UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 September 30, 1996, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____ to _________.
Commission file number: 0-26620
ACCOM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3055907
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
1490 O'Brien Drive
Menlo Park, CA 94025
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 328-3818
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than 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
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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. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $5,170,000 as of December 16, 1996, based
upon the closing sale price on the Nasdaq National Market reported for such
date. Shares of Common Stock held by each officer and director and by each
person who owns 5% of more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
There were 6,568,767 shares of Registrant's Common Stock issued and
outstanding as of December 16, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive
proxy statement for the Annual Meeting of Shareholders to be held on February
18, 1997.
"Accom," "Axial," and "WSD" are registered trademarks of the Company,
and all of the Company's other product names are trademarks of the Company.
"Onyx(TM)" is a trademark of Silicon Graphics, Inc. This Report also includes
trademarks of companies other than Accom, Inc. and Silicon Graphics. Unless the
context indicates otherwise, reference in this Report to the "Company" and
"Accom" refers to Accom, Inc. and its consolidated subsidiaries.
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PART I
Item 1. Business
General
Accom(R), Inc. ("Accom" or the "Company") designs, manufactures,
markets and supports digital video systems for the high-end production,
post-production and broadcast markets. The Company's systems are designed to be
used by video professionals to create, edit and broadcast high quality video
content such as television shows, commercials, news, music videos and video
games.
The proliferation of distribution channels for video content, including
cable, satellite and direct view systems such as videos and CD ROMs, is
increasing the demand for broadcast content while diminishing the potential
viewing audience and revenue per channel. To compete more effectively,
broadcasters and other high-end content creators require systems that reduce the
cost of developing and delivering video content and more flexibly distribute the
same or repurposed content over multiple channels. These systems must be capable
of performing mission-critical tasks reliably and in real time without
detracting from the final video quality. As high-end video professionals
transition from traditional stand-alone analog systems to integrated digital
systems, they also require systems that can be easily integrated with existing
equipment to leverage their significant capital investments.
The Company provides innovative products that cost-effectively meet the
needs of high-end professional content creators and broadcasters in real time
video production, post-production and distribution. The Company's current
products include on-line video editing systems and digital video disk recorders
used during the content creation process and networked still image and video
clip storage systems used by broadcasters. At the April 1995 National
Association of Broadcasters ("NAB") convention, the Company introduced a
prototype of the ELSET(TM) virtual set system (the "ELSET Virtual Set"), which
operates on a Silicon Graphics, Inc. ("SGI") Onyx(TM) workstation (an "Onyx").
Accom believes that the ELSET Virtual Set has the potential to give video
content creators enhanced freedom and control over their production environments
by replacing traditional physical studio sets with three-dimensional ("3D")
virtual sets. The Company anticipates that the ELSET Virtual Set will be used
primarily in the production of news and sports broadcasts, news magazines, music
videos, video games and talk shows. The Company shipped its first ELSET virtual
set system in the second quarter of fiscal 1996.
The ELSET Virtual Set technology is owned by ELSET Electronic-Set GmbH
("ELSET GmbH"). Since September 29, 1995, 100% of the outstanding shares of
ELSET GmbH have been owned by the Company through a wholly-owned subsidiary.
The Company's strategy is to maintain its leadership position in the
high-end segment of the video post-production market by enhancing its existing
product lines and developing new products that establish higher standards of
performance in video editing and digital recording. The Company plans to build
upon its established reputation in the high-end post-production segment to
market the ELSET Virtual Set and its Axess(TM) news graphics and clip server
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(formerly known as the "Brontostore") to the production and distribution
markets. In addition, the Company has pursued a strategy of first developing and
marketing full-featured systems to prove technological feasibility and market
acceptance and then designing lower-priced products with reduced feature sets to
appeal to a broader base of customers.
The Company sells its products through a combination of its direct
sales force and indirect distribution channels.
Industry Overview
The creation and broadcast of video content consists of four distinct
stages: pre-production, production, post-production and distribution.
Pre-production involves creation of the script and storyboard. Production
(content creation) involves shooting video or film, as well as creation of
computer-generated graphics and sound recording. Post-production consists of
editing and manipulating diverse images and audio elements into a final program,
including off-line and on-line editing. Distribution is the delivery of the
finished video content to the viewer through traditional channels such as
broadcast, satellite and cable channels or through direct distribution of video
rentals, CD ROMs and video games.
The market for systems used in the video content creation, editing and
broadcast process ranges from high-end professional users such as television
networks, cable television companies and independent production and
post-production houses, to professionals and non-professionals that create video
content for less demanding applications such as corporate communications.
