-----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, LjLNpN2fbxntXgNsVsDIQtFbq8CplizDJz+qtWp+ZBEytixobugIr1opin5KNH/p PbGhXVG5EOxXlTgqB2zfSg== 0000891618-96-000217.txt : 19960416 0000891618-96-000217.hdr.sgml : 19960416 ACCESSION NUMBER: 0000891618-96-000217 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960415 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPRESSION LABS INC CENTRAL INDEX KEY: 0000319085 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 942390960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-13218 FILM NUMBER: 96546977 BUSINESS ADDRESS: STREET 1: 2860 JUNCTION AVE CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4084353000 MAIL ADDRESS: STREET 1: 2860 JUNCTION AVE CITY: SAN JOSE STATE: CA ZIP: 95134 10-K405 1 FORM 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 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 DECEMBER 31, 1995 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 0-13218 ------------- COMPRESSION LABS, INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 94-2390960 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 2860 JUNCTION AVENUE, SAN JOSE, CALIFORNIA 95134 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (408) 435-3000 Securities registered pursuant to Section 12 (b) of the Act: NONE Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK, $.001 PAR VALUE PER SHARE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The approximate aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the closing bid price of the Common Stock reported on the Nasdaq National Market was $57,367,382 as of April 4, 1996. The number of outstanding shares of the registrant's Common Stock as of April 4, 1996 was 15,500,396. - ------------------- DOCUMENTS INCORPORATED BY REFERENCE Part III - Portions of the Registrant's definitive Proxy Statement for the Registrant's Annual Meeting of Stockholders, to be held May 23, 1996, which will be filed with the Securities and Exchange Commission, are incorporated by reference to the extent stated herein. 2 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENTS Compression Labs, Incorporated (the Company or CLI(R)), incorporated in California in December 1976 and reincorporated in Delaware in October 1987, is a leader in the development, manufacture and marketing of visual communication systems based on Compressed Digital Video (CDV(TM)) technology. The Company's systems use proprietary and industry standard algorithms to compress the amount of data required to transmit digital video and audio signals, thereby significantly reducing the cost of transmitting these signals over terrestrial, microwave, cable or satellite networks. The Company's strategy has been to use its expertise in CDV technology to enhance its leadership position in videoconferencing, to develop a leadership position in the emerging broadcast and cable markets, and to monitor new markets such as the desktop and personal video markets. In November 1995, the Company conducted a strategic review of its position in both the videoconferencing and broadcast and cable markets, and its ongoing prospects in these markets. As a result of this review, the Company adopted a plan to discontinue operations of its Broadcast products division and to refocus its efforts and resources on developing and marketing group and desktop videoconferencing products. The Company has held discussions with various companies regarding the possible sale of the broadcast products division. No definitive agreement has been reached, nor can there be any assurances that an agreement with terms acceptable to the Company will ultimately be reached. Unless noted otherwise, this Annual Report on Form 10-K pertains to the Company's continuing operations. CLI's group and desktop videoconferencing systems permit users at different locations to conduct full-color, motion videoconferences ranging from two-way informal meetings between individuals to formal meetings between large groups at multiple locations. The Company's present families of videoconferencing systems include Rembrandt(R) II/VP and Radiance(TM) videoconferencing systems, the eclipse family of mid-range videoconferencing systems, and the CLI Desktop Video family. The Rembrandt II/VP and Radiance videoconferencing systems operate worldwide over a broad range of transmission speeds from 56 kilobits per second (kbps) to 2.048 megabits per second (mbps). The eclipse mid-range videoconferencing systems and CLI desktop video products operate worldwide over readily available public switched digital networks at speeds up to 384 kbps. All of CLI's current videoconferencing systems are compliant with the International Telecommunication Union Telecommunication Standardizations Sector (TSS) H.320 videoconferencing standard, and most also provide customer-selectable proprietary algorithms. The Company has grown as a result of improvements in the price/performance of its videoconferencing systems, decreases in transmission costs and increased availability of switched digital transmission services. However, there can be no assurance that this revenue growth will continue in the future. In November 1991, the Company introduced the SpectrumSaver(TM), the industry's first compressed digital product for the satellite broadcast video market. The SpectrumSaver allows simultaneous transmission of as many as 15 channels on a single satellite transponder, reducing costs and increasing programming availability for applications such as business television, distance learning and satellite news gathering. Through a number of industry-related partnerships and alliances, CLI had been moving into other broadcast applications: direct broadcast satellite services, which deliver hundreds of channels of entertainment and information directly to homes through the use of satellite dishes; video-on- demand, offering dial-up access to movies, live sports, and other entertainment over copper or fiber-optic telephone lines or coaxial cable, cable head-end applications that supply programming to distribution sites, and traditional commercial television broadcast applications. To ensure broad compatibility worldwide, the products used for these services are based on MPEG-1 and MPEG-2 video and audio standards from the Moving Picture Experts Group (MPEG). This technology is used in the broadcast products division, now part of the Company's discontinued operations. CLI has concentrated on developing enhancements to the MPEG-based Magnitude(TM) product family which will differentiate these products from other standards-based products. In 1996, CLI was granted a patent for statistical multiplexing of multiple MPEG-compressed video signals, allowing multiple MPEG-video signals to share the entire bandwidth of the transmission channel by dynamically allocating more bandwidth to the signals that are more difficult to encode. This results in improved picture quality and allows higher compression ratios. This technology is used in the broadcast products division, now part of the Company's discontinued operations. - -------------------- (TM)CDV, Radiance, SpectrumSaver, and Magnitude are trademarks of Compression Labs, Incorporated. (R)Rembrandt is a registered trademark of Compression Labs, Incorporated This Form 10-K also contains the trademarks of other companies. -1- 3 INDUSTRY BACKGROUND Over the past two decades, the advent of compressed digital video technology has enabled the development of cost effective products for the growing videoconferencing market, increasing productivity and decreasing costs by enhancing the effectiveness of business communication. Decision making in today's competitive business environment demands accurate and timely exchange of information by individuals and groups, often at distant locations. Telephones and facsimile machines have become essential business tools by providing communication in convenient and inexpensive formats. In many situations, however, information cannot be transferred effectively by telephone or in writing, and more natural face-to-face communication is necessary. A substantial portion of business travel today is undertaken in order to permit such face-to- face communication. The Company believes that the utilization of visual communication systems, such as videoconferencing systems, has enhanced productivity by allowing meaningful and timely face-to-face contact, and has lowered costs by reducing business travel. The concept of visual communications was introduced in 1964 at the New York World's Fair when AT&T exhibited a prototype of its picturephone. At that time, however, videoconferencing was commercially impractical because transmitting uncompressed video signals was prohibitively expensive for business users. In the late 1970s, the first video compression system, called a "codec" (coder-decoder), was introduced. The market acceptance of early videoconferencing systems was limited because of high hardware and transmission costs, and the limited availability of transmission facilities. The first companies to adopt videoconferencing utilized dedicated private networks established expressly for videoconferencing. Significant progress was made in the early 1980s in addressing many of the problems associated with early videoconferencing efforts. A major advance in transmission cost reduction was achieved by CLI with the introduction in 1982 of a codec which provided the first economical means to communicate effectively over standard networks at a transmission rate (bandwidth) of 1.544 mbps, the standard T1 transmission rate, a reduction of approximately 60:1 from the 90 mbps bandwidth required to transmit uncompressed video signals. This lower bandwidth significantly reduced transmission costs and permitted transmission over available terrestrial, microwave, cable and satellite channels. Since the mid-1980s, driven primarily by competition among telecommunication carriers, the cost of transmission services has continued to decrease significantly. During this same period, the availability of private networks and switched services increased dramatically. Switched digital transmission services are now available in most U.S. metropolitan areas. Advances in compressed digital video technology during this period also resulted in the introduction of products with improved picture and audio quality. In the mid-1980s, video compression systems were introduced that operated at transmission rates below the standard T1 rate, although these low bandwidth systems often failed to achieve picture quality acceptable to most users. By the late 1980s, continued improvements in video compression technology and the increasing availability of public switched services at bandwidths up to 384 kbps had resulted in increased user acceptance of videoconferencing. Collectively, the dramatic decreases in transmission costs, the increased availability of switched digital services for both domestic and international networks, the improvements in picture quality and the adoption of worldwide standards have made global videoconferencing at various bandwidths increasingly practical and cost effective. Many of these factors have also created opportunities for application of CDV technology in the developing desktop and personal video markets. While CDV technology has found significant application in two-way business communication for more than a decade, this technology has only recently begun to be implemented to reduce the transmission cost and improve the availability and audio and video quality of one-way broadcast video programming. Until recently, almost all television broadcasts relied on analog technology, which requires substantial transmission capacity, or bandwidth. Digitizing and compressing video and audio signals reduces the amount of data which must be transmitted in order to achieve desired quality, thus allowing broadcasters to transmit high quality video and audio television programs on a telephone line or to simultaneously transmit a number of programs over a satellite transponder or coaxial or fiber-optic cable. Digitization and compression of video improves picture and sound quality by eliminating noise and distortion typical in transmission of analog signals, and allows video programming to be stored economically on video servers, where it is readily accessible. These technical and economic advantages of CDV compared to traditional analog technology are important factors underlying the acceptance of CLI's SpectrumSaver broadcast products for business use. The Company's Magnitude product line of high-quality, MPEG-based encoders and decoders is currently being used for digital broadcast utilizing satellite, cable, and telephone network-based transmission for the home entertainment and education markets. -2- 4 CLI STRATEGY The Company is a leader in video compression technology and believes that its large worldwide installed base of videoconferencing systems affords the Company significant competitive advantages. The Company's strategy is to strengthen its position as a leading supplier of a full range of premium quality group and desktop videoconferencing systems. The Company's strategy includes several key elements: Technology Leadership CLI has pioneered video compression technology and continues to develop videoconferencing systems with enhanced picture and audio quality and features at lower costs. Broad Range of Videoconferencing Products CLI has one of the broadest product lines in the videoconferencing industry, spanning a wide range of market applications and operating at transmission rates from 56 kbps to 2.048 mbps. The Company believes supplying a full range of products to satisfy a customer's complete video communication needs will be important to its future success. Compliance with Industry Standards CLI believes that the adoption of industry standards will further the expansion of the worldwide videoconferencing market by allowing systems from different manufacturers to communicate with one another. The Rembrandt II/VP, Radiance, eclipse, and CLI Desktop Video product families all conform with the TSS H.320 videoconferencing standard that allows communication with CLI and other vendors' products through industry standard communication modes. The group system families provide a user-selectable option that allows enhanced video when communicating with other CLI systems through the Company's proprietary communication modes. CLI TECHNOLOGY CLI has been a leader in the evolution of digital video compression technology for videoconferencing and broadcast products since the inception of these markets. CLI's development efforts are primarily directed at achieving greater levels of compression, improving picture quality and system functionality, continuing to reduce system costs, and supporting and improving industry standards. The Company's continued success in its chosen markets is dependent in part on the results of its ongoing technology and product development efforts. Early codecs, introduced in the late 1970s, used a technique called interframe coding that achieved compression by measuring differences between frames and transmitting only those differences, refreshing the unchanged elements in the frame from memory. Interframe coding is useful in scenes where there is limited motion, but can cause image degradation, such as blurring or jerkiness, in scenes that contain significant motion. This technique required a high rate of transmission to overcome its inherent limitations in motion sequences. In 1982, CLI developed the first videoconferencing system that operated at T1 rates incorporating a proprietary algorithm utilizing intraframe coding. Intraframe coding does not measure differences between frames, but rather achieves compression by breaking each individual frame into blocks and assigning bits to each block based on the complexity of the scene in that block. Although intraframe coding causes a slight degradation of detail resolution in a picture, it maintains picture quality independent of the amount of motion in the picture. This algorithm technique was based on Discrete Cosine Transform (DCT) technology. In 1984, CLI introduced the first sub-T1 algorithm combining both interframe and intraframe technology. This proprietary algorithm, known as Differential Transform Coding (DXC), combined the positive aspects of both intraframe and interframe coding by using intraframe coding for blocks with high motion and interframe coding for blocks with little or no motion. DXC allowed transmission with minimal picture quality degradation at transmission rates as low as 384 kbps. -3- 5 In 1987, CLI introduced a product which achieved transmission rates as low as 56 kbps by adding motion compensation to the techniques pioneered in earlier codecs. Motion compensation was an advancement in interframe techniques that allowed detection and coding of the portions of the picture which are in motion. In 1990, CLI introduced a new proprietary algorithm called Cosine Transform Extended (CTX(TM)), a further enhancement of the DCT technology which improved picture quality and motion handling techniques. In 1991, CLI announced the CTX Plus(TM) algorithm which significantly improved picture resolution and increased frame rates at transmission rates of 384 kbps and above, thereby providing near-broadcast image quality. The Company's Radiance and Rembrandt II/VP families of large group videoconferencing products incorporate the CTX and CTX Plus algorithms, as well as the TSS H.261 standard. The eclipse 8200, 8300 and gold models are fully compliant with the most recent TSS standards, and have transmission speeds ranging from 56 kbps to 384 kbps. DCT technology has been the basis of all CLI products since 1982. The DCT technology has been adapted as the foundation of the international H.261 standard, as well as the evolving MPEG standards for broadcast, cable and desktop applications, and Joint Photographic Experts Group (JPEG) standard for still image compression. The Company believes that its expertise in DCT technology gives it a competitive advantage by simplifying the development of products that are compatible with industry standards, while providing superior performance through proprietary enhancements when operating in either the industry standard or proprietary modes. To achieve these enhancements in the future, the Company also continues to develop methods for pre- and post-processing video signals utilizing techniques such as detelecine, statistical multiplexing, conditional access, and motion adaptive scene filtering in order to improve performance of systems utilizing either industry standard or proprietary algorithms. CLI designs application specific integrated circuits (ASICs) for its products, and cooperates with certain semiconductor vendors who are developing semiconductor chips which the Company believes are important to its business. Both activities are directed at reducing costs, enhancing performance, and increasing flexibility in the Company's products. In many cases, CLI is able to add elements of its proprietary technology with the implementation of these chips in order to obtain cost and performance advantages compared to other users of such chips. VIDEOCONFERENCING PRODUCTS CLI offers a broad range of group and desktop videoconferencing products which includes the Rembrandt II/VP large group video codec family, the Radiance family of prepackaged large group videoconferencing systems, the eclipse mid-range group videoconferencing systems, the CLI Desktop Video family, and Multipoint Control Units. The Company's videoconferencing systems offer two-way, full-color, motion videoconferencing at various bandwidths ranging from 56 kbps to 2.048 mbps. These systems enable the user to transmit video, audio, data and graphics over digital channels. System users can transmit the compressed signals over terrestrial, satellite or microwave networks. CLI's videoconferencing products are used in point-to-point or multipoint videoconferences. In a point-to-point videoconference, audio and full-color, motion images are transmitted simultaneously in both directions so that the participants at one site interact with the participants at the other site as in a normal meeting. In a multipoint conference, participants in three or more locations can interact with each location and are able to see and hear the participant who is speaking. CLI systems work in conjunction with both dedicated network facilities and a variety of switched network facilities, offering customers maximum networking flexibility. Rembrandt II/VP. The principal component in the Company's videoconferencing systems is the codec. One codec is required at each conference site to perform both coding and decoding functions. The Rembrandt II/VP, which the Company began shipping in the second half of 1991, incorporates the Company's proprietary CDV technology, and was the industry's first codec to address the entire spectrum of videoconferencing applications in a single product. These codecs support transmission rates from 56 kbps to 2.048 mbps, support the CTX and CTX Plus proprietary algorithms, provide backward compatibility to the Company's older products, and support the H.261 standard. The Company believes that its proprietary algorithms (CTX at lower bandwidths and CTX Plus at bandwidths of 384 kbps and above) provide picture quality superior to the H.261 standard. The Rembrandt II/VP list prices range from $35,000 to $48,500, excluding options. - ------------------- (TM)CTX and CTX Plus are trademarks of Compression Labs, Incorporated -4- 6 Radiance Group Videoconferencing Systems. The Company's Radiance large group videoconferencing systems, first shipped in January 1994, are complete, prepackaged large group systems which achieve up to 30 frames per second (fps) and 480 lines of resolution at bandwidths ranging from 56 kbps to 2.048 mbps. These systems come fully assembled for easy installation, use, and maintenance, and utilize a tabletop touchpanel based on CLI's Self-Guide(TM) user interface, which provides intuitive control via menus and icons to guide the user. Radiance systems are interoperable with CLI's Rembrandt II/VP codecs, eclipse mid-range group systems, and CLI Desktop Video products worldwide, as well as with other codecs that meet TSS H.320 standards. The Radiance list prices range from $43,400 to $77,900, excluding options. eclipse Group Videoconferencing Systems. The Company's eclipse mid-range group videoconferencing systems, introduced in early 1993, are complete, full-featured videoconferencing systems priced as low as $14,900. The codec is housed in an Intel 486 personal computer chassis with both a hard disk and 3-1/2 inch floppy disk for software updates. eclipse also includes an advanced, industry standard audio system with tabletop microphones, full-duplex capability and integrated echo cancellation, which uses as little as 16 kbps of the 112/128 kbps bandwidth for audio. The eclipse comes with high-quality video, capable of communicating with other manufacturers' systems using the TSS H.320 industry standard or providing superior video quality using CLI's CTX proprietary algorithm for communicating with other CLI systems. The eclipse offers as standard features an auto-focus camera with pan/tilt/zoom capabilities, easy-to-use presets, a choice of built-in line interfaces for virtually every type of network, multipoint readiness, picture-in-picture, and CLI's Self-Guide user interface. In 1995, the eclipse product family was expanded to include a variety of models ranging from table top to dual monitor systems. These new eclipse 8200 models are fully compliant with TSS standards, and offer full common intermediate format (FCIF) resolution, integrated network interface supporting highly-affordable transmission speeds up to 112/128 kbps, wideband audio up to 7 kHz, enhanced video from customized VLSI circuits specifically designed for pre- and post-processing, far-end camera control, high-resolution graphics, 27-inch monitors, the wireless Self-Guide remote control unit, a pan/tilt/zoom automatic-focus camera, and a variety of auxiliary document cameras. The eclipse 8300 models include the same features as the eclipse 8200 with the additional capability of transmission speeds up to 384 kbps. In April 1996, CLI further expanded the eclipse product line with the introduction of the eclipse gold . This recently introduced model offers features identical to the eclipse 8300 with the addition of improved video quality at 30 fps and a T.120 multimedia gateway. T.120 is an evolving series of standards from the ITU that are aimed at facilitating "audio-graphic", multimedia conferencing for collaborative working meetings and distance learning applications. Available as options on the newer lines of eclipse are: multipoint chair control, dual monitors, the automatic focus SuperCam document camera and an inverse multiplexer. eclipse list prices range from $14,900 to $47,900, excluding options. CLI Desktop Video Systems. The Company announced in January 1996 a CLI Desktop Video family of products to run on PCs powered by Intel Corporation's (Intel) Pentium(TM) microprocessor under Microsoft Windows versions 3.1 and 95. This family of products will initially include two models: CLI Desktop Video 1000 and CLI Desktop Video 2000. CLI Desktop Video products are kits consisting of a fixed digital camera, a single codec board incorporating an integrated services digital network (ISDN) basic rate interface, a telephone handset, and a choice of data collaboration software, including Intel's ProShare(TM) Premier data collaboration software. In the future, the product will also support DataBeam's FarSite(TM) data collaboration software. The CLI Desktop Video 1000 and 2000 models are capable of transmission speeds ranging from 56 kbps to 384 kbps. CLI Desktop Video list prices range from $1,495 to $2,195, excluding options. Multipoint Control Units. The Company also offers the Multipoint 2 Control Unit (MCU), a device that allows people at multiple locations to participate in a fully interactive videoconference. During a multipoint videoconference, the MCU acts as an audio bridge and a controller, switching among different sites so participants can see the person who is speaking and hear all other participants in the