, Debtor at the first address indicated in Section 5.15 below. 5.2 Debtor will give Bank not Less than 90 days prior written notice of all contemplated changes in Debtor's name, chief executive office Location, and/or location of any Collateral, but the giving of this notice shall not cure any Event of Default caused by this change. 5.3 Bank assumes no duty of performance or other responsibility under any contracts contained within the Collateral. 5.4 Bank has the right to sell, assign, transfer, negotiate or grant participations or any interest in, any or all of the indebtedness and any related obligations, including without limit this Agreement. In connection with the above, but without limiting its ability to make other disclosures to the full extent allowable, Bank may disclose all documents and information which Bank now or later has relating to Debtor, the Indebtedness or this Agreement, however obtained. Debtor further agrees that Bank may provide information relating to this Agreement or relating to Debtor to the Bank's parent, affiliates, subsidiaries, and service providers. 5.5 In addition to Bank's other rights, any indebtedness owing from Bank to Debtor can be set off and applied by Bank on any indebtedness at any time(s) either before or after maturity or demand without notice to anyone. 5.6 Debtor waives any right to require the Bank to: (a) proceed against any person or property; (b) give notice of the terms, time and place of any public or private sale of personal property security held from Borrower or any other person, or otherwise comply with the provisions of Section 9-504, of the Uniform Commercial Code; or (c) pursue any other remedy in the Bank's power. Debtor waives notice of acceptance of this Agreement and presentment, demand, protest, notice of protest, dishonor, notice of dishonor, notice of default, notice of intent to accelerate or demand payment of any Indebtedness, any and all other notices to which the undersigned might otherwise be entitled, and diligence in collecting any Indebtedness, and agree(s) that the Bank may, once or any number of times, modify the terms of any Indebtedness, compromise, extend, increase, accelerate, renew or forbear to enforce payment of any or all Indebtedness, or permit Borrower to incur additional Indebtedness, all without notice to Debtor and without affecting in any manner the unconditional obligation of Debtor under this Agreement. Debtor unconditionally and irrevocably waives each and every defense and setoff of any nature which, under principles of guaranty or otherwise, would operate to impair or diminish in any way the obligation of Debtor under this Agreement, and acknowledges that such waiver is by this reference incorporated into each security agreement, collateral assignment, pledge and/or other document from Debtor now or later securing the Indebtedness, and acknowledges that as of the date of this Agreement no such defense or setoff exists. 5.7 Debtor waives any and all rights (whether by subrogation, indemnity, reimbursement, or otherwise) to recover from Borrower any amounts paid or the value of any Collateral given by Debtor pursuant to this Agreement. 5.8 In the event that applicable law shall obligate Bank to give prior notice to Debtor of any action to be taken under this Agreement, Debtor agrees that a written notice given to Debtor at least five days before the date of the act shall be reasonable notice of the act and, specifically, reasonable notification of the time and place of any public sale or of the time after which any private sale, lease, or other dispassion it to be made, unless a shorter notice period is reasonable under the circumstances. A notice shall be deemed to be given under this Agreement when delivered to Debtor or when placed in an envelope addressed to Debtor and deposited, with Postage prepaid, in a post office or official depository under the exclusive care and custody of the United States Postal Service or delivered to an overnight courier. The mailing shall be by overnight courier, certified, or first class mail. 5.9 Notwithstanding any prior revocation, termination, surrender, or discharge of this Agreement in whole or in part, the effectiveness of this Agreement shall automatically continue or be reinstated in the event that any payment received or credit given by Bank in respect of the Indebtedness is returned, disgorged, or rescinded under any applicable law, including, without limitation, bankruptcy or insolvency laws, in which case this Agreement, shall be enforceable against Debtor as if the returned, disgorged, or rescinded payment or credit had not been received or given by Bank, and whether or not Bank relied upon this payment or credit or changed its position as a consequence of it. In the event of continuation or reinstatement of this Agreement, Debtor agrees upon demand by Bank to execute and deliver to Bank those documents which Bank determines are appropriate to further evidence (in the public records or otherwise) this continuation or reinstatement, although the failure of Debtor to do so shall not affect in any way the reinstatement or continuation. 