High-end professional users typically drive the performance standards for
innovation, quality, speed and features for the video production and broadcast
markets.
The channels available for distribution of video content are
proliferating as new cable, satellite and direct view alternatives supplement
traditional delivery systems. This proliferation is increasing the demand for
broadcast content. Concurrently, the viewing audience per channel and,
therefore, the potential revenue per channel is being reduced. To more
effectively compete in this new environment, broadcasters and other video
professionals must reduce the cost of developing and delivering content and find
more flexible means to distribute the same or repurposed content over multiple
channels. These requirements span the post-production, distribution and content
creation segments of the video production and broadcast market.
Post-Production
Video editing is critical to the post-production process and is often
completed in two steps: off-line, to reduce raw material to a smaller, more
manageable group of elements; and on-line, to assemble video, audio and graphic
elements into a final program. The on-line video editing process typically
occurs in a video "editing suite" comprised of sophisticated, interconnected
equipment such as video recorders and switchers, digital video effects systems,
storage devices for still images and computer-based graphics systems. Video
editing suites can cost up to several million dollars due to the cost and
variety of equipment required, and professional post-production services can
cost in excess of $1,000 per hour.
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Over the past several years, a number of personal computer-based
off-line editing systems have been introduced to enable more efficient and
cost-effective editing. However, these off-line systems rely upon compression
algorithms to convert raw video content to signals capable of being manipulated
on personal computers. This use of highly compressed video compromises video
fidelity. Currently, video effects and compositing, as well as two-dimensional
("2D") and 3D graphic elements, must be created in an uncompressed format. An
editor using a compression-based off-line system must decompress the video, add
effects and graphics and then recompress the video. This adds complexity to the
editing process and often further compromises the video fidelity of the final
content. Moreover, these off-line systems typically provide the user with a
single video stream, which does not allow the simultaneous manipulation of
multiple streams of video elements in real time.
To improve productivity and creative flexibility, high-end
professionals increasingly require on-line editing systems with simultaneous
random access to multiple video streams and video of D1 quality, a standard
digital video format that represents one of the highest levels of video quality
commercially available today. Unlike traditional taped-based analog systems, an
on-line editing system based on digital video disk recorders enables the user to
instantly and randomly access any part of the stored video, audio or other
material, rearrange the material and play back edited material without
repeatedly winding and rewinding tape to locate desired sequences. In contrast
to off-line systems, on-line digital-based systems do not require high levels of
compression and, therefore, do not detract from the fidelity of the final video
content. As post-production professionals transition their on-line edit rooms to
digital technologies, they often create hybrid environments that integrate
traditional analog video processing equipment with digital systems. Therefore,
these professionals need on-line editing systems that easily interface with
equipment made by different manufacturers.
Distribution
Most distributors of video content such as television networks and
cable broadcasters currently rely on standalone still image disk storage devices
and analog tape-based systems when broadcasting graphics and video clips during
news, sports or entertainment presentations. These are typically single-user
devices that cannot be easily networked to serve multiple users. With the
proliferation of distribution channels, distributors of video content
increasingly require more flexible means of accessing and distributing content
over multiple channels. Quick access by multiple users to content such as
computer-generated graphics and short segment video clips is critical to
effective and economical news, sports and entertainment broadcasting. Networked
digital video disk recorders enable distributors of video content to make
material more readily available to multiple users and for broadcast through
multiple channels. Distributors of video content are beginning to transition to
digitally-based networks that increase the speed at which information is shared,
reduce the time necessary to complete production tasks and more efficiently
utilize the content they create and distribute.
Content Creation
A large portion of the cost of creating content is attributable to the
actual shooting of video, which is performed on location or on studio stages. A
typical video studio consists of a
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soundproofed stage, a specially designed set, high-intensity lighting,
sophisticated video equipment and, often, a fully-equipped control room. Studios
are often dedicated to a single type of production due to the time and cost
necessary to change, or strike, sets. Actual set costs vary widely depending on
the nature of the content being shot on the set and production budget
constraints. Physical sets are inflexible and require significant manual effort
to assemble and disassemble. With the proliferation of distribution channels,
producers of video content need flexible production techniques that will enable
them to quickly and efficiently create content for distribution through multiple
channels. Content creators are therefore searching for innovative solutions to
lower set costs, increase flexibility in the production of video and create more
interesting content.
Traditional video systems do not adequately meet the emerging
production, post-production and distribution needs of high-end content creators
and broadcasters. Professionals in this market segment require flexible,
cost-effective systems that perform mission-critical tasks reliably and in real
time without detracting from the final video quality. These new systems must
also be capable of accommodating high-end video professionals as they transition
from traditional stand-alone analog systems to integrated digital systems. In
addition, high-end professionals require systems that can be easily integrated
with existing video content creation and distribution equipment to leverage
their significant equipment investments.