conference. This switching can be voice-activated or manually controlled. The MCU is compliant with the international multipoint videoconferencing standards established by the TSS, and is compatible with videoconferencing systems from any manufacturer who supports those international standards. In addition, MCUs are compatible with the large installed base of CLI Rembrandt II/VP and codecs with appropriate audio and communications configurations. List prices for MCUs range from approximately $26,500 for a 3-user unit to approximately $89,500 for a large system usable in a headquarters location, depending on the number of ports and options required. - -------------------- (TM)Pentium, and (TM)ProShare are trademarks of Intel Corporation (TM)FarSite is a trademark of DataBeam Corporation -5- 7 BROADCAST PRODUCTS The Company offers the SpectrumSaver digital broadcast television system for business television, distance learning, satellite news gathering and cable applications. SpectrumSaver digitizes and compresses a full-motion analog television signal so it can be transmitted using a fraction of the bandwidth required by standard analog systems. SpectrumSaver encoders range in price from $65,000 to $85,000 and receivers from $2,600 to under $1,700, depending on quantity purchased. Typical systems employ many receivers per encoder. The SpectrumSaver product line is included in the Company's discontinued operations. In 1994, the Company introduced the Magnitude family of CLI broadcast video products. Magnitude, an MPEG-2-based Compressed Digital Video product family for the delivery of entertainment and information services over telephone, cable and satellite networks, is aimed at providing high quality broadcasting for a variety of business and home entertainment applications. The system reduces bandwidth required to transmit video by six to sixty times depending on the complexity of the program content and the transmission method. CLI is supplying Magnitude encoders to a unit of GM Hughes Electronics through an agreement with Thomson Consumer Electronics for the DIRECTV(R) satellite entertainment service. The Company has also sold Magnitude products to customers in Argentina, Australia, China, India, Japan, Namibia, Russia, and Taiwan. The Magnitude product line is included in the Company's discontinued operations. SALES AND MARKETING The Company markets its videoconferencing systems to business, government, health care and education customers. These customers frequently have multiple domestic and/or international locations and often specify a single vendor to supply videoconferencing equipment on a worldwide basis. The Company believes that the sales effort to this sophisticated customer base requires the initiation and maintenance of multilevel contacts in order to address the customers' multi-location application and support needs. Historically, a significant portion of the Company's sales have been to its existing customer base. Nonetheless, CLI is committed to expanding sales outside of its current customer base and believes that new customers are an important part of the Company's future revenue growth. In 1995 approximately 35 percent of CLI's revenues from videoconferencing products were achieved through indirect channels, which include resellers and co-marketers (collectively, Resellers). To that end, the Company has entered into strategic co-marketing agreements or arrangements with AT&T and MCI Communications. These co- marketers provide sales leads and customer prospects for direct customer sales by the Company's domestic sales force. In addition, the Company has a number of Reseller agreements in the United States with companies including Bell Atlantic, Norstan, Inc., TIE/communications, Inter-Tel Equipment Corporation, Pacific Bell, and Williams Telecommunications, Inc. (WilTel). These Resellers sell the Company's videoconferencing products directly to end-users. The Company has also entered into distributor agreements with companies such as MicroAge Inc., and Sprint/North Supply. Internationally, the Company markets its videoconferencing products in most countries outside the U.S. through distributors. CLI is attempting to increase its new customer base by expanding its distribution channels. The Company's products are distributed in over 50 countries outside the U.S. under distribution agreements and arrangements with over 30 companies, including Internet Video Communications in the U.K., J S TELECOM, a subsidiary of Bosch Telekom in France, Deutsch Telekom in Germany and worldwide, SOEI Tsusho Company, Ltd. in Japan, Samsung in Korea, Teledata in Southeast Asia, and Keytech S.A. in South America. Agreements with these distributors generally provide for pricing and volume discounts, order lead times, designation of a specific geographic territory and other terms and conditions. Distributors typically order products only upon receipt of an order from an end-user customer and generally provide local customer support, including installation and maintenance. In 1993, the Company opened its first international sales offices in Brussels, Belgium and Beijing, China. In 1995, revenue from non-U.S. customers represented 22% of videoconferencing revenues. See Note 10 of Notes to Consolidated Financial Statements. The Company believes that the availability of demonstration systems and financing programs significantly enhances its direct sales and marketing efforts. CLI provides videoconferencing equipment to customers and potential customers on a short-term loan or monthly rental basis in order to allow hands-on use of the equipment. - -------------------- (R)DIRECTV is a registered trademark of Hughes Electronics Corporation. -6- 8 The Company primarily distributes its broadcast products through value-added resellers, which include satellite transponder owners, full service integrators, systems integrators and broadcast programmers who can provide the end-user with a complete, installed digital satellite system. The Company has agreements in effect with Westcott Communications, AT&T, Electronic Data Systems Corporation, Keytech S.A., Radiation Systems Incorporated, National Technological University, Vitacom, and others. As of February 29, 1996, the Company had 158 direct sales, marketing and customer support personnel located in 22 offices in 14 states, plus 3 foreign countries. CUSTOMER SERVICE AND SUPPORT The Company believes that customer service and support are important competitive factors. CLI provides service and support in more than 50 countries worldwide either directly or in conjunction with its distributors, Resellers and contract service providers. CLI and its contract service providers typically provide comprehensive support to all customers to which CLI sells direct. Customers who buy CLI products indirectly generally receive their primary level of support from CLI's Resellers and supplemental support from CLI. All Distributors, Resellers and service providers are trained by the Company to provide the appropriate level of service for the Company's products. CLI's service strategy for much of its product line is predicated on designing products with diagnostic capabilities and maintaining a toll-free Customer Support Hotline staffed by technical support personnel who diagnose problems remotely. The remote diagnostic capabilities of many of CLI's products often allow the Company's Technical Support Center personnel to cost- effectively service its products without requiring on-site service visits. To further augment CLI's service capabilities, CLI signed an agreement in late 1995 with AT&T under which AT&T will supply technicians who will provide installation and service for designated CLI videoconferencing customers throughout the United States. The Company provides installation and on-site service through its regionally deployed technical support staff in select major cities or regional, national, or multinational third-party service providers. The Company offers a variety of maintenance plans to accommodate the various maintenance requirements in the marketplace. Historically, maintenance revenue has accounted for less than 10% of total revenues. CLI generally warrants its products to be free of defects in materials and workmanship for periods ranging from three months to fourteen months from date of shipment or twelve months from date of installation, depending on the product. To date, defective product returns have not been material. -7- 9 CUSTOMERS The Company's products have been sold to organizations in such diverse industries as aerospace, banking, communications, broadcasting, education, electronics, food and consumer products, and pharmaceuticals, as well as in government. In 1995 and 1994, there was no single customer that accounted for greater than 10% of total revenues. In 1993, sales to two customers accounted for approximately 17% and 10% of total revenues, respectively. During 1995, 1994 and 1993, sales to international customers represented approximately 22%, 18% and 13%, respectively, of the Company's total revenues. The following is a selected list of those customers who have placed orders with the Company over the past two fiscal years:
AEROSPACE EDUCATION GOVERNMENT - --------- --------- ---------- Hughes Aircraft Company Duke University NASA Lockheed Corporation Eastern Washington State China Railway Import & Export Loral Corporation University Sichuan Provincial Import Corp. Martin Marietta Corporation Texas Tech University State of Florida Rockwell International Corporation University of California State of Hawaii University of Hawaii State of Kansas BANKING & FINANCE University of Idaho State of Washington - ----------------- University of Massachusetts U.S. Department of Defense Bank of America Corporation University of Missouri U.S. Department of Energy Citibank, N.A. University of Nevada, Reno U.S. Federal Emergency Management Citicorp University of Pennsylvania Agency (FEMA) Mastercard International, Inc. University of Texas U.S. General Accounting Office (GAO) VISA Inc. University of Washington U.S. General Services Administration Vermont Technical College (GSA) Washington State University TELECOMMUNICATIONS - ------------------ Ameritech Services, Inc. American Telephone & Telegraph ELECTRONICS PHARMACEUTICAL & HEALTH CARE Bell Atlantic ----------- ---------------------------- Bell Canada Advanced Micro Devices, Inc. Glaxo Burroughs Wellcome Bell South Services, Inc. Boeing Computer Services Columbia-HCA Healthcare Corp Comtelca Harris Corporation Empire Blue Cross/Blue Shield Deutsche Telekom AG Hewlett-Packard Company Harvard Community Health Plan GTE Government Systems IBM Corporation Pharmacy Corp. of America Hughes Network Systems Mentor Graphics Corporation Schering-Plough Corporation JS TELECOM MicroAge, Inc. UT Medical Branch at Galveston MCI Telecommunications Corp. Micron Technology, Inc. Warner Lambert Mitre Corporation National Semiconductor NYNEX Corporation Novell Corporation OTHER Nevada Bell Samsung Electronics Corporation, ----- Norstan Communications Ltd. Alcoa Fujikara Ltd. Pacific Bell Unisys Corporation Boston Consulting Group Southern Bell Westinghouse Electric Corporation Consolidated Edison Sprint/North Supply KPMG Peat Marwick TIE/communications McKinsey & Co. Inc. Williams Telecommunications, Inc. FOOD/CONSUMER PRODUCTS Pacific Gas & Electric ---------------------- Toyota Motor Sales USA Black & Decker VF Corporation The Coca-Cola Company Kimberly Clark Corporation Nabisco Brands, Incorporated Nestle USA Nordstrom Phillips Van Heusen Williams Sonoma
There can be no assurances that any of the customers listed above will continue to purchase the Company's products in the future. -8- 10 RESEARCH AND DEVELOPMENT Since its inception, the Company has recognized that a strong technical base is essential to its long-term success and has made a substantial investment in research and development. The Company's total research and development expenditures in 1995, 1994 and 1993 aggregated $14.8 million, $15.1 million, and $13.4 million, respectively. Research and development expenditures consisted of research and development expense, cost of revenues related to research and development contracts and capitalized software development costs as summarized in the table below (in millions):
Years ended December 31, ---------------------------------- 1995 1994 1993 ---- ---- ---- Research and development expense $ 10.0 $ 10.2 $ 10.5 Cost of revenues related to research and development contracts -- 1.0 -- Capitalized software development costs 4.8 3.9 2.9 ------ ------ ------ Total research and development expenditures $ 14.8 $ 15.1 $ 13.4 ====== ====== ======
The videoconferencing market is characterized by rapid and significant change in technology and user needs, requiring substantial product development expenditures. These changes have resulted in frequent product introductions characterized by better picture quality at lower bandwidths and reduced prices. The Company's ongoing videoconferencing research and development efforts are focused on continued improvements in its CDV technology, product developments and product enhancements. The Company's future success in this market will depend to a large extent on its ability to maintain its competitive technological position and to continue to develop, on a cost effective and timely basis, technologically advanced videoconferencing products that meet changing user needs. There can be no assurance that the Company's product development efforts will be successful. COMPETITION The Company believes that the market for videoconferencing systems ranges from applications for more formal meetings that require very high picture quality using higher bandwidths, to applications such as informal meetings in which reduced picture quality at lower bandwidths is acceptable in return for significantly lower equipment and transmission costs. The Company believes that the principal competitive factor in the videoconferencing market is the ability to provide cost effective, enterprise-wide videoconferencing solutions. Performance, price, picture quality, audio quality, bandwidth flexibility, network compatibility, standards compliance, reliability, ease of use and diversity of features are important product features; distribution and customer support are also important service factors. While the relative importance of these factors varies from customer to customer, CLI believes that it is competitive in each of these areas. At the higher bandwidths, the Company believes that VTEL Corporation, General Plessey Telecommunications and British Telecom in the United Kingdom are currently its major competitors, although other companies have developed or may develop such systems. At lower bandwidths, the Company believes that PictureTel Corporation and VTEL Corporation are its primary competitors. The Company expects other competitors, some with significantly greater marketing, technical and financial resources, to enter the videoconferencing systems market. In particular, the Company expects increased competition from Japanese manufacturers, including Mitsubishi Ltd., Nippon Electric Corporation, Sony Corporation, Hitachi Limited and Fujitsu Ltd. If the Company cannot continue to offer new videoconferencing products with improved performance and reduced cost, its competitive position will erode. Moreover, competitive price reductions may adversely affect the Company's results of operations. In December 1990, the TSS adopted a worldwide videoconferencing standard, commonly referred to as H.261 or px64, for transmitting video images over digital networks at data transmission rates ranging from 64 kbps to 2.048 mbps. This standard has become a part of the TSS standards, an evolving set of standards which permit interoperability among videoconferencing systems from different vendors. Although acceptance of the TSS standards is expected to increase demand for videoconferencing products in general, the widespread acceptance of these standards and other related emerging international standards may make the advantage of the Company's proprietary technology less significant. In particular, the emergence of industry standards may lower barriers to entry and result in increased price competition. -9- 11 MANUFACTURING The Company has structured manufacturing as two separate organizations: one focused on videoconferencing products and the other focused on broadcast products. Videoconferencing Products The videoconferencing products manufacturing organization performs materials planning, production scheduling, mechanical assembly, board testing, system integration, burn-in, and final system testing of videoconferencing codecs and integrated systems and broadcast encoders. The organization performs quality assurance testing on selected purchased parts, board assemblies and finished products during the course of the manufacturing process. Some components are purchased through a small number of selected component distributors who provide completed assemblies for printed circuit boards. The kitted parts are drop-shipped from the component distributor directly to selected subcontract assembly houses. Some components are purchased directly from various manufacturers, and are assembled and tested at CLI. Some videoconferencing equipment is purchased in its entirety from suppliers and shipped to CLI where it may be integrated and tested to customer specifications. Broadcast Products The broadcast products manufacturing organization performs assessment, evaluation, qualification, selection, scheduling, management and support of its selected turnkey high-volume manufacturing subcontractors. Turnkey manufacturers provide substantial materials planning, procurement, component testing, mechanical assembly, board testing, applicable system integration, burn-in and final system testing of the Company's broadcast receivers/decoders products. There can be no assurance that the Company will be able to develop or contract for manufacturing capabilities with the necessary volume, quality or price on acceptable terms. As noted above, in November 1995 the Company adopted a plan to discontinue operations of its broadcast products division by the end of 1996. Supplier Relationships The Company uses many standard parts and components for its products. Several of the critical components used in the Company's products, including certain custom and programmable semiconductors, such as the MPEG-2 chipset supplied by C-Cube Microsystems, are currently available only from single or limited sources. In addition, the Company relies on a few key vendors for sourcing or turnkey manufacturing of certain of its products. The Company has executed master purchase agreements with some, but not all, of its component distributors and suppliers who provide the kits and component parts for the videoconferencing products and broadcast and cable products. While the Company has experienced few material disruptions in supply to date, there can be no assurance that the Company will be able to obtain a sufficient quantity of products or components for existing products on acceptable terms to enable it to meet the demand for those products. An interruption or reduction in supply of any key components, excessive rework costs associated with defective components, or process errors or the inability to obtain continued reduction of component prices could adversely affect the Company's operating results and could damage customer relationships. QUALITY CLI has established a quality function with a Quality Council assigned to oversee the implementation of a Total Quality Management (TQM) process and culture throughout CLI. A cross-functional TQM council has been organized to support and manage process quality improvement teams which focus on continuous improvement of CLI's various products and processes used throughout the Company. The Company has been granted the International Organization for Standardization (ISO) 9001 certification for its videoconferencing products operations. PATENTS AND TRADEMARKS The Company currently holds eight U.S. patents relating to video compression. The patents cover CLI's scene-adaptive coding and DCT techniques and expire between November, 1998 and the year 2014. These techniques, together with the DXC, CTX and CTX Plus algorithms, serve as the basis of the Company's videoconferencing product lines. In 1996, CLI was granted a patent for statistical multiplexing of multiple compressed video signals which the Company believes may be important for certain digital broadcast applications. The Company also holds two U.S. patents relating to facsimile compression. -10- 12 There can be no assurance that the Company's current patents will be upheld as valid. Although the Company believes its patents are valuable, it also believes that its future success depends primarily upon its technical and engineering competence and the creative skills of its personnel. In addition to potential patent protection, CLI relies on the laws prohibiting unfair competition, and the laws of copyright, trademark and trade secrets to protect its proprietary rights. The Company also utilizes nondisclosure agreements and internal secrecy procedures. The Company believes that its products, trademarks and other proprietary rights do not infringe on the proprietary rights of third parties. From time to time, however, the Company has received communications from third parties asserting that features or content of certain of its products may infringe intellectual property rights of such parties. To date, no such claims have had an adverse effect on the Company's ability to develop and market its products. There can be no assurance, however, that third parties will not assert or prevail in infringement claims against the Company with respect to current or future products or that any such assertion may not require the Company to enter into royalty arrangements or result in costly litigation. For example, Datapoint Corporation has filed suit claiming that certain of the Company's products infringe its patents. See "Legal Proceedings." Patent litigation or royalty arrangements entered into to avoid or settle litigation could have a material adverse effect upon the Company's business, operating results and financial condition. EMPLOYEES The Company's success depends to a large extent on the skill and competence of its employees. There can be no assurance that the Company will be able to continue to attract, retain and motivate competent employees. As of February 29, 1996, the Company employed 439 people full-time in its continuing operations, including 129 in manufacturing, 94 in engineering, research and development, 158 in sales and marketing and 58 in administration. As of February 29, 1996, the Company employed 100 people full-time in its broadcast division, which is reported as a discontinued operation. In addition, the Company also employs a number of temporary employees. None of the Company's employees are represented by a collective bargaining agreement. The Company believes its relationship with its employees is good. DISCONTINUED OPERATIONS AND RESTRUCTURING On November 30, 1995, the Company adopted a strategic plan to discontinue the operation comprising the broadcast products division. This division generally manufactures and sells broadcast video products to commercial end-users. See Note 2 in the Notes to Consolidated Financial Statements. Additionally, in the first quarter of 1996, the Company decided to restructure the videoconferencing division in order to seek profitability and growth. This resulted in adjustments that were recorded as of December 31, 1995 to carrying values of assets that were impacted--primarily inventories, capitalized software and accounts receivable. In conjunction with this action, the Company also reduced its permanent and temporary workforce by approximately 90 people in March of 1996 and identified a number of offices that would be closed. Severance and other expenses associated with this action will be reflected in the results of the first quarter of 1996. RISK FACTORS The following are among the risk factors that should be carefully considered in evaluating the Company and its business. Net Loss / Fluctuations in Quarterly Performance The Company has experienced, and may continue to experience, significant fluctuations in operating results due to a variety of factors. The Company sustained a net loss of $57.6 million and $3.5 million in 1995 and 1993, respectively. In 1994 the Company had net income of $0.1 million. There is no assurance that the Company will be able to achieve a profit in 1996 or in subsequent quarters and years. -11- 13 The Company's product sales have historically been derived primarily from the sale of videoconferencing systems and related equipment, the market for which is still developing. Most of the Company's products are complex capital equipment systems and/or involve significant equipment deployment; and as such, these products typically involve long sales and order cycles. Additionally, the Company's revenues have occurred predominantly in the third month of each fiscal quarter. The Company believes that this is due in some part to the timing of the capital equipment budget procedures of its customers. The Company is not certain of the other reasons for the occurrence of a large portion of its sales in the third month of each fiscal quarter. Accordingly, the Company's quarterly results of operations are difficult to predict, and delays in the introduction or acceptance of new products, delays in orders for existing products in anticipation of new products, or delays in the closing of sales near the end of the quarter could cause quarterly revenues and, to a greater degree, operating results to fall substantially short of anticipated levels. The Company's total revenues and results of operations could also be adversely affected by delays in achievement of planned cost reductions, cancellations of orders, interruptions or delays in supply of key components, failure of new products to meet specifications or performance expectations, changes in customer base or product mix, seasonal patterns of capital spending by customers, delays in purchase decisions due to new product announcements by the Company or its