5.10 This Agreement and all the rights and remedies of Bank under this Agreement shall inure to the benefit of Bank's successors and assigns and to any other holder who derives from Bank title to or an interest in the Indebtedness or any portion of it, and shall bind Debtor and the heirs, legal representatives, successors, and assigns of Debtor. Nothing in this Section 5.10 is deemed a consent by Bank to any assignment by Debtor. 5.11 If there is are than one Debtor, all undertakings, warranties and covenants made by Debtor and all rights, powers and authorities given to or conferred upon Bank are made or given jointly and severally. 5.12 Except as otherwise provided in this Agreement, all terms in this Agreement have the meanings assigned to them in Division 9 (or, absent definition in Division 9, in any other Division) of the Uniform commercial Code, as of the date of this Agreement. "Uniform Commercial Code" means the California Uniform Commercial Code, as amended. 5.13 No single or partial exercise, or delay in the exercise, of any right or power under this Agreement, shall preclude other or further exercise of the rights and powers under this Agreement. The unenforceability of any provision of this Agreement shall not affect the enforceability of the reminder of this Agreement. This Agreement constitutes the entire agreement of Debtor and Bank with respect to the subject matter of this Agreement. No amendment or modification of this Agreement shall be effective unless the same shall be in writing and signed by Debtor and an authorized officer of Bank. This Agreement shall be governed by and construed in accordance with the internal laws of the State of CALIFORNIA, without regard to conflict of Lets principles. 5.14 To the extent that any of the Indebtedness is payable upon demand, nothing contained in this Agreement shall modify the terms and conditions of that Indebtedness nor shall anything contained in this Agreement prevent Bank from making demand, without notice and with or without reason, for immediate payment of any or all of that Indebtedness at any time(s), whether or not an Event of Default has occurred. 5.15 Debtor's chief executive office is Located and shall be maintained at 2345 Harris Way --------------- STREET ADDRESS San Jose Ca 95131 --------------------------------------------------------------------. CITY STATE ZIP CODE COUNTY If Collateral is located at other than the chief executive office, such Collateral is located all shall be maintained at --------------------------------------------------------------------. STREET ADDRESS --------------------------------------------------------------------. CITY STATE ZIP CODE COUNTY Collateral shall be maintained only at the Locations identified in this Section 5.15. 5.16 A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement under the Uniform Commercial Code and may be filed by Bank in any filing office. 5.17 This Agreement shall be terminated only by the filing of a termination statement in accordance with the applicable provisions of the Uniform Commercial Code, but the obligations contained in Section 2.14 of this Agreement shall survive termination. 6. DEBTOR AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS. 7. Special Provisions Applicable to this Agreement. (*None, if Left blank) DEBTOR: Televideo Inc. -------------------------------- DEBTOR NAME TYPED/PRINTED By: /s/ K. PHILIP HWANG ------------------------------------ SIGNATURE OF Its: CEO &. CHAIRMAN ----------------------------------- TITLE (If applicable) By: ------------------------------------ SIGNATURE OF Its: ----------------------------------- TITLE (If applicable) By: ------------------------------------ SIGNATURE OF Its: ----------------------------------- TITLE (If applicable) By: ------------------------------------ SIGNATURE OF Its: ----------------------------------- TITLE (If applicable) Borrower(s): TELEVIDEO, INC. PEDESTAL - Dynamic Security Agreement Revision Date (5/97) GHZ EX-21.1 4 EXHIBIT 21.1 EXHIBIT 21.1 TELEVIDEO, INC. SUBSIDIARIES DOMESTIC * Advanced MOS Technology Associates, Inc., a California corporation (20%) * TeleVideo Venture Corporation, a Virginia corporation (Inactive) * Trimeter Technologies Corporation, a Pennsylvania corporation (36.6%) (Inactive) FOREIGN * TeleVideo Informatique Systems, S.A.R.L., a French corporation (Inactive) * TeleVideo Systems Deutschland GmbH, a West German corporation (Inactive) * TeleVideo Systems International, a Virgin Islands corporation (Inactive) * TeleVideo Systems International B.V., a Netherlands corporation (Inactive) * TeleVideo Systems International, Ltd., a United Kingdom corporation (Inactive) * Koram, Inc., A Korean company (50%) EX-23.1 5 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT We have issued our report dated December 10, 1999 accompanying the consolidated financial statements included in the Annual Report of TeleVideo, Inc. and Subsidiaries on Form 10-K for the year ended October 31, 1999. We hereby consent to the incorporation by reference of said report in the Registration Statement of TeleVideo, Inc. on Form S-8 (File No. 33-26203, effective November 2, 1992). /s/ Grant Thornton, LLP San Jose, California January 31, 2000 EX-27 6 EXHIBIT 27
5 1,000 12-MOS OCT-31-1999 NOV-01-1998 OCT-31-1999 4,487 0 2,906 1,383 1,464 8,528 8,046 2,010 18,317 2,932 0 0 0 453 2,051 18,317 8,070 8,070 8,082 12,640 7 0 444 (3,707) (361) (3,707) 0 0 0 (3,707) (0.33) (0.33)
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