The Accom Approach
Accom provides innovative products that cost-effectively meet the needs
of high-end content creators and broadcasters in real time video production,
post-production and distribution. Relying on its core technologies and its
knowledge of the high-end video market, the Company develops sophisticated
digital systems comprised of both standard and proprietary hardware and
software. Accom believes that this approach results in flexible solutions,
offering price and performance advantages over competitive systems while
facilitating the transition to hybrid and digital environments.
Accom's systems offer the following benefits:
Open Systems. The Company designs products for ease of integration with
other manufacturers' products, such as video switchers, digital video effects
devices and video recorders. This capability allows users to leverage their
existing equipment investments and customize their systems to meet current and
future requirements.
Real Time Performance. Accom systems operate in real time and execute
processing and control functions 50 or 60 times per second. This enables content
producers to instantly view video content in full-quality video resolution
during production and post-production.
High Video Fidelity. Accom systems operate in fully uncompressed video
formats. This capability provides video content creators with D1 quality video,
enabling them to deliver the same content for high-end distribution channels or
distribution channels requiring lower resolution.
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Ease Of Use. The Company's systems are designed to improve the
productivity of users and to reduce training time. For example, certain of the
Company's products utilize video images and graphical user interfaces that
eliminate the need for complicated menu structures and time codes.
Leveraged Solutions. Accom combines certain of its individual products
to create integrated solutions that offer performance benefits beyond those
available when such products are used individually. For example, the Company
integrates its on-line editor products with its digital video disk recorders to
provide on-line, random access editing capability.
The Company offers a range of products to the high-end segment of the
video production, post-production and distribution markets. The Company's
current key products are: on-line video editing systems used by post-production
professionals; digital video disk recorders used during the on-line editing
process or to produce computer graphics and animation; networked still image and
video clip storage systems used by distributors of video content and the ELSET
Virtual Set, which is designed to enable content producers to cost-effectively
create programs with virtual production sets.
Accom Strategy
Accom's goal is to be a leading supplier of production, post-production
and distribution systems to the high-end video content creation and broadcast
markets. To achieve this goal, Accom is executing a strategy that includes the
following key elements:
Maintain Leadership Position in Current High-End Market. The Company
has established a reputation for meeting the exacting needs of the high-end
segment of the video post-production market. The Company plans to maintain its
leadership position in the high-end segment of the video post-production market
by enhancing its existing on-line editing product line and developing new
products that establish higher standards of performance in video editing and
digital recording.
Expand into New High-End Markets. The Company plans to leverage its
existing reputation in the high-end post-production segment to market the ELSET
Virtual Set and the Axess (formerly known as the "Brontostore") to the
production and distribution markets.
Broaden Lower-Priced Product Line. The Company has introduced products,
such as the Axial 2010 on-line editor and the WSD/XL and WSD/Xtreme digital
video disk recorders, that provide high-end users with reduced feature sets at
lower prices. Under this strategy, the Company first develops and markets
full-featured systems to prove technological feasibility and market acceptance.
Thereafter, the Company designs lower-priced products with reduced feature sets
to appeal to a broader base of customers.
Invest in Innovative Technologies. The Company has developed
significant expertise in core technologies relating to editing, real time
control, signal processing and digital video disk recording. The Company intends
to continue to internally develop and acquire new technologies as necessary to
design products that satisfy customer requirements for quality, speed, cost and
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functionality. For example, by acquiring ELSET GmbH, the Company obtained access
to virtual set technology.
Enhance Distribution Channels. The Company plans to expand its direct
marketing and sales efforts to more effectively penetrate the high-end market.
In addition, the Company intends to expand its indirect distribution channels,
including dealers, value-added resellers and third-party software solutions
vendors, to increase sales of lower-priced products such as the Axial 2010 and
WSD.
Products
The Company currently offers five product lines that address the needs
of the video production, post-production and distribution markets. The Company's
on-line video editing systems, digital video disk recorders and digital signal
processing equipment are used primarily in post-production. Digital news
graphics and clip servers address the needs of video distribution. The ELSET
Virtual Set is designed to be used in the production of video content. The
following table summarizes the Company's key products:
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Product Date of First Primary Applications
Shipment
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On-Line Video Editors
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Axial 2020 November 1991 On-line editing for commercials
Axial 2010 June 1994 and long form television programs
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Digital Video Disk Recorders
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RTD 4224 April 1992 On-line editing and effects
creation for commercials and long
form television programs
WSD/Xtreme September 1996(1) Desktop graphics and animation
production and post-production
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Digital News Graphics and Clip Servers
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Axess (formerly
Brontostore)
RAID Storage November 1993 Creation and distribution of
news graphics
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Virtual Set Production Tools
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ELSET Virtual Set March 1996 Virtual sets for high-end video
content creation in real time
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(1) WSD/Xtreme is based on the Company's WSD digital video disk recorder, which
was first commercially shipped in November 1993.