competitors, increased competition and reductions in average selling prices. High Levels of Inventory and Accounts Receivable The concentration of customer orders in the third month of each quarter, together with relatively long manufacturing lead times and the Company's growth, have required the Company to maintain high levels of inventory in order to deliver products on a timely basis. The Company also maintains equipment in inventory to provide demonstration systems to customers or potential customers on a short-term loan basis or on a monthly rental basis. Due to the rapid rate of change in CLI's industry, a large inventory poses the risk of inventory obsolescence or delay in realization of manufacturing cost improvements, either of which could have an adverse effect on the Company's financial results. In addition, the Company's accounts receivable were $46.8 million, net at December 31, 1995. CLI expects accounts receivable and inventory balances to fluctuate in the future. Among other things, introduction of new products requires the purchase and accumulation of significant amounts of inventory prior to the realization of revenue from the new products. Accordingly, the Company has in place a number of ongoing and planned measures to manage both inventories and accounts receivable; however, there can be no assurance that the Company can maintain its level of asset utilization in the future. Any significant increases in accounts receivable and inventories would result in a significant use of cash. The Company continues to finance accounts receivable and inventories through public and private offerings of equity securities, sale and leaseback arrangements and bank credit lines. There can be no assurance that the Company will be able to reduce or maintain its inventory and accounts receivable levels in the future. Product Development and Rapid Technological Change The videoconferencing market is characterized by rapid and significant change in technology and user needs, requiring substantial product development expenditures. These changes have resulted in frequent product introductions generally characterized by improved video and audio performance, added functionality and reduced prices. The Company's future success will depend to a large extent on its ability to maintain its competitive technological position and to continue to develop, on a cost effective and timely basis, technologically advanced products that meet changing user needs. There can be no assurance that the Company's product development efforts will be successful. In addition, customers may delay purchase decisions on existing products in anticipation of new products, which typically have higher initial manufacturing costs, higher initial component costs and lower initial overall gross margins than more mature products. The introduction of new products by the Company or its competitors may also pose the risk of inventory obsolescence. Highly Competitive Industry Competition in the video communications markets is intense. In the videoconferencing market, the Company's primary competitors are PictureTel Corporation, General Plessey Telecommunications, British Telecom and VTEL Corporation, and the Company expects other competitors to enter the videoconferencing market. Some of these competitors have significantly greater technical and financial resources than the Company. In particular, the Company expects competition from Japanese manufacturers, including Mitsubishi Ltd., Nippon Electric Corporation, Sony Corporation, Hitachi Limited and Fujitsu Ltd. If the Company cannot continue to offer new videoconferencing products with improved performance and reduced cost, its competitive position will erode. Moreover, competitive price reductions may adversely affect the Company's results of operations. -12- 14 Reliance on Key Personnel The success of the Company depends to a large extent on a small number of key senior technical and managerial personnel, the loss of one or more of whom could have a material adverse effect on the business of the Company. Typically these individuals do not have employment contracts with the Company. The Company believes that its future success will depend in part on its ability to continue to attract, retain and motivate additional highly skilled personnel, who are in great demand. Volatility of Stock Price The Company's Common Stock has historically been subject to substantial price volatility, particularly as a result of announcements of new products by the Company or its competitors, quarter-to-quarter variations in the financial results of the Company or its competitors and changes in earnings estimates by industry analysts. In addition, the stock market has experienced, and continues to experience, price and volume fluctuations which have affected the market price of many technology companies in particular and which have often been unrelated to the operating performance of these companies. These broad market fluctuations, as well as general economic and political conditions, may adversely affect the market price of the Common Stock. ITEM 2. PROPERTIES The Company currently occupies 243,100 square feet of office and manufacturing space in a modern industrial park in San Jose, California under three leases, one for 74,000 square feet which expires in September 1997, another for 142,700 square feet which expires in December 2001, and a third lease for a warehouse facility measuring 26,400 square feet which expires in June 1997. The Company has an option to extend these leases for periods of between two years and five years beyond the specified term. The Company also leases sales offices in various locations on a short-term basis. These leases are for periods of up to ten years. The Company believes that its facilities are suitable for its videoconferencing and broadcast and cable divisions, but may be too large if the broadcast division is sold and relocated. The Company also believes it can locate and occupy additional facilities as they are needed. ITEM 3. LEGAL PROCEEDINGS CIT GROUP/OSUERF On August 24, 1993, the Company filed a complaint against Oklahoma State University Education and Research Fund, Inc. (OSUERF) in United States District Court claiming that OSUERF breached an exclusive subcontract for the Company to provide equipment to OSUERF under OSUERF's prime contract with the United States Army, TRADOC Division. On November 18, 1993, the Company amended the complaint to add Federal Leasing, Inc. (FLI) as a defendant. On February 4, 1994, the CIT Group/Equipment Financing Inc. (CIT), as an assignee of FLI's rights under the Financing Agreement, filed a complaint against the Company in United States District Court claiming indemnification from the Company. The Company responded to CIT's complaint by denying the material charging allegations and stating certain affirmative defenses. The OSUERF and CIT actions have been consolidated. On April 21, 1995, CIT and FLI separately moved for summary judgment against the Company seeking damages in the amount of $2 million. The Company opposed the respective motions. By order dated October 11, 1995 the court denied the summary judgment motions of CIT and FLI, respectively. By order dated December 20, 1995, the consolidated actions were reassigned to the Honorable Charles A. Legge. A case management conference was held before Judge Legge on January 19, 1996, at which time the matter was set for jury trial to being November 4, 1996. Discovery will close June 30, 1996. The Company will vigorously defend the claims stated against it by CIT, and believes that it has meritorious defenses. However, there can be no assurance that the Company will prevail or obtain indemnity for any recovery from OSUERF. If any of CIT's claims were to be decided adversely to the Company, the Company would be liable to pay monetary damages to CIT. The Company believes that the ultimate resolution of this matter will not have a material adverse impact on the Company's consolidated financial position. -13- 15 SOUTHWESTERN BELL TELEPHONE COMPANY On April 6, 1995, the Company filed a complaint against Southwestern Bell Telephone Company (SWBT) in Santa Clara, California Superior Court alleging that SWBT intentionally interfered with CLI's contracts with OSUERF and Hughes Network Systems (HNS). SWBT moved to quash service of summons for lack of personal jurisdiction, which motion was granted on July 11, 1995. On July 25, 1995, the Company refiled the complaint in the United States District Court for the Western District of Oklahoma. The complaint was served on SWBT which filed its answer on October 17, 1995, denying the material allegations of the complaint. On September 6, 1995, CLI filed its notice of appeal of the Superior Court's order granting SWBT's motion to quash service of summons for lack of personal jurisdiction. The appeal has now been fully briefed and the parties are awaiting an order from the Court of Appeal setting oral argument. Pending the outcome of the appeal, CLI and SWBT have stipulated that the Oklahoma federal court action will be placed in administrative closure. An order placing the matter in administrative closure was entered on October 20, 1995. DATAPOINT CORPORATION In a complaint filed December 20, 1993, in the United States District Court in Dallas, Texas, Datapoint Corporation (Datapoint) alleged that the Company had infringed two United States patents owned by Datapoint relating to video conferencing networks. The complaint seeks a judgment of infringement, monetary damages, injunctive relief and reasonable attorney's fees. The Company responded to the complaint on February 16, 1994 by denying the material allegations of the complaint and asserting affirmative defenses. Pursuant to court order, the parties have participated in mediation before a court-appointed mediator. Discovery in the case has commenced. On September 27, 1995, the Company filed a motion to construe the scope of the patent claims at issue in the litigation so as to elucidate whether Datapoint can assert that the Company is infringing the patents in suit or whether Datapoint's patents are invalid in light of the prior art. Briefing on the motion is complete and the motion is under submission to a special master to prepare a report to the District Court concerning the motion. The Company believes that it has meritorious defenses to the allegations of the complaint, and is pursuing an aggressive defense; however, there can be no assurance that the Company will prevail. If any of the claims were to be decided adversely to the defendants, the Company could be liable for monetary damages to the plaintiff and be subject to injunctive relief. The Company believes that the ultimate resolution of this matter will not have a material adverse impact on the Company's financial position. JABIL CIRCUITS, INC. To fulfill a purchase order from Philips Consumer Electronics Company (Philips) for the supply of certain decoder units, the Company placed a purchase order with Jabil Circuits, Inc. (Jabil) for the procurement of the component parts and the manufacture of the units. Due to the cancellation of the Philips purchase order, the Company has canceled its purchase order with Jabil. By letter dated January 11, 1996, Jabil demanded that the Company issue a purchase order for approximately $6.5 million for the components which are outside the cancellation and reschedule windows. The Company has initiated and is engaged in negotiations with Philips and Jabil regarding the disposition of the component inventory and responsibility for cost of inventory that cannot be disposed of by Jabil. A resolution of the inventory issue has been reached as between Jabil and Philips. CLI has made a claim against Philips for damages associated with the Jabil inventory. Philips has not responded to CLI's claim letter. The Company believes that the ultimate resolution of this matter will not have a material adverse impact on the Company's consolidated financial position. PHILIPS CONSUMER ELECTRONICS COMPANY The Company entered into a Joint Development and Marketing Agreement (JDMA) with Philips dated January 12, 1994, for the supply of certain decoder units discussed in the Jabil matter above. By amendment to the JDMA on May 24, 1995, Philips agreed to pay the Company $2.6 million for all intellectual property jointly developed under the JDMA. In a related license agreement of May 12, 1995, the Company agreed to pay Philips $5.6 million for a license under background patents and other intellectual property. Philips owes the Company $1.3 million under the amendment, $0.9 million of which was due December 29, 1995. The Company owes Philips $3.3 million under the license agreement, $2.1 million of which was due December 29, 1995. The Company believes that Philips has failed to make certain technology disclosures required under the license agreement. The Company has initiated and is engaged in negotiations with Philips regarding -14- 16 disposition of rights and monies owed under the amendment and license agreement. The Company believes that the ultimate resolution of this matter will not have a material adverse impact on the Company's consolidated financial position. CORPORATE COMPUTER SERVICES, INC. By letter dated October 23, 1995, Corporate Computer Services, Inc. (CCS), through its counsel, has asserted that the Company is using proprietary technology of CCS without a license and is willfully misappropriating CCS' copyrights. The Company, in a letter from its counsel dated November 6, 1995, vigorously refuted CCS' assertions. The Company also tendered a payment with respect to past due royalties plus interest pursuant to the terms of the MUSICAM License Agreement with CCS. The Company and CCS are now in the process of exploring the possibility of a future license arrangement. The Company believes that the ultimate resolution of this matter will not have a material adverse impact on the Company's consolidated financial position. MUELLER/SHIELDS On or about March 15, 1996, a complaint was filed against the Company by Mueller/Shields OME in Superior Court of Orange County, California alleging breach of a marketing research contract. In the action entitled Mueller/Shields OME v. Compression Labs, Inc., Case No. 761079, Mueller/Shields seeks $682,425 in compensatory damages, plus attorneys' fees provided by contract. Since the filing of its complaint, Mueller/Shields has served notice of its application for a writ of attachment and has scheduled a hearing for its application on April 26, 1996. The Company and Mueller/Shields have been discussing a possible resolution. Those negotiations continue. The Company's response to the complaint is due April 17, 1996 and its opposition to the application for writ of attachment is due April 19, 1996. If any of Mueller/Shields' claims were to be decided adversely to the Company, the Company would be liable to pay monetary damages to Mueller/Shields. The Company believes that the ultimate resolution of this matter will not have a material impact on the Company's consolidated financial position. GENERAL In the normal course of business, the Company receives and makes inquiries with regard to other possible patent infringement. Where deemed advisable, the Company may seek or extend licenses or negotiate settlements. Outcomes of such negotiations may not be determinable at any point in time; however, management does not believe that such licenses or settlements will, individually or in the aggregate, have a material adverse affect on the Company's consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended December 31, 1995. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference to page 23 of Registrant's Annual Report to security holders to be furnished to the Commission pursuant to Rule 14a-3(b) in connection with the 1996 Annual Meeting which is attached hereto as Exhibit 13.1 (the "Annual Report"). ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated by reference to page 5 of the Annual Report, which is attached hereto as Exhibit 13.1. -15- 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated by reference to pages 7 through 9 of the Annual Report attached hereto as Exhibit 13.1. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company, including the notes thereto and quarterly information (unaudited) are incorporated herein by reference to page 6, and pages 10 through 22 of the Annual Report attached hereto as Exhibit 13.1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The sections entitled "Nomination and Election of Directors" and "Management" appearing on pages 2 through 5 in the Registrant's Proxy Statement to be filed with the Securities and Exchange Commission are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" appearing on pages 19 through 24 in the Registrant's Proxy Statement to be filed with the Securities and Exchange Commission is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Security Ownership of Officers, Directors and Principal Stockholders" appearing on pages 17 through 18 in the Registrant's Proxy Statement to be filed with the Securities and Exchange Commission is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. -16- 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as a part of this Report: Index to Financial Statements (a)(1). The following consolidated financial statements of Compression Labs, Incorporated are included pursuant to Item 8:
Page in Form 10-K ----------------- Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 1995............................................ * Consolidated Balance Sheets as of December 31, 1995 and 1994 ............. * Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 1995 ......................... * Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1995 ................................ * Notes to Consolidated Financial Statements ............................... * Independent Auditor's Report.............................................. *
*These items have been incorporated by reference as indicated under Item 8 of this Report. Index to Financial Statement Schedules (a)(2). The following financial statement schedules of Compression Labs, Incorporated for each of the years in the three-year period ended December 31, 1995 are included pursuant to Item 8:
Page in Form 10-K ----------------- Independent Auditors' Report on Schedule .............................. S-1 Schedule II Valuation and Qualifying Accounts ....................... S-2
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Financial Statements or notes thereto. -17- 19 (a)(3). Exhibits
Exhibit Number Description - ------ ----------- 3.1 Restated Certificate of Incorporation of Registrant, as amended. (1) 3.2 Bylaws, as amended. (2) 4.1 Warrant, dated as of December 19, 1989, between the Company and PaineWebber R&D Partners, II, L.P. (3) 4.2 Amendment No. 1 to Warrant, dated as of October 16, 1992, between the Company and PaineWebber R&D Partners II, L.P. (3) 4.3 Form of Warrant Certificate. (3) 4.4 Form of Common Stock Certificate. (3) 10.1 1980 Stock Option Plan, as amended (the ISO Plan). (21) 10.2 Revised forms of Incentive Stock Option and Early Exercise Stock Purchase Agreement used in connection with the issuance and exercise of options under the ISO Plan. (4) 10.3 1984 Employee Stock Purchase Plan, as amended (the 1984 Purchase Plan). (21) 10.4 Form of Offering and Participation and Payroll Deduction Agreement used in connection with the purchase of Common Stock under the 1984 Purchase Plan. (4) 10.5 1984 Supplemental Stock Option Plan, as amended (the Supplemental Plan). (21) 10.6 Forms of Supplemental Stock Option Plan and Early Exercise Stock Purchase agreement used in connection with the issuance and exercise of options under the Supplemental Plan. (5) 10.7 Individual Stock Option grant covering the option granted to Arthur G. Anderson on December 21, 1984. (4) 10.8 Lease Agreement, dated as of January 16, 1987, covering the Company's principal executive offices and manufacturing facility. (2) 10.9 Sublease Agreement, dated December 6, 1990, covering the Company's additional principal executive offices. (6) 10.10 Letter Agreement, dated January 27, 1992, with Bank of the West, covering line of credit and equipment lease line. (7) 10.11 Perquisite Plan. (8) 10.12 Commitment letters from United States Portfolio Leasing, Inc. (USPL) and General Electric Capital Corporation (GECC) dated September 12, 1989 and September 29, 1989, respectively. (9) 10.13 Program Agreement dated as of December 19, 1989 between CLI and PaineWebber R&D Partners II, L.P. (10)*
- ------------------------ * Confidential treatment requested for portions of this agreement. -18- 20 10.14 Purchase Agreement dated as of December 19, 1989 between CLI and PaineWebber R&D Partners II, L.P. (10)* 10.15 Joint Development Agreement dated as of April 13, 1991, between Compression Labs, Incorporated and Integrated Information Technology. (11)* 10.16 Amended and Restated 1992 Non-Employee Directors' Stock Option Plan (the Directors' Plan) and Form of Grant used in connection therewith. (21) 10.17 Amendment No. 1 To Program Agreement between the Company and PaineWebber R&D Partners II, L.P., dated as of March 30, 1992. (12)* 10.18 Amendment No. 1 To Joint Venture and Purchase Option Agreement between the Company and PaineWebber R&D Partners II, L.P., dated as of March 30, 1992. (12)* 10.19 Amendment No. 1 To Development Agreement between the Company and PaineWebber R&D Partners II, L.P., dated as of March 30, 1992. (12)* 10.20 Amendment No. 2 To Program Agreement between the Company and PaineWebber R&D Partners II, L.P., dated as of October 16, 1992. (12)* 10.21 Amendment No. 2 to Development Agreement between the Company and PaineWebber R&D Partners II, L.P., dated as of October 16, 1992. (12)* 10.22 First Amendment to Loan and Security Agreement, entered into as of January 1, 1992, by and between Compression Labs, Incorporated and Bank of the West. (12) 10.23 Second Amendment to Loan and Security Agreement, entered into as of May 1, 1992, by and between Compression Labs, Incorporated and Bank of the West. (12) 10.24 Third Amendment to Loan and Security Agreement, entered into as of October 1, 1992, by and between Compression Labs, Incorporated and Bank of the West. (12) 10.25 Letter Agreement, dated October 26, 1992, with Bank of the West, covering net investable balances in its deposit accounts. (12) 10.26 Lease Agreement, dated March 31, 1992, between MLH Income Realty Partnership III, Lessor, and Compression Labs, Incorporated, Lessee, covering the Company's principal manufacturing facility. (12) 10.27 Convertible Preferred Stock Purchase Agreement by and between Compression Labs, Incorporated and Thomson Consumer Electronics S.A., dated January 29, 1993. (13) 10.28 Strategic Cooperation Agreement, by and between Compression Labs, Incorporated and Thomson Consumer Electronics S.A., dated January 29, 1993. (13) 10.29 Amended and Restated Rights Agreement by and between Compression Labs, Incorporated and The First National Bank of Boston, dated January 29, 1993. (13) 10.30 Fourth Amendment to Loan and Security Agreement, entered into as of March 25, 1993, by and between Compression Labs, Incorporated and Bank of the West. (14) 10.31 Fifth Amendment to Loan and Security Agreement, entered into as of April 30, 1993, by and between Compression Labs, Incorporated and Bank of the West. (14) 10.32 Letter of Commitment entered into as of August 13, 1993, by and between Compression Labs, Incorporated and Bank of the West. (15)
- ------------------------- * Confidential treatment requested for portions of this agreement. -19- 21 10.33 Sixth Amendment and Special Facilities Rider to Loan and Security Agreement, entered into as of September 28, 1993, by and between Compression Labs, Incorporated and Bank of the West. (16) 10.34 Investment Agreement by and between Compression Labs, Incorporated and Fletcher Capital Markets, Inc., dated October 20, 1993. (17) 10.35 Common Stock Purchase Agreement by and between Compression Labs, Incorporated and Intel Corporation, dated May 5, 1994. (19) 10.36 Credit Agreement entered into as of June 30, 1994, by and between Compression Labs, Incorporated and Bank of America National Trust and Savings Association. (20) 10.37 First Amendment to Lease, dated December 14, 1994, between MLH Income Realty Partnership III, Lessor, and Compression Labs, Incorporated, Lessee, covering the Company's principal manufacturing facility. (22) 10.38 Waiver and First Amendment to Credit Agreement, entered into as of November 23, 1994, by and between Compression Labs, Incorporated and Bank of America National Trust and Savings Association. (22) 10.39 Second Amendment to Credit Agreement and Partial Release of Collateral, entered into as of May 12, 1995, by and between Compression Labs, Incorporated and Bank of America National Trust and Savings Association. (23) 10.40 Waiver and Third Amendment to Credit Agreement, entered into as of May 12, 1995, by and between Compression Labs, Incorporated and Bank of America National Trust and Savings Association. (23) 10.41 Fourth Amendment to Credit Agreement, entered into as of June 23, 1995, by and between Compression Labs, Incorporated and Bank of America National Trust and Savings Association. (25) 10.42 Investment Agreement by and between Compression Labs, Incorporated and Fletcher Asset Management, Inc., dated as of June 16, 1995. (21) 10.43 Loan and Security Agreement, entered into as of August 21, 1995, by and between Compression Labs, Incorporated and BankAmerica Business Credit, Inc. (24) 10.44 Consulting and Separation Agreement with John E. Tyson dated February 16, 1996. 10.45 Consulting and Separation Agreement with Robert Silver dated November 29, 1995. 10.46 Waiver and First Amendment to Credit Agreement, entered into as of April 11, 1996, by and between Compression Labs, Incorporated and BankAmerica Business Credit, Inc. 13.1 Registrant's Annual Report to Stockholders for the year ended December 31, 1995, pages 5 through 23. 21.1 Subsidiaries of the Company. (8) 23.1 Consent of Independent Auditors. 24.1 Power of Attorney. Reference is made to Page 23. 27.1 Article 5 of Regulation S-X, Financial Data Schedules for Compression Labs, Incorporated for the Year Ending December 31, 1995.
- ------------------------- (1) Filed as an exhibit to a Registration Statement on Form S-8 filed on November 29, 1989 (Registration No. 33-32366) and incorporated herein by reference. -20- 22 (2) Filed as an exhibit to an Annual Report on Form 10-K filed on April 14, 1988 (Commission File No. 0-13218) and incorporated herein by reference. (3) Filed as an exhibit to a Registration Statement on Form S-3 filed on April 5, 1993 and incorporated herein by reference. (4) Filed as an exhibit to an Annual Report on Form 10-K filed for the year ended March 29, 1985 (Commission File No. 0-13218) and incorporated herein by reference. (5) Filed as an exhibit to a Registration Statement on Form S-8 filed On March 5, 1985 (Registration No. 2-96228) and incorporated herein by reference. (6) Filed as an exhibit to an Annual Report on Form 10-K filed for the year ended December 31, 1990 (Commission File No. 0-13218) and incorporated herein by reference. (7) Filed as an exhibit to an Annual Report on Form 10-K filed for the year ended December 31, 1991 (Commission File No. 0-13218) and incorporated herein by reference. (8) Filed as an exhibit to a Registration Statement on Form S-1 filed on July 10, 1986 (Registration No. 33-7128) or Amendment No. 1 to such Registration Statement filed on July 24, 1986 and incorporated herein by reference. (9) Filed as an exhibit to a Quarterly Report on Form 10-Q filed on November 10, 1989 (Commission File No. 0-13218) and incorporated herein by reference. (10) Filed as an exhibit to an Annual Report on Form 10-K filed for the year ended December 31, 1989 (Commission File No. 0-13218) and incorporated herein by reference. (11) Filed as an exhibit to a Quarterly Report on Form 10-Q filed on May 15, 1991 (Commission File No. 0-13218) and incorporated herein by reference. (12) Filed as an exhibit to an Annual Report on Form 10-K filed for the year ended December 31, 1992 (Commission File No. 0-13218) and incorporated herein by reference. (13) Filed as an exhibit to a Current Report on Form 8-K filed February 1, 1993 (Commission File No. 0-13218) and incorporated herein by reference. (14) Filed as an exhibit to a quarterly report on Form 10-Q for the quarterly period ended March 31, 1993 (Commission File No. 0-13218) and incorporated herein by reference. (15) Filed as an exhibit to a quarterly report on Form 10-Q for the quarterly period ended June 30, 1993 (Commission File No. 0-13218) and incorporated herein by reference. (16) Filed as an exhibit to a quarterly report on Form 10-Q for the quarterly period ended September 30, 1993 (Commission File No. 0-13218) and incorporated herein by reference. (17) Filed as an exhibit to a report on Form 8-K dated October 20, 1993 (Commission File No. 0-13218) and incorporated herein by reference. (18) Management contract or compensatory plan or arrangement. (19) Filed as an exhibit to a report on Form 8-K dated May 5, 1994 (Commission File No. 0-13218) and incorporated herein by reference. (20) Filed as an exhibit to a quarterly report on Form 10-Q for the quarterly period ended June 30, 1994 (Commission File No. 0-13218) and incorporated herein by reference. (21) Filed as an exhibit to previous filing (Commission File No. 0-13218). (22) Filed as an exhibit to an Annual Report on Form 10-K filed for the year ended December 31, 1994 (Commission File No. 0-13218) and incorporated herein by reference. (23) Filed as an exhibit to a quarterly report on Form 10-Q for the quarterly period ended March 30, 1995 (Commission File No. 0-13218) and incorporated herein by reference. (24) Filed as an exhibit to a quarterly report on Form 10-Q for the quarterly period ended September 30, 1995 (Commission File No. 0-13218) and incorporated herein by reference. (25) Filed as an exhibit to a quarterly report on Form 10-Q for the quarterly period ended June 30, 1995 (Commission File No. 0-13218) and incorporated herein by reference. -21- 23 (b) Reports on Form 8-K Current Report on Form 8-K - None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMPRESSION LABS, INCORPORATED BY /s/ Michael E. Seifert ----------------------------------------- Michael E. Seifert Vice President, Finance and Chief Accounting Officer April 15, 1996 -22- 24 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints T. Gary Trimm and Michael E. Seifert, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ T. Gary Trimm President and Chief Executive Officer April 15, 1996 - ----------------------------- (Principal Executive Officer) T. Gary Trimm /s/ Michael E. Seifert Vice President, Finance and April 15, 1996 - ----------------------------- Chief Accounting Officer, Michael E. Seifert (Principal Accounting Officer) /a/ Arthur G. Anderson Chairman of the Board April 15, 1996 - ----------------------------- Arthur G. Anderson /s/ Robert J. Casale Director April 15, 1996 - ----------------------------- Robert J. Casale /s/ Robert B. Liepold Director April 15, 1996 - ----------------------------- Robert B. Liepold /s/ David A. Wegmann Director April 15, 1996 - ----------------------------- David A. Wegmann
-23- 25 INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors Compression Labs, Incorporated: Under date of March 13, 1996, we reported on the consolidated balance sheets of Compression Labs, Incorporated as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, as contained in the 1995 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the December 31, 1995 annual report on Form 10-K of Compression Labs, Incorporated. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed under item 14(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP San Jose, California March 13, 1996 S-1 26 SCHEDULE II COMPRESSION LABS, INCORPORATED VALUATION AND QUALIFYING ACCOUNTS For the Years ended December 31, 1995, 1994 and 1993 (In thousands)
Balance at Additions Begin- Charged to Balance ning of Costs and at End of Period Expenses Deductions Period ---------------------------------------------------------- YEAR ENDED DECEMBER 31, 1995: Deducted from asset accounts - Allowance for doubtful accounts $1,992 $11,349 $ (3,313) (1) $ 10,028 Product warranty liability $ 881 $ 2,487 $ (2,793) (2) $ 575 Product upgrades $ 97 $ 60 $ (97) (3) $ 60 - --------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1994: Deducted from asset accounts - Allowance for doubtful accounts $1,358 $ 841 $ (207) (1) $ 1,992 Product warranty liability $ 880 $ 2,696 $ (2,695) (2) $ 881 Product upgrades $ 333 $ 324 $ (560) (3) $ 97 - --------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993: Deducted from asset accounts - Allowance for doubtful accounts $1,018 $ 387 $ (47) (1) $ 1,358 Product warranty liability $ 570 $ 1,598 $ (1,288) (2) $ 880 Product upgrades $1,335 $ -- $ (1,002) (3) $ 333 - ---------------------------------------------------------------------------------------------------------------
(1) Uncollectable accounts written off during the year. (2) Costs incurred for warranty repairs during the year. (3) Charges incurred for options and additional software features owed to customers. S-2 EX-10.44 2 SEPARATION AGREEMENT W/ JOHN TYSON 2/16/96 1 EXHIBIT 10.44 SEPARATION AND CONSULTING AGREEMENT THIS SEPARATION AND CONSULTING AGREEMENT (the "Agreement") is made and entered into this 16th day of February, 1996 between JOHN E. TYSON ("Mr. Tyson") and COMPRESSION LABS, INC., a Delaware corporation (the "Company"). W I T N E S S E T H WHEREAS, Mr. Tyson has tendered his resignation as Chief Executive Officer of the Company and all other positions he may hold with the Company, and wishes to enter into a consulting relationship with the Company; and WHEREAS, the Company has accepted Mr. Tyson's resignation as Chief Executive Officer of the Company and all other positions he may hold with the Company, and wishes to provide Mr. Tyson with certain benefits in consideration of his service to the Company and the promises and covenants of Mr. Tyson as contained herein. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is agreed by and between the parties hereto as follows: 1. RESIGNATION. Mr. Tyson has tendered and the Company has accepted Mr. Tyson's resignation as Chief Executive Officer of the Company and all other positions he may hold with the Company, effective February 20, 1996 ("Separation Date"). 2. ACCRUED SALARY AND PAID TIME OFF. The Company will pay Mr. Tyson all accrued salary, and all accrued and unused paid time off earned prior to the Separation Date, subject to standard payroll deductions and withholdings. Mr. Tyson is entitled to this payment regardless of whether he signs this Agreement. 3. EXPENSE REIMBURSEMENT. Within thirty (30) business days of the Separation Date, Mr. Tyson will submit his final documented expense reimbursement statement reflecting all business expenses he incurred through the Separation Date, if any, for which he seeks reimbursement. The Company shall reimburse Mr. Tyson's expenses pursuant to Company policy and regular business practice. 4. CONSULTING AGREEMENT. Mr. Tyson shall serve as a consultant to the Company under the terms specified below. The consulting relationship shall commence on the date of the Separation Date and continue through February 20, 1998 (the "Consulting Period"). (A) CONSULTING SERVICES. Mr. Tyson agrees to provide consulting services to the Company in any area for which he is qualified by virtue of his education, experience and training upon request by a duly authorized officer of the Company. He agrees to exercise the highest degree of professionalism and utilize his expertise and creative talents in performing these services. Mr. Tyson agrees to make himself available to perform such consulting services throughout the Consulting Period, up to a maximum of twenty (20) hours per month for the first six (6) months of the Consulting Period and ten (10) hours per month for the remaining eighteen (18) months of the Consulting Period. In order to assist the delivery of Mr. Tyson's consulting services, the Company agrees to provide Mr. Tyson with satisfactory office facilities and clerical support, and to reimburse Mr. Tyson's reasonable expenses as a consultant. (B) CONSULTING FEES AND BENEFITS. (1) CONSULTING FEES. During the Consulting Period, Mr. Tyson shall receive twenty-four thousand dollars and no cents ($24,000.00) per month ("Consulting Fees"). (2) TAXES AND WITHHOLDING. The Company will not withhold from the Consulting Fees any amount for taxes, social security or other payroll deductions. The Company will issue Mr. Tyson a Form 1099 with respect to Mr. Tyson's Consulting Fees. Mr. Tyson acknowledges that he will be entirely 1 2 responsible for payment of any such taxes, and he hereby indemnifies and holds harmless the Company from any liability for any taxes, penalties or interest which may be assessed by any taxing authority. (3) HEALTH INSURANCE COVERAGE. To the extent permitted by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the Company's group health insurance policies, Mr. Tyson and his covered dependents will be eligible to continue their health insurance benefits at their own expense, and later, to convert to an individual policy if they wish. Mr. Tyson and his covered dependents will be provided with a separate notice of their COBRA rights. If Mr. Tyson elects COBRA continuation, the Company agrees to pay (i) Mr. Tyson and his covered dependents' COBRA continuation premiums for the eighteen (18)-month COBRA period and (ii) Mr. Tyson an amount equal to such COBRA continuation premiums for the remainder of the Consulting Period; provided, however, that the Company's obligation to make such payments shall cease immediately if Mr. Tyson becomes eligible for other health insurance benefits at the expense of a new employer. Mr. Tyson agrees to notify a duly authorized officer of the Company, in writing, immediately upon acceptance of any employment which provides health insurance benefits. This paragraph provides only for the Company's payment of COBRA continuation premiums for the periods specified above. This paragraph is not intended to affect, nor does it affect, the rights of Mr. Tyson, or Mr. Tyson's covered dependents under any applicable law with respect to health insurance continuation coverage. (4) STOCK OPTIONS. Mr. Tyson's stock options to acquire common stock of the Company which are outstanding as of the Separation Date (the "Stock Options") shall continue to vest during the Consulting Period under the vesting schedule or schedules specified in the relevant Stock Option agreements, and under the same terms and conditions specified in the relevant Stock Option agreements. Notwithstanding the foregoing sentence, all of Mr. Tyson's Stock Options shall become fully vested on August 20, 1996, or upon Mr. Tyson's death or permanent mental or physical disability before that date. In addition, except for the Stock Options granted to Mr. Tyson on May 20, 1988 and April 27, 1989, the Company agrees to extend the term of Mr. Tyson's Stock Options beyond the three (3)-month exercise period following the Separation Date in order to permit Mr. Tyson to exercise his Stock Options no later than the end of their full ten (10)-year term or March 1, 2001, whichever occurs first. The provisions of this Agreement which affect Mr. Tyson's Stock Option agreements shall be treated as amendments to such agreements. Mr. Tyson acknowledges that by virtue of receiving an extension of the exercise period, his Incentive Stock Options may no longer be treated as such, but instead may be treated for tax purposes as if they were Non-Qualified Stock Options. (5) OTHER COMPENSATION. Except as expressly provided herein, Mr. Tyson acknowledges that he will not receive (nor is he entitled to) any additional compensation, severance or benefits (including, but not limited to, life insurance and disability insurance). Provided, however, that nothing herein shall impair Mr. Tyson's rights under the Company's existing benefit plans. (C) LIMITATIONS ON AUTHORITY. Mr. Tyson shall have no responsibilities or authority as a consultant to the Company other than as provided for above. Mr. Tyson hereby agrees not to represent or purport to represent the Company in any manner whatsoever to any third party unless authorized by the Company, in writing, to do so. 5. DEATH OF MR. TYSON. In the event that Mr. Tyson dies or becomes permanently physically or mentally disabled during the Consulting Period, and provided the Consulting Period has not been terminated as a result of paragraph 7 of this Agreement, any Consulting Fees unpaid at that date shall be paid to Mr. Tyson's Beneficiary or representative. The Beneficiary and the Company may, by written agreement entered into after Mr. Tyson's death, agree to an acceleration of such payments. In the event Mr. Tyson dies or becomes permanently physically or mentally disabled either during or after the Consulting Period and provided the Consulting Period has not been terminated as a result of paragraph 7 of this Agreement, any Stock Options may be exercised by Mr. Tyson's Beneficiary or representative. Beneficiary means such person or persons designated by Mr. Tyson to receive any Consulting Fees and/or exercise his Stock Options in accordance with this paragraph 5. The designation of the Beneficiary shall be made in a writing signed by 2 3 Mr. Tyson and in a form acceptable to the Company. Mr. Tyson may revoke and redesignate the Beneficiary at any time and from time to time up to the date of Mr. Tyson's death. 6. OTHER WORK ACTIVITIES. Throughout the Consulting Period, Mr. Tyson retains the right to engage in employment, consulting, or other work relationships in addition to his work for the Company. The Company will make reasonable arrangements to enable Mr. Tyson to perform his work for the Company at such times and in such a manner so that it will not interfere with other activities in which he may engage. In order to protect the trade secrets and confidential and proprietary information of the Company, Mr. Tyson agrees that, during the Consulting Period, he will not obtain employment, perform work for any business entity, or engage in any other work activity which is in competition, or is preparing to compete, with the Company ("Competitive Activity"). For purposes of this paragraph, employment, performing work for a business entity or engaging in a work activity shall be considered in competition with the Company if such employment or work is in a business in which the Company is actively involved both on the Separation Date and at the time Mr. Tyson obtains such employment, performs such work for a business entity or engages in such other work activity and (ii) businesses in which the Company plans to engage as of the Separation Date, but only if Mr. Tyson was actively involved in developing the strategic plans to engage in such business. For purposes of this paragraph, the holding of less than one percent (1%) of the outstanding voting securities of any firm or business organization in competition with the Company shall not constitute activities or services precluded by this paragraph. Mr. Tyson agrees to notify the Company, in writing, at least ten (10) business days prior to engaging in any work for any business purpose other than work for the Company. In the event that Mr. Tyson is informed by the Company that any such work constitutes Competitive Activity, and he subsequently engages in such Competitive Activity, the Consulting Period shall end immediately in accordance with paragraph 7. The Company shall not seek to recover any fees or benefits provided to Mr. Tyson prior to his engagement in Competitive Activity, and such Competitive Activity shall not be considered a breach of this Agreement. For purposes of this paragraph, Mr. Tyson's involvement in a joint venture between Loral Corporation, CableVision, Ltd. and Continental Satellite Corporation (or any affiliates of the foregoing), including but not limited to business television or distance clearing applications, shall not be considered Competitive Activity, but only as to such opportunity that Mr. Tyson has previously disclosed to the Company's Board of Directors. The Company acknowledges that the Board of Directors has already considered and declined to participate in said joint venture, and has approved Mr. Tyson's involvement in said joint venture. 7. EARLY TERMINATION OF CONSULTING PERIOD. If, during the Consulting Period, Mr. Tyson (i) voluntarily terminates his consulting relationship with the Company upon notifying the Company, in writing, at least ten (10) business days in advance, (ii) does not reasonably cooperate with the reasonable requests of the Company in performing his consulting services, or (iii) engages in Competitive Activity as defined in paragraph 6, the Consulting Period shall terminate immediately. Upon such early termination of the Consulting Period (except in the event of Mr. Tyson's death or permanent physical or mental disability in accordance with paragraph 5), the Company's obligation to pay Mr. Tyson any further Consulting Fees and Mr. Tyson's COBRA continuation premiums and Mr. Tyson's vesting in his Stock Options shall cease immediately and Mr. Tyson's ability to exercise his Stock Options shall terminate three (3) months following the date of such early termination of the Consulting Period. The Consulting Period shall not expire prior to the expiration of its term for any reason other than a reason set forth in this paragraph 7. 8. ATTORNEY'S FEES. The Company agrees to pay Mr. Tyson's attorney's fees relating to this Agreement, up to a maximum of five thousand dollars ($5,000). 9. MITIGATION. Except as otherwise specifically provided herein, Mr. Tyson shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Mr. Tyson as a result of employment by another employer or by retirement benefits after the Separation Date, or otherwise. 10. BEST PAYMENT PROVISION. In the event that any payment and the value of any benefit received or to be received by Mr. Tyson would result in all or a portion of such payment to be subject to excise tax under 3 4 Section 4999 of the Internal Revenue Code, then Mr. Tyson's payment shall be either (i) the full payment or (ii) such lesser amount which would result in no portion of the payment being subject to excise tax under Section 4999 of the Internal Revenue Code, whichever of the foregoing amounts, taking into account the applicable Federal, state, and local employment taxes, income taxes, and the excise tax imposed by Section 4999 of the Internal Revenue Code, results in the receipt by Mr. Tyson, on an after-tax basis, of the greatest amount of the payment notwithstanding that all or some portion of the payment may be taxable under Section 4999 of the Internal Revenue Code. All determinations required to be made under this Paragraph shall be made by KPMG Peat Marwick or any other nationally recognized accounting firm which is the Company's outside auditor at the time of such determination, which firm must be reasonably acceptable to executive (the "Accounting Firm"). The Company shall cause the Accounting Firm to provide detailed supporting calculations of its determinations to the Company and Mr. Tyson. Notice must be given to the Accounting Firm within fifteen (15) business days after an event entitling Mr. Tyson to a payment under this Agreement. All fees and expenses of the Accounting Firm shall be borne solely by the Company. The accounting Firm's determinations must be made with substantial authority (within the meaning of Section 6662 of the Internal Revenue Code). 11. NONSOLICITATION. Mr. Tyson agrees that during the Consulting Period, he will not, either directly or through others, solicit or attempt to solicit any employee, consultant, or independent contractor of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity. 12. COMPANY PROPERTY. Within seven (7) days of the Separation Date, Mr. Tyson agrees to return to the Company all Company documents (and all copies thereof) and other Company property in his possession, or his control, including, but not limited to, Company files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property, credit cards, entry cards, identification badges and keys; and, any materials of any kind which contain or embody any proprietary or confidential material of the Company (and all reproductions thereof). Mr. Tyson agrees that, as of the Separation Date, he will neither use nor possess Company property, except such property which any officer or the Board specifically authorizes him to use or possess for the sole purpose of performing his duties under this Agreement. Mr. Tyson further agrees that he will return all property provided to him pursuant to the preceding sentence, upon completion of the specific project for which he was authorized to possess such property or on the Separation Date, whichever first occurs. 13. PROPRIETARY INFORMATION OBLIGATIONS. Mr. Tyson hereby agrees to be bound throughout the Consulting Period by the terms of his Proprietary Information and Inventions Agreement ("Proprietary Information Agreement"), attached hereto as Exhibit A, certain obligations under which continue after the termination of the Consulting Period, as specified in the Proprietary Information Agreement. However, inventions which he may make during this period without reference to proprietary information of the Company, and which are not derived from such information, shall remain Mr. Tyson's sole property. 14. NONDISPARAGEMENT. Mr. Tyson and the Company agree that neither party will at any time disparage the other in any manner likely to be harmful to the other party, its business reputation, or the personal or business reputation of its directors, shareholders, and employees, provided that each party shall respond accurately and fully to any question, inquiry, or request for information when required by legal process. 15. CONFIDENTIALITY. The provisions of this Agreement shall be held in strictest confidence by Mr. Tyson and the Company and shall not be publicized or disclosed in any manner whatsoever. Notwithstanding the prohibition in the preceding sentence: (i) Mr. Tyson may disclose this Agreement, in confidence, to his immediate family; (ii) the parties may disclose this Agreement in confidence to their respective attorneys, accountants, auditors, tax preparers, and financial advisors; (iii) the Company may disclose this Agreement as necessary to fulfill standard or legally required corporate reporting or disclosure requirements; and (iv) the parties may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law. In particular (and without limitation), Mr. Tyson agrees not to discuss 4 5 this Agreement with present or former Company employees or other personnel, except to the extent necessary to explain his consulting relationship with the Company or to carry out his duties under this Agreement. 16. RELEASE OF CLAIMS. Except as otherwise set forth in this Agreement, Mr. Tyson hereby releases, acquits and forever discharges the Company, its officers, directors, agents, attorneys, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the execution date hereof, including but not limited to: any and all such claims and demands directly or indirectly arising out of or in any way connected with Mr. Tyson's employment with the Company or the termination of that employment; claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, sabbatical benefits, severance benefits, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify Mr. Tyson pursuant to the Company's Indemnification Agreement. 17. ADEA WAIVER. Mr. Tyson acknowledges that he is knowingly and voluntarily waiving and releasing any rights he may have under the ADEA. He also acknowledges that the consideration given for the waiver in the above paragraph is in addition to anything of value to which he was already entitled. He further acknowledges that he has been advised by this writing that: (i) his waiver and release do not apply to any claims that may arise after he signs this Agreement; (ii) he has the right to consult with an attorney prior to executing this Agreement; (iii) he has twenty-one (21) days within which to consider this Agreement (although he may choose to voluntarily execute this Agreement earlier); (iv) he has seven (7) days following the execution of this Agreement to revoke the Agreement; and (v) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Agreement is executed by Mr. Tyson, provided that the Company has also signed the Agreement by that date. 18. SECTION 1542 WAIVER. Mr. Tyson acknowledges that he has read and understands Section 1542 of the Civil Code of the State of California which reads as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Mr. Tyson hereby expressly waives and relinquishes all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to the release granted in this Agreement. 19. NO ADMISSIONS. It is understood and agreed by Mr. Tyson and the Company that this Agreement represents a compromise settlement of various matters, and that the promises and payments in consideration of this Agreement shall not be construed to be an admission of any liability or obligation by either party to the other party or to any other person. 20. AMENDMENT OF THIS AGREEMENT. This Agreement may be changed only upon the mutual written consent of the Company and Mr. Tyson. The written consent of the Company to a change of this Agreement must be signed by the Company's Chief Financial Officer, after such change has been approved by the Compensation Committee of the Company's Board of Directors. 21. NOTICES. Any notices provided hereunder must be in writing and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex or facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Mr. Tyson at his address as listed in the Company's payroll records. Any payments made by 5 6 the Company to Mr. Tyson under the terms of this Agreement shall be delivered to Mr. Tyson either in person or at his address as listed in the Company's payroll records. 22. SEVERABILITY. If a court of competent jurisdiction determines that any term or provision of this Agreement is invalid or unenforceable, in whole or in part, then the remaining terms and provisions hereof shall be unimpaired. Such court will have the authority to modify or replace the invalid or unenforceable term or provision with a valid and enforceable term or provision that most accurately represents the parties' intention with respect to the invalid or unenforceable term or provision. 23. WAIVER. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 24. COMPLETE AGREEMENT. This Agreement, including Exhibits A and B and the applicable option agreements as amended hereby, constitutes the entire agreement between Mr. Tyson and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein. Each party has carefully read this Agreement, has been afforded the opportunity to be advised of its meaning and consequences by his or its respective attorneys, and signed the same of his or its own free will. 25. COUNTERPARTS. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. 26. HEADINGS. The headings of the paragraphs hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof. 27. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the benefit of and be enforceable by Mr. Tyson and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Mr. Tyson may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably. 28. ATTORNEY FEES. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action. 29. ARBITRATION. In order to ensure rapid and economical resolution of any dispute which may arise under this Agreement, Mr. Tyson and the Company agree that any and all disputes or controversies, arising from or regarding the interpretation, performance, enforcement or termination of this Agreement shall be resolved by final and binding arbitration under the procedures set forth in the Arbitration Procedure attached hereto as Exhibit B and the then existing Judicial Arbitration and Mediation Services Rules, Inc. ("JAMS") of Practice and Procedure or the rules of practice and procedure of any successor entity to JAMS (except insofar as they are inconsistent with the procedures set forth in the enclosed Arbitration Procedure). BY ENTERING INTO THIS AGREEMENT, THE COMPANY AND MR. TYSON ACKNOWLEDGE THAT THEY ARE WAIVING THEIR RIGHT TO JURY TRIAL OF ANY DISPUTE COVERED BY THIS AGREEMENT. 30. CHOICE OF LAW. This Agreement shall be deemed to have been entered into and shall be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California. 31. CONSTRUCTION OF AGREEMENT. In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control. 6 7 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year written above. COMPRESSION LABS, INC., JOHN E. TYSON A DELAWARE CORPORATION By: /s/ William A. Berry /s/ John E. Tyson Title:
Exhibit A: Proprietary Information and Inventions Agreement Exhibit B: Arbitration Procedure 7 8 EXHIBIT A PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT 8 9 EXHIBIT B ARBITRATION PROCEDURE 1. The parties agree that any dispute that arises in connection with this Agreement or the termination of this Agreement shall be resolved by binding arbitration in the manner described below. 2. A party intending to seek resolution of any dispute under the Agreement by arbitration shall provide a written demand for arbitration to the other party, which demand shall contain a brief statement of the issues to be resolved. 3. The arbitration shall be conducted in Santa Clara County, California, by a mutually acceptable retired judge from the panel of Judicial Arbitration and Mediation Services, Inc. or any entity performing the same type of services that succeeds to its business ("JAMS"). At the request of either party, arbitration proceedings will be conducted in the utmost secrecy and, in such case, all documents, testimony and records shall be received, heard and maintained by the arbitrator in secrecy under seal, available for inspection only by the parties to the arbitration, their respective attorneys, and their respective expert consultants or witnesses who shall agree, in advance and in writing, to receive all such information confidentially and to maintain such information in secrecy, and make no use of such information except for the purposes of the arbitration, unless compelled by legal process. 4. The arbitrator is required to disclose any circumstances that might preclude the arbitrator from rendering an objective and impartial determination. In the event the parties cannot mutually agree upon the selection of a JAMS arbitrator, the President of JAMS shall designate the arbitrator. 5. The party demanding arbitration shall promptly request that JAMS conduct a scheduling conference within fifteen (15) days of the date of that party's written demand for arbitration or on the first available date thereafter on the arbitrator's calendar. The arbitration hearing shall be held within thirty (30) days after the scheduling conference or on the first available date thereafter on the arbitrator's calendar. Nothing in this paragraph shall prevent a party from at any time seeking temporary equitable relief, from JAMS or any court of competent jurisdiction, to prevent irreparable harm pending the resolution of the arbitration. 6. Discovery shall be conducted as follows: (a) prior to the arbitration any party may make a written demand for lists of the witnesses to be called and the documents to be introduced at the hearing; (b) the lists must be served within fifteen days of the date of receipt of the demand, or one day prior to the arbitration, whichever is earlier; and (c) each party may take no more than two depositions (pursuant to the procedures set forth in the California Code of Civil Procedure) with a maximum of five hours of examination time per deposition, and no other form of prearbitration discovery shall be permitted. 7. It is the intent of the parties that the Federal Arbitration Act ("FAA") shall apply to the enforcement of this provision unless it is held inapplicable by a court with jurisdiction over the dispute, in which event the California Arbitration Act ("CAA") shall apply. 8. The arbitrator shall apply California law, including the California Evidence Code, and shall be able to decree any and all relief of an equitable nature, including but not limited to such relief as a temporary restraining order, a preliminary injunction, a permanent injunction, or replevin of Company property. The arbitrator shall also be able to award actual, general or consequential damages, but shall not award any other form of damage (e.g., punitive damages). 9. Each party shall pay its pro rata share of the arbitrator's fees and expenses, in addition to other expenses of the arbitration approved by the arbitrator, pending the resolution of the arbitration. The arbitrator shall have authority to award the payment of such fees and expenses to the prevailing party, as appropriate in the discretion of the arbitrator. Except as provided in the John Tyson Compensation and Benefit Continuation Agreement, each party shall pay its own attorneys' fees, witness fees and other expenses incurred for its own benefit. 10. The arbitrator shall render a written award setting forth the reasons for his or her decision. The decree or judgment of an award rendered by the arbitrator may be entered and enforced in any court having jurisdiction over the parties. The award of the arbitrator shall be final and binding upon the parties without appeal or review except as permitted by the FAA, or if the FAA is not applicable, as permitted by the CAA. 9 EX-10.45 3 SEPARATION AGREEMENT W/ ROBERT SILVER 11/29/95 1 EXHIBIT 10.45 SEPARATION AND RELEASE AGREEMENT THIS SEPARATION AND RELEASE AGREEMENT ("Agreement") is made and entered into by and between ROBERT SILVER ("Mr. Silver") and COMPRESSION LABS, INC. (the "Company"), as of the Effective Date described in paragraph fourteen (14) herein. W I T NE S S E T H WHEREAS, Mr. Silver has tendered his resignation as Vice President of Sales and Marketing and all other positions he may hold with the Company in consideration of the promises and covenants contained herein; WHEREAS, the Company has accepted Mr. Silver's resignation as Vice President of Sales and Marketing and wishes to provide Mr. Silver with certain benefits in consideration of his service to the Company and the promises and covenants of Mr. Silver as contained herein; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is hereby agreed by and between the parties hereto as follows: 1. RESIGNATION. Mr. Silver has tendered, and the Company has accepted, Mr. Silver's resignation as Vice President of Sales and Marketing and all other positions he may hold with the Company, effective December 1, 1995 ("Transition Date"). 2. TRANSITION PERIOD. To aid Mr. Silver in his employment transition, the Company will continue to employ Mr. Silver from the Transition Date through and including May 15, 1996 (the "Separation Date"). The time period beginning on the day after the Transition Date and ending on the Separation Date shall be referred to as the Transition Period. (A) DUTIES. During the Transition Period, Mr. Silver shall be responsible for transition activities as assigned by the Company's Chief Executive Officer ("CEO"), and shall report to the Company's Vice President of Human Resources. Mr. Silver agrees that throughout the Transition Period he will continue to be bound by the Company's employment policies, procedures and practices. (B) COMPENSATION AND BENEFITS. During the Transition Period: (i) the Company will continue to pay Mr. Silver his base salary in effect as of the Transition Date; (ii) Mr. Silver shall be entitled to continue his participation in the Company's group health insurance plans in which he was participating as of the Transition Date; and, (iii) within three (3) days of the Transition Date, the Company will pay Mr. Silver all accrued, but unused paid time off, subject to standard payroll deductions and withholdings. Except as expressly provided herein, Mr. Silver acknowledges that he will not receive (nor is he entitled to) any additional compensation or benefits (including, but not limited to, life insurance and disability insurance) during the Transition Period. (C) NONCOMPETITION. Mr. Silver agrees that throughout the Transition Period, he will not, without the Company's prior written approval, directly or indirectly engage or prepare to engage in any activity in competition with the Company, or accept employment, provide services to, or establish a business relationship with a business or individual engaged in or preparing to engage in competition with the Company. 3. ACCRUED SALARY. Within three (3) days after the Separation Date, the Company will pay Mr. Silver all accrued salary, subject to standard payroll deductions and withholdings. 4. ADDITIONAL PAYMENTS AND BENEFITS. The Company has no policy or procedure requiring payment of any severance benefits. However, if on or about the Separation Date, Mr. Silver signs the release attached 1 2 hereto as Exhibit B (the "Release Agreement"), the Company will provide Mr. Silver with the following as part of this Agreement: (A) SEVERANCE PAYMENTS. Within ten (10) days of the Release Effective Date as defined in Exhibit B, the Company will, as severance, pay Mr. Silver two (2) weeks of his base salary in effect on the Transition Date, subject to standard payroll deductions and withholdings. (B) HEALTH INSURANCE. Any health insurance coverage provided by the Company in effect on the Separation Date shall continue through May 31, 1996. Thereafter, to the extent permitted by law and by the Company's group health insurance plans, Mr. Silver will be eligible to continue his health insurance benefits under the federal COBRA law, at his own expense, for up to eighteen (18) months and, later, to convert to an individual policy if he wishes. (C) NON-RECOVERABLE DRAW. The Company will forgive any amount of Mr. Silver's draw in excess of commissions, if any, still outstanding on the Transition Date. (D) COMMISSIONS. The Company will pay Mr. Silver his commissions earned through the Transition Date. All such commissions will be paid in the ordinary course of business, according to standard Company practice. (E) OTHER BENEFITS. Except as expressly provided herein, Mr. Silver acknowledges that he will not receive (nor is he entitled to) any additional compensation, severance or benefits (including, but not limited to, life insurance and disability insurance). 5. EXPENSE REIMBURSEMENT. Within five (5) business days after the Effective Date of this Agreement, Mr. Silver will submit his final documented expense reimbursement statement reflecting all business expenses he incurred through the Effective Date, if any, for which he seeks reimbursement. The Company shall reimburse Mr. Silver's expenses pursuant to Company policy and regular business practice. The Company shall not reimburse Mr. Silver for any expenses incurred after the Effective Date, except in the event such expenses are approved in advance by the CEO. 6. STOCK OPTION EXERCISE. Mr. Silver acknowledges that the vesting of all of his shares under his stock option will cease on the Transition Date. He shall be entitled to exercise his vested shares, if any, within ninety (90) days of the Transition Date in accordance with the terms of the applicable stock option plan and stock option grant(s). 7. NONSOLICITATION. Mr. Silver agrees that for one (1) year after the Transition Date, he will not, either directly or through others, solicit or attempt to solicit any employee, consultant, or independent contractor of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity. 8. COMPANY PROPERTY. Within three (3) days after the Separation Date, Mr. Silver agrees to return to the Company all Company documents (and all copies thereof) and other Company property in his possession, or his control, including, but not limited to, Company files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property, credit cards, entry cards, identification badges and keys; and, any materials of any kind which contain or embody any proprietary or confidential material of the Company (and all reproductions thereof). 9. PROPRIETARY INFORMATION OBLIGATIONS. Mr. Silver acknowledges that he continues to be bound by the terms of his Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit A. 10. ASSISTANCE WITH LITIGATION. Mr. Silver agrees to assist the Company and its attorneys with their defense and/or prosecution of legal actions including, but not limited to, any claim or action brought against the Company in which Mr. Silver may have relevant information. Mr. Silver's assistance may include testimony at a deposition and/or trial, informal interviews and other reasonable activities, as may be requested. The Company will pay any and all attorneys fees incurred in connection with such assistance. The Company 2 3 will also reimburse Mr. Silver for all reasonable out-of-pocket costs incurred in connection with any such assistance upon his submittal of documentation of such costs. 11. NONDISPARAGEMENT. Mr. Silver and the Company agree that neither party will at any time disparage the other in any manner likely to be harmful to the other party, its business reputation, or the personal or business reputation of its directors, shareholders, and employees, provided that each party shall respond accurately and fully to any question, inquiry, or request for information when required by legal process, and within a reasonable time prior to making any such response shall provide notice to the other party of such process. 12. CONFIDENTIALITY. The provisions of this Agreement shall be held in strictest confidence by Mr. Silver and the Company and shall not be publicized or disclosed in any manner whatsoever. Notwithstanding the prohibition in the preceding sentence: (a) Mr. Silver may disclose this Agreement, in confidence, to his immediate family; (b) the parties may disclose this Agreement in confidence to their respective attorneys, accountants, auditors, tax preparers, and financial advisors; (c) the Company may disclose this Agreement as necessary to fulfill standard or legally required corporate reporting or disclosure requirements; and (d) the parties may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law. In particular (and without limitation), Mr. Silver agrees not to discuss this Agreement with any present or former employees, consultants, independent contractors or other personnel of the Company. 13. RELEASE OF CLAIMS. Except as otherwise set forth in this Agreement, Mr. Silver hereby releases, acquits and forever discharges the Company, its officers, directors, agents, attorneys, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the execution date hereof, including but not limited to: any and all such claims and demands directly or indirectly arising out of or in any way connected with Mr. Silver's employment with the Company or the termination of that employment; claims or demands related to salary, bonuses, draws, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, sabbatical benefits, severance benefits, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; harassment; emotional distress; and breach of the implied covenant of good faith and fair dealing. 14. ADEA WAIVER. Mr. Silver acknowledges that he is knowingly and voluntarily waiving and releasing any rights he may have under the ADEA. He also acknowledges that the consideration given for the waiver in the above paragraph is in addition to anything of value to which he was already entitled. He further acknowledges that he has been advised by this writing, as required by the ADEA that: (a) his waiver and release do not apply to any claims that may arise after the Effective Date of this Agreement; (b) he has been advised to consult with an attorney prior to executing this Agreement; (c) he has twenty-one (21) days within which to consider this Agreement (although he may choose to voluntarily execute this Agreement earlier); (d) he has seven (7) days following the execution of this Agreement to revoke the Agreement; (e) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Agreement is executed by Mr. Silver, provided that the Company has also signed the Agreement by that date ("Effective Date"). 15. SECTION 1542 WAIVER. Mr. Silver acknowledges that he has read and understands Section 1542 of the Civil Code of the State of California which reads as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. 3 4 Mr. Silver hereby expressly waives and relinquishes all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to the release of unknown and unsuspected claims granted in this Agreement. 16. LIQUIDATED DAMAGES. Both Mr. Silver and the Company agree that it would be impracticable and extremely difficult to ascertain the amount of actual damages caused by material breach of the nondisparagement or confidentiality provisions set forth in paragraphs 11 and 12 of this Agreement, respectively. Therefore, Mr. Silver and the Company agree that, in the event it is established, pursuant to the Dispute Resolution provision (paragraph 18), that Mr. Silver has violated such provisions, Mr. Silver shall pay to the Company, as liquidated damages, ten (10) thousand dollars ($10,000) for each breach. Mr. Silver and the Company further agree that this liquidated damages provision represents reasonable compensation for the loss which would be incurred by the Company due to any such breach. Mr. Silver also agrees that nothing in this section is intended to limit the Company's right to obtain injunctive and other relief as may be appropriate. 17. NO ADMISSIONS. It is understood and agreed by Mr. Silver and the Company that this Agreement represents a compromise settlement of various matters, and that the promises and payments in consideration of this Agreement shall not be construed to be an admission of any liability or obligation by either party to the other party or to any other person. 18. DISPUTE RESOLUTION. Unless otherwise prohibited by law or specified below, all disputes, claims, and causes of action, in law or equity, arising from or relating to this Agreement or its enforcement, performance, breach, or interpretation shall be resolved solely and exclusively by final and binding arbitration through Judicial Arbitration & Mediation Services/Endispute, Inc. ("JAMS") under the then existing JAMS arbitration rules. However, nothing in this section is intended to prevent either party from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. 19. ENTIRE AGREEMENT. This Agreement, including Exhibits A and B, constitutes the complete, final and exclusive embodiment of the entire agreement between Mr. Silver and the Company with regard to the subject matter hereof. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein. It may not be modified except in a writing signed by Mr. Silver and a duly authorized officer of the Company. Each party has carefully read this Agreement, has been afforded the opportunity to be advised of its meaning and consequences by his or its respective attorneys, and signed the same of his or its own free will. 20. SUCCESSORS AND ASSIGNS. This Agreement shall bind the heirs, personal representatives, successors, assigns, executors, and administrators of each party, and inure to the benefit of each party, its heirs, successors and assigns. 21. WARRANTIES. Mr. Silver warrants and represents that there are no liens or claims of lien or assignments in law or equity or otherwise on or against any of the claims or causes of action released herein, and, further, that Mr. Silver is fully entitled and duly authorized to give this complete and final general release and discharge. 22. APPLICABLE LAW. This Agreement shall be deemed to have been entered into and shall be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California. 23. SEVERABILITY. If a court of competent jurisdiction determines that any term or provision of this Agreement is invalid or unenforceable, in whole or in part, then the remaining terms and provisions hereof shall be unimpaired. Such court will have the authority to modify or replace the invalid or unenforceable term or provision with a valid and enforceable term or provision that most accurately represents the parties' intention with respect to the invalid or unenforceable term or provision. 24. SECTION HEADINGS. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 25. COUNTERPARTS. This Agreement may be executed in two counterparts, each of which shall be deemed an original, all of which together shall constitute one and the same instrument. 4 5 IN WITNESS WHEREOF, the parties have duly authorized and caused this Agreement to be executed as follows: ROBERT SILVER, COMPRESSION LABS, INC., an individual a corporation /s/ Robert Silver By: /s/ Keith Copeland Robert Silver Keith Copeland Vice President, Human Resources Date: November 29, Date: November 29, 1995 1995
5 6 EXHIBIT A PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT 6 7 EXHIBIT B RELEASE AGREEMENT In consideration for the severance payments and benefits the Company will pay me under paragraph 4 of the foregoing Agreement, to which I am not otherwise entitled, I hereby release and forever discharge the Company, its officers, directors, agents, attorneys, employees, stockholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct during the Transition Period, including but not limited to: all such claims or demands directly or indirectly arising out of my employment or the termination of my employment, claims or demands related to salary, bonuses, draws, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, sabbatical benefits or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the California Fair Employment and Housing Act, as amended; the federal Americans with Disabilities Act of 1990; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); other discrimination claims; tort law; contract law; wrongful discharge; harassment; emotional distress; and breach of the implied covenant of good faith and fair dealing. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the waiver in the above paragraph is in addition to anything of value to which I was already entitled. I further acknowledges that I have been advised by this writing, as required by the ADEA that: (a) my waiver and release do not apply to any claims that may arise after the Release Effective Date of this Release Agreement; (b) I have been advised to consult with an attorney prior to executing this Release Agreement; (c) I have twenty-one (21) days within which to consider this Release Agreement (although I may choose to voluntarily execute this Release Agreement earlier); (d) I have seven (7) days following the execution of this Release Agreement to revoke the Release Agreement; (e) this Release Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Release Agreement is executed by me, provided that the Company has also signed the Agreement by that date ("Release Effective Date"). I acknowledge that I have read and understand Section 1542 of the Civil Code of the State of California which reads as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. I hereby expressly waive and relinquish all rights and benefits under that section and any similar law of any jurisdiction with respect to the release for unknown and unsuspected claims I am granting in this Release. Date: , 1996 By: Robert Silver 7 EX-10.46 4 WAIVER/CREDIT AGREE W/ BANKAMERICA 4/11/96 1 [Bank of America LOGO] April 11, 1996 William A. Berry, Sr. VP & CFO Compression Labs, Inc. 2860 Junction Ave., San Jose, Calif. 95134 Dear Bill, The requested waiver (ref: your letter dated 3/15/96) of the 12/31/95 FYE Debt to Tangible Net Worth covenant default has been approved by BankAmerica Business Credit, Inc. In consideration for giving this waiver the advance rate on the revolving line of credit will be reduced from 80% to 70% effective April 30, 1996. Please also note that under the terms of the Loan and Security Agreement Section 3.1 (c) the interest rate charged on any portion on the outstanding loan will increase from Reference Rate plus 1.0% to Reference Rate plus 1.5%. This is retroactive to October 1, 1995, the beginning of the quarter in which the losses occurred. Your concurrence is requested. Yours Sincerely /s/ Francesca M. Gastil - --------------------------------- Francesca M. Gastil Senior Account Executive BankAmerica Business Credit, Inc. /s/ William A. Berry Sr. VP - --------------------------------- William A. Berry Sr. VP Compression Labs, Inc. EX-13.1 5 ANNUAL REPORT FOR YEAR ENDED 12/31/95 PAGES 5-23 1 SELECTED CONSOLIDATED FINANCIAL DATA COMPRESSION LABS, INCORPORATED
Years ended December 31, (In thousands, except per share amounts and number of employees) 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS (a) Revenues $ 112,979 $ 114,958 $ 95,095 $ 95,031 $ 61,331 Gross margin $ 33,620 $ 44,054 $ 28,128 $ 27,278 $ 22,352 Special charges (b) $ - $ - $ - $ - $ 17,317 Net loss from continuing operations $ (21,040) $ (4,878) $ (12,184) $ (3,418) $ (17,895) Net income (loss) $ (57,582) $ 107 $ (3,483) $ (3,283) $ (15,102) Net income (loss) per share: Net loss from continuing operations $ (1.37) $ (0.32) $ (1.04) $ (0.30) $ (1.84) Net income (loss) $ (3.76) $ 0.01 $ (0.30) $ (0.29) $ (1.55) Cash dividends (c) $ - $ - $ - $ - $ - Weighted average common shares and common share equivalents outstanding 15,304 15,160 11,666 11,283 9,728 ========= ========= ========= ========= ========= YEAR END FINANCIAL DATA Working capital $ 15,259 $ 53,820 $ 52,017 $ 31,902 $ 42,675 Total assets $ 104,753 $ 131,651 $ 124,922 $ 94,736 $ 82,535 Short-term debt including current portion of capital lease obligations $ 13,958 $ 10,553 $ 9,280 $ 9,960 $ 50 Long-term debt including capital lease obligations $ 985 $ 494 $ 1,016 $ - $ 2 Redeemable convertible preferred stock $ - $ - $ 13,758 $ - $ - Stockholders' equity $ 35,674 $ 86,962 $ 67,579 $ 56,877 $ 57,904 ========= ========= ========= ========= ========= Employees 535 549 434 354 331 ========= ========= ========= ========= =========
(a) In November 1995, Compression Labs, Incorporated (the Company) decided to discontinue the operations of the broadcast products division (BPG). Therefore, operating results for BPG are classified as discontinued operations on the Company's Consolidated Statements of Operations and prior periods have been restated accordingly. (b) In 1991, the Company recorded special charges to reflect changes in the Company's business, primarily for product restructuring write downs and relocation of the Company's manufacturing facility. (c) Under the terms of a revolving credit facility with a bank, the Company may not declare or make any cash or stock dividends. 5 2 SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA COMPRESSION LABS, INCORPORATED
1995 ----------------------------------------------------- First Second Third Fourth (Unaudited - in thousands, except per share amounts) Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------------------------------------------- REVENUES $ 27,857 $ 29,923 $ 28,444 $ 26,755 Cost of revenues 17,529 18,163 16,295 27,372 -------- -------- -------- -------- GROSS MARGIN 10,328 11,760 12,149 (617) OPERATING EXPENSES Selling, general and administrative 9,428 10,106 9,665 13,562 Research and development 2,421 2,136 2,377 3,040 Settlement of litigation 897 - - - -------- -------- -------- -------- 12,746 12,242 12,042 16,602 -------- -------- -------- -------- INCOME (LOSS) FROM OPERATIONS (2,418) (482) 107 (17,219) Interest income 6 3 93 12 Interest expense (215) (340) (309) (278) -------- -------- -------- -------- Net loss from continuing operations (2,627) (819) (109) (17,485) -------- -------- -------- -------- Discontinued operations Income (loss) from operations 535 921 (82) (3,315) Loss on disposal - - - (34,601) -------- -------- -------- -------- Net income (loss) from discontinued operations 535 921 (82) (37,916) -------- -------- -------- -------- NET INCOME (LOSS) $ (2,092) $ 102 $ (191) $(55,401) ======== ======== ======== ======== Net income (loss) per share Net loss from continuing operations (0.18) (0.05) (0.01) (1.13) Net income (loss) from discontinued operations 0.04 0.06 - (2.45) -------- -------- -------- -------- NET INCOME (LOSS) PER SHARE $ (0.14) $ 0.01 $ (0.01) $ (3.58) ======== ======== ======== ======== Weighted average common shares and common share equivalents outstanding 14,667 15,505 15,265 15,463 ======== ======== ======== ========
1994 ----------------------------------------------- First Second Third Fourth (Unaudited - in thousands, except per share amounts) Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------------------------------------------- REVENUES $ 25,058 $ 30,253 $ 30,323 $ 29,324 Cost of revenues 15,507 18,527 18,934 17,936 -------- -------- -------- -------- GROSS MARGIN 9,551 11,726 11,389 11,388 OPERATING EXPENSES Selling, general and administrative 8,731 9,465 10,313 9,644 Research and development 2,350 2,584 2,696 2,528 -------- -------- -------- -------- 11,081 12,049 13,009 12,172 -------- -------- -------- -------- LOSS FROM OPERATIONS (1,530) (323) (1,620) (784) Interest income 93 41 25 18 Interest expense (214) (200) (159) (225) -------- -------- -------- -------- Net loss from continuing operations (1,651) (482) (1,754) (991) Net income from discontinued operations 1,679 1,050 764 1,492 -------- -------- -------- -------- NET INCOME (LOSS) $ 28 $ 568 $ (990) $ 501 ======== ======== ======== ======== Net income (loss) per share Net loss from continuing operations (0.11) (0.03) (0.12) (0.07) Net income from discontinued operations 0.11 0.07 0.05 0.10 -------- -------- -------- -------- NET INCOME (LOSS) PER SHARE $ - $ 0.04 $ (0.07) $ 0.03 ======== ======== ======== ======== Weighted average common shares and common share equivalents outstanding 15,392 15,280 14,549 15,000 ======== ======== ======== ========
6 3 MANAGEMENT'S DICUSSION AND ANALYSIS COMPRESSION LABS, INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Annual Report to Stockholders contain forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the Company's Form 10-K for the year ended December 31, 1995 under the caption "Business." Unless noted otherwise, the following discussion pertains to the Company's continuing operations. Discussion of discontinued operations is contained in Note 2 of Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS The following percentage table sets forth, for the periods indicated, the relationship of selected items in the Company's Consolidated Statements of Operations to revenues from continuing operations.
YEARS ENDED DECEMBER 31, 1995 1994 1993 -------------------------------------------------------------------------------- Revenues 100% 100% 100% Cost of revenues 70% 62% 70% Gross margin 30% 38% 30% Selling, general and administrative 38% 33% 31% Research and development 9% 9% 11% Net loss from continuing operations (19%) (4%) (13%) Income (loss) from discontinued operations (32%) 4% 9% Net income (loss) (51%) 0% (4%)
REVENUES Revenues decreased 2% in 1995 and increased 21% in 1994 from the prior years, respectively. The decrease in revenues for 1995 was primarily due to a decrease in videoconferencing unit volume, partially offset by higher average selling prices in the videoconferencing market and increased installation and maintenance revenue. Unit volume of the Company's codec products decreased 11% to 2,322 units in 1995 from 2,609 units in 1994. The increase in revenues from continuing operations for 1994 compared to 1993 was primarily the result of an increase in product sales, service and installation revenue, partially offset by a decline in sales of personal video products. Unit volume of the Company's codec product shipments increased 19% to 2,609 units in 1994 from 2,195 units in 1993. International revenues increased to $24.3 million or 22% of revenues from continuing operations in 1995, compared to $21.2 million or 18% of revenues in 1994 and $12.4 million or 13% of revenues in 1993. The increase in international revenues in 1995 compared to 1994, as well as international revenues in 1994 as compared to 1993, resulted primarily from growth of sales in China and other Far East locations. The Company does not presently engage in foreign currency transactions, nor does it have any significant assets located outside the United States. Therefore, the Company is not directly affected by foreign currency exchange rate fluctuations. GROSS MARGIN Gross margin as a percentage of sales was 30%, 38%, and 30% in 1995, 1994 and 1993, respectively. Gross margin on product sales in 1995 was negatively impacted by charges of approximately $11.0 million in the fourth quarter of 1995. These charges resulted from the Company's decision to restructure its videoconferencing division, and included reductions in the carrying values of certain assets, primarily inventory and capitalized software. See Note 13 of Notes to Consolidated Financial Statements. The increase in gross margin in 1994 compared to 1993 was due primarily to sales of higher margin Radiance and eclipse group videoconferencing systems, and to a decline in sales of lower margin older generation systems and personal video products. The Company continues to seek improvement in gross margin through introduction of new products with higher margins, as well as through cost reductions of existing products. However, the Company anticipates that gross margin on revenues will continue to be subject to fluctuations caused by the introduction of new products, changes in product mix and variations in manufacturing costs. 7 4 MANAGEMENT'S DICUSSION AND ANALYSIS COMPRESSION LABS, INCORPORATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses were 38%, 33% and 31% of revenues in 1995, 1994 and 1993, respectively. The increase as a percentage of revenues in 1995 compared to 1994 was primarily due to $4.1 million of additional expenses in the fourth quarter resulting from the Company's decision to restructure its videoconferencing division. These expenses relate to allowance for doubtful accounts and reductions in the carrying values of certain demonstration equipment and assets related to service activities. See Note 13 of Notes to Consolidated Financial Statements. The increase as a percentage of revenues in 1994 compared to 1993 was primarily due to increases in sales and marketing costs related to increases in personnel, new sales offices and equipment-related expenses necessary to stimulate and support planned revenue growth in future periods. The Company anticipates that selling, general and administrative expenses will generally increase with increases in revenues, but may vary from quarter to quarter and year to year as a percentage of revenues. RESEARCH AND DEVELOPMENT EXPENSE The Company's total research and development expenditures in 1995, 1994 and 1993 aggregated $14.8 million, $15.1 million and $13.4 million, respectively. Research and development expenditures consisted of research and development expenses, cost of revenues related to research and development contracts and capitalized software development costs as summarized in the table below (in millions):
1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------ Research and development expense $ 10.0 $ 10.2 $ 10.5 Capitalized software development costs 4.8 3.9 2.9 Cost of revenues related to research and development contracts - 1.0 - ------- ------- ------- Total research and development expenditures from continuing operations $ 14.8 $ 15.1 $ 13.4 ======= ======= =======
Research and development expense was 9% of revenues in 1995 and 1994, and 11% of revenues in 1993. The decrease as a percentage of revenues in 1994 compared to 1993 was attributable to the increase in revenues in 1994, as well as an increase in the amounts capitalized in conjunction with the development of new software. Capitalized software development costs increased in 1995 and 1994 due to increased activity on new software for more complex and feature-rich videoconferencing products. The Company expects research and development expense as a percentage of revenues to fluctuate, due in part to changes in the levels of research and development activities, as well as changes in the levels of external funding for research and development and amounts capitalized in conjunction with software development. INTEREST INCOME AND EXPENSE Interest income was $0.1 million in 1995 compared to $0.2 million in 1994 and $0.6 million in 1993. The decrease in 1995 compared to 1994 and 1993 was principally due to a reduction of funds available for investment. Interest expense increased to $1.1 million in 1995 compared to $0.8 million in both 1994 and 1993. Interest expense in 1995 reflected higher average outstanding borrowings and higher interest rates compared to 1994. Interest expense in 1994 reflected lower average outstanding borrowings and higher interest rates compared to 1993. INCOME TAXES At December 31, 1995, the Company had net operating loss carryforwards for federal income tax purposes of approximately $46.0 million, of which $23.0 million related to deductions attributable to the exercise of non-qualified stock options and employees' early disposal of stock acquired through incentive stock options. The future net reduction in taxes otherwise payable arising from such deductions will be credited to additional paid-in capital when realized. At December 31, 1995, the Company had a federal general business credit carryforward of approximately $2.2 million. The federal net operating loss and tax credit carryforwards expire primarily in the years 1999 through 2010. DISCONTINUED OPERATIONS In the fourth quarter of 1995, the Company adopted a plan to discontinue operations of its broadcast products division and refocus its efforts and resources on developing and marketing videoconferencing products. See Note 2 of Notes to Consolidated Financial Statements. The Company has held discussions with various companies regarding the possible sale of the broadcast products division. No definitive agreement has been reached, nor can there be any assurances that an agreement with terms acceptable to the Company will ultimately be reached. 8 5 MANAGEMENT'S DICUSSION AND ANALYSIS COMPRESSION LABS, INCORPORATED NET INCOME (LOSS) The net loss from continuing operations was $21.0 million, $4.9 million and $12.2 million in 1995, 1994 and 1993, respectively. The loss in 1995 was heavily impacted by the charges discussed above in "Gross Margin." The decline in net operating results in 1995 was also affected by higher selling, general and administrative expenses, as well as a one-time charge of approximately $0.9 million resulting from settlement of litigation. The improvement in operating results in 1994 compared to 1993 was primarily due to improved gross margins resulting from increased revenues of videoconferencing products and changes in videoconferencing product mix to higher margin products, partially offset by higher selling, general and administrative expenses and reduced sales of personal video products. The Company continues to seek improvement in operating results through introduction of new products that are expected to have higher margins, as well as through cost reductions of existing products. However, there can be no assurance that the Company will be successful in its efforts. In the future, the Company's operating results may be impacted by a number of factors, including cancellation or delays of customer orders, interruption or delays in the supply of key components, changes in customer base or product mix, seasonal patterns of capital spending by customers, new product announcements by the Company or its competitors, pricing pressures and changes in general economic conditions. Historically, a significant portion of the Company's shipments have been made in the last month of each quarter. As a result, a shortfall in revenues compared to expectations may not evidence itself until late in the quarter. Additionally, the timing of expenditures for research and development activities and sales and marketing programs, as well as the timing of orders by major customers, may cause operating results to fluctuate quarterly and annually. LIQUIDITY AND CAPITAL RESOURCES The Company has used internally generated funds, public and private offerings of common and preferred stock, sale and leaseback arrangements and bank credit lines to finance its growth since 1983. In 1995, the Company's operations generated $7.3 million in cash. The net loss was offset primarily by depreciation and amortization, reductions in inventories and net assets of discontinued operations and increases in accounts payables and accrued liabilities. Cash generated by operations of $0.7 million in 1994, was primarily from net income plus depreciation and amortization, increased deferred revenue, and decreases in other current assets, partially offset by increases in accounts receivable, inventories and net assets of discontinued operations and a decrease in accounts payable. Capital expenditures were $7.2 million in 1995 and $9.4 million in 1994, consisting primarily of engineering and manufacturing equipment for new product lines, office equipment, field service spares and demonstration equipment. The Company anticipates that the amount of capital expenditures will decrease in 1996 compared to 1995. At December 31, 1995, the Company had cash and cash equivalents totaling $12.6 million. The Company has a line of credit, which expires on August 21, 1996, in the amount of $15.0 million, of which $12.8 million was outstanding at December 31, 1995. The Company believes it has the ability to either renew this line upon its expiration or obtain alternative financing. See Note 7 of Notes to Consolidated Financial Statements. Working capital was $15.3 million and $53.8 million at December 31, 1995 and 1994, respectively. Given the size and importance of its accounts receivable, the Company has implemented a number of ongoing and planned measures designed to reduce the levels of accounts receivable relative to revenues, including increased collection efforts and improved accounts receivable controls. The Company also has a number of inventory management programs, including increasing component procurement by turnkey manufacturers, decreasing manufacturing cycle time through increased production flexibility and automation, smoothing shipment cycles, reducing component costs through volume purchasing and competitive bidding, and improving controls. However, there can be no assurance that the Company will be able to reduce or maintain its accounts receivable or inventory levels in the future. The Company regularly assesses accounts receivable in terms of collectability and inventories in light of technology changes and market conditions, and reduces the carrying value of these assets as considered appropriate. The Company's operating and product development activities have required significant cash. The Company anticipates that existing cash and lines of credit, together with sources of additional liquidity such as private or public offerings, sale and leaseback arrangements, equipment lease lines and bank credit lines, will be sufficient to meet cash requirements through 1996. In July 1995, the Company raised approximately $4.9 million in net proceeds through a registered direct sale of common stock. Should additional funding be required, however, there can be no assurance that such funding will be available on acceptable terms as and when required by the Company. 9 6 CONSOLIDATED STATEMENTS OF OPERATIONS COMPRESSION LABS, INCORPORATED
Years ended December 31, (In thousands, except per share amounts) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------- REVENUES $ 112,979 $ 114,958 $ 95,095 Cost of revenues 79,359 70,904 66,967 --------- --------- --------- GROSS MARGIN 33,620 44,054 28,128 OPERATING EXPENSES: Selling, general and administrative 42,761 38,153 29,646 Research and development 9,974 10,158 10,452 Settlement of litigation 897 - - --------- --------- --------- 53,632 48,311 40,098 --------- --------- --------- NET LOSS FROM OPERATIONS (20,012) (4,257) (11,970) Interest income 114 177 620 Interest expense (1,142) (798) (834) --------- --------- --------- Net loss from continuing operations (21,040) (4,878) (12,184) --------- --------- --------- Discontinued operations: Income (loss) from operations (1,941) 4,985 8,701 Loss on disposal (34,601) - - --------- --------- --------- Net income (loss) from discontinued operations (36,542) 4,985 8,701 --------- --------- --------- NET INCOME (LOSS) $ (57,582) $ 107 $ (3,483) ========= ========= ========= Net income (loss) per share: Net loss from continuing operations (1.37) (0.32) (1.04) Net income (loss) from discontinued operations (2.39) 0.33 0.74 --------- --------- --------- NET INCOME (LOSS) PER SHARE $ (3.76) $ 0.01 $ (0.30) ========= ========= ========= Weighted average common shares and common share equivalents outstanding 15,304 15,160 11,666 ========= ========= =========
See accompanying Notes to Consolidated Financial Statements 10 7 CONSOLIDATED BALANCE SHEETS COMPRESSION LABS, INCORPORATED
December 31, (In thousands, except share amounts) 1995 1994 - ---------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 12,638 $ 11,319 Accounts receivable, less allowance for doubtful accounts of $10,028 in 1995 and $1,992 in 1994 46,798 54,470 Inventories 22,821 29,511 Other current assets 1,096 2,715 --------- --------- Total current assets 83,353 98,015 --------- --------- PROPERTY AND EQUIPMENT Furniture and fixtures 9,551 5,273 Machinery and equipment 25,802 32,675 Equipment under capital leases 2,090 2,185 --------- --------- 37,443 40,133 Accumulated depreciation and amortization (20,171) (19,251) --------- --------- 17,272 20,882 CAPITALIZED SOFTWARE, NET 3,828 11,868 OTHER ASSETS 300 886 --------- --------- TOTAL ASSETS $ 104,753 $ 131,651 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt $ 13,452 $ 9,803 Current portion of capital lease obligations 506 750 Accounts payable 26,169 20,040 Accrued liabilities 21,689 6,362 Deferred revenue 6,278 7,240 --------- --------- Total current liabilities 68,094 44,195 --------- --------- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 985 494 STOCKHOLDERS' EQUITY Preferred stock- Undesignated preferred stock, $.001 par value; 4,000,000 shares authorized; none issued or outstanding - - Common stock- $.001 par value; 25,153,658 shares authorized; shares issued and outstanding: 15,491,475 in 1995 and 14,655,745 in 1994 15 15 Additional paid-in capital 120,696 114,402 Accumulated deficit (85,037) (27,455) --------- --------- Total stockholders' equity 35,674 86,962 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 104,753 $ 131,651 ========= =========
See accompanying Notes to Consolidated Financial Statements. 11 8 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY COMPRESSION LABS, INCORPORATED
Common Stock Additional --------------------- Paid-in Accumulated (In thousands) Shares Amount Capital Deficit Total - ------------------------------------------------------------------------------------------------------------------------------ BALANCES AT DECEMBER 31, 1992 11,408 $11 $ 80,945 $(24,079) $ 56,877 Net exercises of common stock options 296 1 1,776 - 1,777 Sale of common stock to employees 100 - 976 - 976 Sale of common stock to investors, net of issuance costs of $171 700 1 9,702 - 9,703 Issuance of common stock under warrants, net 241 - 1,729 - 1,729 Net loss - - - (3,483) (3,483) ------ --- -------- -------- -------- BALANCES AT DECEMBER 31, 1993 12,745 13 95,128 (27,562) 67,579 Net exercises of common stock options, including income tax benefit of $900 163 - 2,173 - 2,173 Sale of common stock to employees 100 - 844 - 844 Sale of common stock to investors, net of issuance costs of $27 148 - 1,973 - 1,973 Conversion of preferred stock to common stock 1,435 2 13,756 - 13,758 Issuance of common stock under warrants, net 65 - 528 - 528 Net income - - - 107 107 ------ --- -------- -------- -------- BALANCES AT DECEMBER 31, 1994 14,656 15 114,402 (27,455) 86,962 Net exercises of common stock options 138 - 545 - 545 Sale of common stock to employees 100 - 677 - 677 Sale of common stock to investors, net of issuance costs of $90 565 - 4,823 - 4,823 Issuance of common stock under warrants, net 32 - 249 - 249 Net loss - - - (57,582) (57,582) ------ --- -------- -------- -------- BALANCES AT DECEMBER 31, 1995 15,491 $15 $120,696 $(85,037) $ 35,674 ====== === ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. 12 9 CONSOLIDATED STATEMENTS OF CASH FLOWS COMPRESSION LABS, INCORPORATED
Years ended December 31, (In thousands) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(57,582) $ 107 $ (3,483) Non-cash expenses included in operations- Depreciation and amortization 17,237 11,104 9,330 Changes in certain assets and liabilities- Accounts receivable 2,681 (8,702) (212) Inventories 11,306 (2,381) (1,664) Other current assets 1,657 1,639 (1,198) Accounts payable 6,129 (4,614) 4,168 Accrued liabilities 15,327 352 336 Deferred revenue (962) 4,615 886 Discontinued operations 11,503 (1,400) (14,519) -------- -------- -------- Net cash generated by (used in) operations 7,296 720 (6,356) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Property and equipment additions (7,235) (9,434) (8,271) Increase in capitalized software (9,371) (6,702) (4,999) Decrease in other assets 586 853 260 -------- -------- -------- Net cash used in investing activities (16,020) (15,283) (13,010) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Sales of Series B preferred stock, net - - 13,758 Sales of common stock, net 6,294 4,618 14,185 Payments of capital lease obligations (840) (359) (224) Collateralized borrowings 1,597 - - (Payments) borrowings under line of credit agreements 2,992 1,110 (1,257) -------- -------- -------- Net cash generated by financing activities 10,043 5,369 26,462 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,319 (9,194) 7,096 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,319 20,513 13,417 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 12,638 $ 11,319 $ 20,513 ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. 13 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMPRESSION LABS, INCORPORATED 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Compression Labs, Incorporated (the Company) develops, manufactures and markets visual communication systems for business, government, education and healthcare customers globally. PRINCIPLES OF CONSOLIDATION AND PRESENTATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION The Company recognizes product revenues at the time of shipment. Revenues from the sale of maintenance contracts are recognized ratably over the term of the respective contract. Research and development contract revenues are recognized under the percentage-of-completion method based on the ratio of costs incurred to estimated total costs for fixed price contracts and on a cost-plus-fee basis on time-and-materials contracts. WARRANTY COSTS The Company's products are under warranty for periods ranging from 90 days to 14 months. Estimated warranty costs are charged to cost of revenues when the related sales are recognized. INCOME TAXES The Company accounts for income taxes under the asset and liability method of accounting. Under the asset and liability method, deferred tax assets and liabilities are recognized based on the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in income in the period that includes the enactment date. The Company has a valuation allowance as of December 31, 1995 that fully offsets its gross deferred tax assets due to the Company's historical losses and management's belief that, based on currently available evidence, it is more likely than not that the Company will not generate sufficient taxable income to realize any or all of the deferred tax assets. EARNINGS PER SHARE Net income per share is computed using the weighted average number of common shares outstanding during each period including dilutive common share equivalents, which consist of common stock options and warrants. Net loss per share is computed using the weighted average number of common shares outstanding. Common share equivalents are not included in the net loss per share calculation because the effect would be anti-dilutive. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on deposit with banks and money market instruments with original maturities of three months or less. CONCENTRATIONS OF CREDIT RISK The Company sells its products to distributors and end users in diversified industries including business, government, education and healthcare. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. INVENTORIES Inventories are stated at the lower of cost, determined on a first-in first-out basis, or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Equipment acquired under capital lease obligations is stated at the lower of fair value or the present value of future minimum lease payments at the inception of the lease. Depreciation and amortization are provided over the estimated useful lives of the assets or over the life of the lease, as applicable, using the straight-line method. Field spares are amortized over the estimated life of the related product. 14 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMPRESSION LABS, INCORPORATED CAPITALIZED SOFTWARE The Company capitalizes software development costs in accordance with Statement of Financial Accounting Standards (SFAS) No. 86. Amortization of capitalized software development costs begins upon initial product shipment. Software development costs are amortized (a) over the estimated life of the related product, generally thirty-six months, using the straight-line method, or (b) based on the ratio of current revenues from the related products to total estimated revenues for such products, whichever is greater. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair values due to the short maturity of those instruments. The carrying amounts of the short-term debt approximates fair value because the interest rates change with market interest rates. The fair value of the long-term debt and capital leases is not estimated, but reflects the contractual present value owed to non-related parties. RECENT ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 becomes effective for fiscal years beginning after December 15, 1995. The Company is currently assessing the impact of SFAS No. 121 on the Company's consolidated financial statements. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 will be effective for fiscal years beginning after December 15, 1995 and will require that the Company either recognize in its consolidated financial statements costs related to its employee stock-based compensation plans, such as stock option and stock purchase plans, or make pro forma disclosures of such costs in a footnote to the consolidated financial statements. The Company expects to continue to use the intrinsic value-based method of Accounting Principles Board Opinion (APB) No. 25, as allowed under SFAS No. 123, to account for all of its employee stock-based compensation plans. Therefore, in its consolidated financial statements for fiscal 1996, the Company will make the required pro forma disclosures in a footnote to the consolidated financial statements. SFAS No. 123 is not expected to have a material effect on the Company's consolidated results of operations or financial position. RECLASSIFICATIONS Certain previously reported amounts in the 1994 and 1993 consolidated financial statements and notes have been reclassified to conform with the 1995 presentation. 2. DISCONTINUED OPERATIONS During November 1995, the Company adopted a strategic plan to discontinue operations of its broadcast products division. This division generally manufactures and sells broadcast video products to commercial end-users. The results for the division have been accounted for as discontinued operations in accordance with APB No. 30, and prior years' consolidated financial statements have been restated to reflect the discontinuation of the division. The Company has held discussions with various companies regarding the possible sale of the broadcast products division. No definitive agreement has been reached, nor can there be any assurances that an agreement with terms acceptable to the Company will ultimately be reached. The components of net assets of discontinued operations included in the Consolidated Balance Sheets at December 31, 1995 and 1994 are summarized as follows (in thousands):
1995 1994 - ---------------------------------------------------------------------------- Accounts receivable, net $14,929 $19,920 Inventories 10,859 6,243 Property and equipment, net 4,174 3,288 Capitalized software - 3,916 Other assets 38 - ------- ------- $30,000 $33,367 ======= =======
15 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMPRESSION LABS, INCORPORATED Revenues from the discontinued division were approximately $36,974,000, $42,029,000 and $46,232,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Included in the amount of discontinued operations on the Consolidated Statement of Operations is management's best estimate of the net proceeds expected to be realized on the sale of the assets of the division and the provisions for expected losses to be incurred, including a provision for future operating losses of $1,290,000 expected to be incurred during the phase-out period of the broadcast products division. The amounts the Company will ultimately realize could differ materially from the estimates used in arriving at the loss on discontinued operations. 3. UNBILLED RESEARCH AND DEVELOPMENT CONTRACT RECEIVABLES At December 31, 1995, the Company had $3,519,000 of unbilled receivables relating to research and development contracts, of which $2,932,000 relates to contracts entered into with Thomson Consumer Electronics, Inc. and North American Philips Corporation. These receivables are generally billable either in quarterly installments or upon the delivery of specified items. 4. INVENTORIES Inventories are summarized as follows (in thousands):
December 31, 1995 1994 - ----------------------------------------------------------------------------- Raw materials $ 2,189 $ 7,521 Work-in-process 3,858 4,293 Finished products Products on hand 13,488 13,151 Products under rental and loan agreements 3,286 4,546 ------- ------- $22,821 $29,511 ======= =======
5. CAPITALIZED SOFTWARE The Company capitalized $9,276,000 of internal software development costs during 1995, $6,645,000 in 1994 and $4,874,000 in 1993. In addition, the Company purchased software of $95,000 in 1995, $57,000 in 1994 and $125,000 in 1993. Amortization of capitalized software development costs and purchased software was $17,411,000 in 1995, $5,120,000 in 1994 and $4,049,000 in 1993. In 1995, total amortization includes $13,340,000 of amortization expense to reduce the carrying value of certain capitalized software relating to product lines for discontinued operations and older-generation product lines for continuing operations. At December 31, 1995 and 1994, capitalized software, net of accumulated amortization, was $3,828,000 (including $22,000 of purchased software) and $11,868,000 (including $192,000 of purchased software), respectively. 6. ACCRUED LIABILITIES Accrued liabilities are summarized as follows (in thousands):
December 31, 1995 1994 - ------------------------------------------------------------------------ Employee compensation $ 3,202 $ 3,205 Accrued expenses, discontinued operations 13,887 -- Other accrued expenses, continuing operations 4,600 3,157 ------- ------- $21,689 $ 6,362 ======= =======
7. BANK LINE OF CREDIT AND LONG-TERM DEBT BANK LINE OF CREDIT The Company has a $15,000,000 revolving credit facility that bears interest at the bank's prime rate (currently 8.50%) plus one percent, that expires on August 21, 1996. The Company believes it can renew this line upon its expiration. The line of credit agreement is secured by substantially all of the Company's assets. Under the credit agreement, the Company is required to meet certain financial covenants involving capital spending levels and debt ratio, and may not declare or make any cash or stock dividends. The Company was in compliance with these requirements, or had obtained a waiver for non-compliance from the bank, as of December 31, 1995 and 1994. At December 31, 1995, the balance outstanding under the line of credit was $12,795,000. 16 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMPRESSION LABS, INCORPORATED TERM LOANS In 1995, the Company entered into long-term loan agreements for $2,172,000 that bear interest rates from 10.76% to 11.48% over thirty-six and forty-eight months. These loans are secured by specific capital assets. At December 31, 1995, the balances outstanding under these loans were $1,597,000. Required principal payments over the next three years are $657,000, $735,000 and $205,000, respectively. 8. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Company leases its facilities and other equipment under operating lease agreements which expire at various dates through 2004. The Company also leases certain manufacturing equipment under capital leases which expire in June 2000. Approximate future minimum lease payments under these leases are as follows (in thousands):
Capital Operating Year Leases Leases ------------------------------------------------------------- 1996 $592 $ 3,055 1997 58 2,634 1998 19 1,962 1999 8 1,968 2000 4 1,848 Thereafter - 2,626 ------------------------------------------------------------- 681 $14,093 ======= Less amount representing interest 130 ---- 551 Less current portion 506 ---- $ 45 ====
Total operating lease expense was approximately $3,364,000 in 1995, $2,760,000 in 1994 and $3,307,000 in 1993. Accumulated depreciation of equipment under capital leases totalled $1,489,000 and $943,000 at December 31, 1995 and 1994, respectively. Depreciation expense on equipment under capital leases was $739,000 in 1995, $693,000 in 1994 and $250,000 in 1993. CONTINGENCIES On August 24, 1993, the Company filed a complaint against Oklahoma State University Education and Research Fund, Inc. (OSUERF) in United Stated District Court claiming that OSUERF breached an exclusive subcontract for the Company to provide equipment to OSUERF under OSUERF's prime contract with the United States Army, TRADOC Division. On November 18, 1993, the Company amended the complaint to add Federal Leasing, Inc. (FLI) as a defendant. On February 4, 1994, the CIT Group/Equipment Financing Inc. (CIT), as an assignee of FLI's rights under a financing agreement, filed a complaint against the Company in United States District Court claiming indemnification from the Company. The Company responded to CIT's complaint by denying the material charging allegations and stating certain affirmative defenses. The OSUERF and CIT actions have been consolidated. On April 21, 1995, CIT and FLI separately moved for summary judgment against the Company seeking damages in the amount of $2 million. The Company opposed the respective motions. By order dated October 11, 1995 the court denied the summary judgment motions of CIT and FLI, respectively. By order dated December 20, 1995, the consolidated actions were reassigned to the Honorable Charles A. Legge. A case management conference was held before Judge Legge on January 19, 1996, at which time the matter was set for jury trial to begin November 4, 1996. Discovery will close June 30, 1996. The Company will vigorously defend the claims stated against it by CIT, and believes that it has meritorious defenses. However, there can be no assurance that the Company will prevail or obtain indemnity for any recovery from OSUERF. If any of CIT's claims were to be decided adversely to the Company, the Company would be liable to pay monetary damages to CIT. The Company believes that the ultimate resolution of this matter will not have a material adverse impact on the Company's consolidated financial position. 17 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMPRESSION LABS, INCORPORATED On April 6, 1995, the Company filed a complaint against Southwestern Bell Telephone Company (SWBT) in Santa Clara, California Superior Court alleging that SWBT intentionally interfered with CLI's contracts with OSUERF and Hughes Network Systems (HNS). SWBT moved to quash service of summons for lack of personal jurisdiction, which motion was granted on July 11, 1995. On July 25, 1995, the Company refiled the complaint in the United States District Court for the Western District of Oklahoma. The complaint was served on SWBT which filed its answer on October 17, 1995, denying the material allegations of the complaint. On September 6, 1995, CLI filed its notice of appeal of the Superior Court's order granting SWBT's motion to quash service of summons for lack of personal jurisdiction. The appeal has now been fully briefed and the parties are awaiting an order from the Court of Appeal setting oral argument. Pending the outcome of the appeal, CLI and SWBT have stipulated that the Oklahoma federal court action will be placed in administrative closure. An order placing the matter in administrative closure was entered on October 20, 1995. In a complaint filed December 20, 1993, in United States District Court in Dallas, Texas, Datapoint Corporation (Datapoint) alleged that the Company had infringed two United States patents owned by Datapoint and relating to videoconferencing networks. The complaint seeks a judgment of infringement, monetary damages, injunctive relief and reasonable attorney's fees. The Company responded to the complaint on February 16, 1994 by denying the material allegations of the complaint and asserting affirmative defenses. Pursuant to court order, the parties have participated in mediation before a court-appointed mediator. Discovery in the case has commenced. On September 27, 1995, the Company filed a motion to construe the scope of the patent claims at issue in the litigation so as to elucidate whether Datapoint can assert that the Company is infringing the patents in suit or whether Datapoint's patents are invalid in light of the prior art. Briefing on the motion is complete and the motion is under submission to a special master to prepare a report to the District Court concerning the motion. The Company will vigorously defend the claims stated against it and believes that it has meritorious defenses; however, there can be no assurance that the Company will prevail. If any of the claims were to be decided adversely to the defendants, the Company could be liable for monetary damages to the plaintiff and be subject to injunctive relief. The Company believes that the ultimate resolution of this matter will not have a material adverse impact on the Company's consolidated financial position. To fulfill a purchase order from Philips Consumer Electronics Company (Philips) for the supply of certain decoder units, the Company placed a purchase order with Jabil Circuits, Inc. (Jabil) for the procurement of the component parts and the manufacture of the units. Due to the cancellation of the Philips purchase order, the Company has cancelled its purchase order with Jabil. By letter dated January 11, 1996, Jabil has demanded that the Company issue a purchase order for approximately $6,500,000 for the components which are outside the cancellation and reschedule windows. The Company initiated and engaged in negotiations with Philips and Jabil regarding the disposition of the component inventory and responsibility for cost of inventory that cannot be disposed of by Jabil. A resolution of the inventory issue has been reached as between Jabil and Philips. The Company has made a claim against Philips for damages associated with the Jabil inventory. Philips has not responded to the Company's claim letter. The Company believes that the ultimate resolution of this matter will not have a material adverse impact on the Company's consolidated financial position. The Company entered into a Joint Development and Marketing Agreement (JDMA) with Philips dated January 12, 1994, for the supply of certain decoder units discussed in the Jabil matter above. By amendment to the JDMA on May 24, 1995, Philips agreed to pay the Company $2,600,000 for all intellectual property jointly developed under the JDMA. In a related license agreement of May 12, 1995, the Company agreed to pay Philips $5,600,000 for a license under background patents and other intellectual property. Philips owes the Company $1,300,000 under the amendment, $900,000 of which was due December 29, 1995. The Company owes Philips $3,300,000 under the license agreement, $2,100,000 of which was due December 29, 1995. The Company believes that Philips has failed to make certain technology disclosures required under the license agreement. The Company has initiated and is engaged in negotiations with Philips regarding disposition of rights and monies owed under the amendment and license agreement. The Company believes that the ultimate resolution of this matter will not have a material adverse impact on the Company's consolidated financial position. 18 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMPRESSION LABS, INCORPORATED By letter dated October 23, 1995, Corporate Computer Services, Inc. (CCS), through its counsel, asserted that the Company is using proprietary technology of CCS without a license and is willfully misappropriating CCS' copyrights. The Company, in a letter from its counsel dated November 6, 1995, vigorously refuted CCS' assertions. The Company also tendered a payment for past due royalties plus interest pursuant to the terms of the MUSICAM License Agreement with CCS. The Company and CCS are now in the process of exploring the possibility of a future license agreement. The Company believes that the ultimate resolution of this matter will not have a material adverse impact on the Company's consolidated financial position. In the normal course of business, the Company receives and makes inquiries with regard to other possible patent infringement. Where deemed advisable, the Company may seek or extend licenses or negotiate settlements. Outcomes of such negotiations may not be determinable at any point in time; however, management does not believe that such licenses or settlements will, individually or in the aggregate, have a material adverse impact on the Company's consolidated financial position or results of operations. 9. STOCKHOLDERS' EQUITY PREFERRED STOCK The Company's Articles of Incorporation authorize the issuance of 4,000,000 shares of undesignated preferred stock at $.001 par value. There were no outstanding preferred shares at December 31, 1995. On February 1, 1993, Thomson Consumer Electronics S.A. (TCE) purchased 14,900 shares of redeemable Series B convertible preferred stock, par value $.001, for $1,000 per share. The Company received $13,758,000 net of commissions and issuance costs. Each Series B convertible preferred share was convertible into 96.3 shares, or a total of 1,434,900 shares, of the common stock of the Company at $10.384 per share, and carried equivalent voting rights to common stock on an "as if converted" basis. In 1994, TCE converted its shares of Series B convertible preferred stock into 1,434,900 shares of the Company's common stock. In addition, TCE has the right to add one board member to the Company's Board of Directors under certain circumstances. OFFERING OF COMMON STOCK In May 1994, the Company sold 147,929 shares of its common stock to Intel Corporation in a private offering for $1,973,000 net of issuance costs. In July 1995, the Company received an aggregate of $4,900,000 relating to the sale of 565,000 shares of newly issued common stock of the Company to an investor at prices equal to an average of market prices on the Nasdaq National Market during a specified period. PREFERRED SHARE PURCHASE RIGHTS PLAN In 1991, the Company adopted a Preferred Share Purchase Rights Plan under which, for each outstanding share of the Company's common stock, stockholders received one right, exercisable upon the occurrence of certain events, to purchase one one-hundredth of a share of a new series of preferred stock. In the event that any individual or group acquires 15% or more of the common stock of the Company, the Rights Plan permits the holder of each right, other than the acquiring individual or group, to purchase the Company's common stock having a market value of $200 at a 50% discount. In the event the Company is acquired in a merger or similar transaction in which the Company is not the surviving company, the holder of each right will have the right to purchase common stock of the acquiring company having a market value of $200 at a 50% discount. The Company may, subject to certain conditions, redeem the Rights for $.01 each or exchange one share of common stock for each right. EMPLOYEE STOCK OPTION PLANS AND STOCK PURCHASE PLAN Under the Company's stock option plans, options to purchase shares of common stock may be granted to employees, directors and consultants at not less than the fair market value at the date of grant, as determined by the Board of Directors, in the case of Incentive Stock Options (ISOs) as defined by the Internal Revenue Code of 1986, as amended, and at not less than 85% of fair market value at the date of grant in the case of options other than ISOs. Options typically vest at six-month intervals over a period of four years and expire after ten years. In the event of employee termination, the Company has the right to cancel any vested options not exercised within 90 days of the termination date. Cancelled options are returned to the option plans and are available for future grants. 19 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMPRESSION LABS, INCORPORATED In November 1994, the Company agreed to exchange outstanding options to purchase the Company's common stock held by non-officer employees for an equal number of options with an exercise price of $7.63, the then-current fair market value of the Company's common stock. In return, participating employees who chose to exchange their options agreed to vesting schedules for the new options which were delayed compared to vesting schedules for the original options. Options covering a total of 671,727 shares were exchanged under this program. The effect of such exchange reduced the weighted average exercise price of outstanding options from $10.79 to $9.74 per share. The effect of the exchange has been included in the accompanying table as options granted and cancelled. No officer of the Company was allowed to participate in this exchange. At December 31, 1995, the Company had 4,190,693 shares of common stock reserved for the exercise of stock options outstanding under all plans and for future option grants and the issuance of shares under the option plans and the purchase plan. At December 31, 1995, outstanding options to purchase the Company's common stock had a weighted average option price of $8.73, and 496,240 shares were available for future grant under all option and purchase plans. At December 31, 1995 and 1994, outstanding options under the employees stock option plans were exercisable for 2,277,507 and 2,048,341 shares, respectively. Options under the employee option plans have been granted, exercised and cancelled as follows:
Number of Shares Option Price per Share ---------------------------------------------------------------------------------- Outstanding at December 31, 1992 3,218,580 $2.88 to $27.13 Granted in 1993 630,822 $8.63 to $14.25 Exercised in 1993 (296,291) $2.88 to $14.13 Cancelled in 1993 (223,277) $5.38 to $23.75 --------- --------------- OUTSTANDING AT DECEMBER 31, 1993 3,329,834 $2.88 to $27.13 Granted in 1994 1,378,562* $6.50 to $13.38 Exercised in 1994 (163,456) $2.88 to $11.25 Cancelled in 1994 (970,582)* $6.50 to $27.13 --------- --------------- OUTSTANDING AT DECEMBER 31, 1994 3,574,358 $2.88 to $20.50 Granted in 1995 1,098,510 $7.19 to $10.25 Exercised in 1995 (138,357) $2.88 to $ 9.00 Cancelled in 1995 (840,058) $5.38 to $19.63 --------- --------------- OUTSTANDING AT DECEMBER 31, 1995 3,694,453 $2.88 to $20.50 ========= ===============
* Includes 671,727 shares exchanged under the above-mentioned program. In 1989 and 1992, the Company issued warrants to purchase a total of 890,000 shares of the Company's common stock at $7.50 per share to PaineWebber R&D Partner II, L.P. as part of a research and development contract. At December 31, 1995 and 1994, warrants for 551,940 shares and 584,607 shares, respectively, were outstanding and exercisable under these warrants. Through the Company's 1984 Employee Stock Purchase Plan, eligible employees of the Company may purchase common stock at 85% of the fair market value of the stock at the beginning or end of each offering period (calendar quarters), whichever is lower. Each participant may contribute up to 15% of total compensation toward purchase of shares. Shares have been issued under the plan as follows:
Year Number of Shares Price per Share Average Price per Share - -------------------------------------------------------------------------------- 1995 99,547 $5.31 to $ 8.29 $6.80 1994 99,588 $6.80 to $10.09 $8.47 1993 99,645 $8.71 to $11.37 $9.80
10. REVENUE International revenue, principally from customers located in East Asia, Australia and Western Europe, was approximately $24,331,000 or 22%, $21,159,000 or 18% and $12,396,000 or 13% of revenues in 1995, 1994 and 1993, respectively. No single customer accounted for greater than 10% of revenues in 1995 and 1994. In 1993, sales to two customers accounted for 17% and 10% of revenues, respectively. 20 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMPRESSION LABS, INCORPORATED 11. INCOME TAXES As of December 31, 1995, the Company had net operating loss carryforwards for federal income tax purposes of approximately $46,000,000, of which $23,000,000 relates to deductions attributable to the exercise of non-qualified stock options and employees' early disposition of stock acquired through incentive stock options. The future net reduction in taxes otherwise payable arising from such deductions will be credited to additional paid-in-capital when realized. As of December 31, 1995, the Company had a federal general business credit carryforward of approximately $2,200,000. The federal net operating loss and tax credit carryforwards expire primarily in the years 1999 through 2010. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows (in thousands):
Years ended December 31, 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Accounts receivable, principally due to the allowance for doubtful accounts $ 4,466 $ 863 Inventories, principally due to the allowance for obsolete inventories and additional costs inventoried for tax purposes 4,672 1,949 Property and equipment, principally due to differences in depreciation 6,683 3,925 Capitalized research and development expenses 3,394 2,380 Accrued expenses, not currently deductible 9,423 1,227 Deferred revenue 738 931 Tax credit carryforwards 2,291 2,708 Net operating loss carryforwards 15,959 14,486 Other - 20 -------- -------- 47,626 28,489 Less: valuation allowance (44,441) (22,250) -------- -------- Net deferred tax assets 3,185 6,239 -------- -------- Deferred tax liabilities: Capitalized software (1,279) (4,121) Long-term contract revenue (1,906) (1,218) -------- -------- (3,185) (5,339) -------- -------- Net deferred tax asset $ - $ 900 ======== ========
The valuation allowance for deferred tax assets as of December 31, 1995 was $44,441,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making the assessment. Federal tax law imposes significant restrictions on the utilization of net operating loss carryforwards in the event of a shift in ownership of the Company which constitutes an "ownership change," as defined in Internal Revenue Code, Section 382. The Company's net operating loss and general business credit carryforwards have not been subjected to any potential limitations as a result of these provisions. 12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION The Company paid no federal income taxes during the years ended December 31, 1995, 1994 and 1993. Interest payments were $1,142,000, $798,000 and $846,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The Company purchased property and equipment through capital lease obligations totaling $147,000, $0 and $1,817,000 in 1995, 1994 and 1993, respectively. In 1994, additional paid-in capital increased $13,758,000 from the conversion of 14,900 shares of Series B convertible preferred stock into 1,434,900 shares of the Company's common stock. See Note 9 of Notes to Consolidated Financial Statements. 21 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMPRESSION LABS, INCORPORATED 13. SUBSEQUENT EVENT In the first quarter of 1996, the Company decided to restructure the videoconferencing division in order to seek profitability and growth. This resulted in adjustments that were recorded as of December 31, 1995 to carrying values of assets that were impacted--primarily inventories, capitalized software and accounts receivable. In conjunction with this action, the Company also reduced its workforce in the first quarter of 1996 and identified a number of offices that would be closed. Severance and other expenses associated with this action will be reflected in the results of the first quarter of 1996. INDEPENDENT AUDITOR'S REPORT THE STOCKHOLDERS AND BOARD OF DIRECTORS OF COMPRESSION LABS, INCORPORATED: We have audited the accompanying consolidated balance sheets of Compression Labs, Incorporated and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Compression Labs, Incorporated and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP San Jose, California March 13, 1996 22 19 STOCKHOLDERS' INFORMATION COMPRESSION LABS, INCORPORATED MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock is traded in the over-the-counter market under the Nasdaq National Market symbol CLIX. The following table sets forth the range of high and low trading prices during each quarter for the two years ended December 31, 1995.
High Low ----------------------------------------- 1995 First Quarter $10.00 $ 7.00 Second Quarter $11.38 $ 8.13 Third Quarter $11.38 $ 7.50 Fourth Quarter $ 8.13 $ 6.00 ====== ====== 1994 First Quarter $16.13 $10.75 Second Quarter $13.63 $ 9.50 Third Quarter $13.00 $ 8.75 Fourth Quarter $10.38 $ 6.63 ====== ======
The Company has never paid any cash dividends on its common stock. The Company presently intends to retain any earnings for use in its business and is currently restricted from declaring or paying any cash or stock dividends. At December 31, 1995, there were 997 stockholders of record. 23 EX-23.1 6 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Stockholders and Board of Directors Compression Labs, Incorporated: We consent to incorporation by reference in the Registration Statements (Nos. 2-92695, 2-96228, 33-32366, 33-40405, 33-61349, 33-70860, 33-70950 and 33-79790) on Form S-8 of Compression Labs, Incorporated and the Registration Statements (Nos. 33-79044 and 33-72048) on Form S-3 of Compression Labs, Incorporated of our report dated March 13, 1996 relating to the consolidated balance sheets of Compression Labs, Incorporated as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, which appears in the Compression Labs, Incorporated 1995 annual report to stockholders and is incorporated by reference in the December 31, 1995 annual report on Form 10-K of Compression Labs, Incorporated and our report dated March 13, 1996, on the related consolidated financial statement schedule which appears in the annual report on Form 10-K. KPMG Peat Marwick LLP San Jose, California April 11, 1996 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 12,638 0 56,826 10,028 22,821 83,353 37,443 20,171 104,753 68,094 0 0 0 15 120,696 104,753 112,979 112,979 79,359 79,359 53,632 0 1,142 (57,582) 0 (21,040) (36,542) 0 0 (57,582) (3.76) (3.76)
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