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On-Line Video Editors
The Company's Axial line of digital, non-linear, on-line video editing
systems consists of the Axial 2020 and the Axial 2010. Key options to the Axial
2020 and the Axial 2010 are the Random Access Visual Editing System ("RAVE") and
the Axial 2010 Cache Editor, respectively. A primary benefit of the Axial line
of products is their ability to import edit decision lists from off-line editing
systems for quick assembly of full-quality video content. The Axial 2020 and
Axial 2010 are used to perform editing and compositing for the high-end segment
of the post-production market.
The Axial 2020 offers an enhanced visual interface that enables the
video editor to edit information by working with pictures and video clips
instead of only timecode numbers. The Axial 2020 utilizes a text file approach
for interfacing with external equipment that minimizes the need to write new
software device drivers, thereby facilitating the integration of external
equipment with the editing system. The Axial 2020 also contains a
multi-processor architecture that enables it to simultaneously control up to 47
independent devices. In August 1994, the Company received an International
Teleproduction Society ("ITS") Monitor Award for Special Achievement in
Engineering Excellence for the Axial 2020. The United States list price of the
Axial 2020 ranges from $70,000 to $124,000, depending on features, including the
RAVE option.
The Axial 2010 is a lower-priced, on-line editing system designed to
address the needs of a broader group of professional users. The Axial 2010 is
used in post-production suites producing content such as long form programs and
corporate videos under lower production budgets. In contrast to the Axial 2020,
the Axial 2010 employs a graphical representation of the video time line in the
user interface rather than live video images. The United States list price of
the Axial 2010 ranges from $30,000 to $45,000, depending on features, including
the Cache option.
RAVE and the Axial 2010 Cache are options that enable users to
integrate the Company's on-line video editing and digital video disk recording
technologies. RAVE combines the Axial 2020 and the RTD, Accom's high-end
uncompressed digital video disk recorder. The RTD provides immediate random
access to stored images and the flexibility of non-linear operation. RAVE was
one of the first editing systems to feature non-linear, D1 quality video for
on-line editing. The Axial 2010 Cache combines the recording capability of the
Company's low-cost WSD/Xtreme with the Axial 2010 to accelerate the on-line
editing process by reducing the time necessary to access sequences of video and
enabling the automatic assembly of edit decision lists created by off-line
systems. The Company intends to continue to pursue other innovative uses of its
editor and disk technologies to continue to maintain its leadership position in
on-line random access editing.
Digital Video Disk Recorders
The Company's line of digital video disk recorders includes the
WSD/Xtreme, which is used in graphics and animation production, and the RTD,
which is used in on-line video editing.
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The WSD/Xtreme is a D1 quality digital video disk recorder and video
subsystem that enables users to record and play back digital video images in
real time and rapidly transfer digital video images to and from computer
workstations. The WSD/Xtreme enables more efficient creation of 2D and 3D
graphics and animation by providing a bridge between the computer workstation
and video tape recorders and other video devices. The WSD/Xtreme's digital
random access recording and playback features improve the quality of desktop
graphics production by eliminating the speed and maintenance problems associated
with analog video tape recorders. With the WSD/Xtreme, frames can be played back
in real time so the user can see the end result in full motion on a video
monitor. The Company has worked closely with a number of third-party software
developers to integrate the WSD/Xtreme with their applications. The WSD/Xtreme
also provides both Ethernet and SCSI interfaces, thereby enabling connection to
other computer platforms. Accom has interfaces for the WSD/Xtreme to enable
personal computer and Apple Macintosh users to integrate the WSD/Xtreme into
their systems. The United States list price of the WSD/Xtreme ranges from
$20,900 to $27,400, depending on features.
The RTD is the Company's higher-priced digital disk recorder that
enables the digital recording and playback of D1 quality video onto a real time,
random access disk. Applications of the RTD include random access video editing
and the editing of 2D and 3D graphics and animation for production and
post-production. Unlike a video tape recorder, the RTD can instantly access
stored images and play back the images at speeds ranging from 1/100th to 100
times normal play speed. The RTD can also provide from one to seven minutes of
video recording time. The Company's RTD digital recorders feature the Smooth
Motion(TM) option, which eliminates the picture content stuttering and jerking
that normally occurs during off-speed videotape and disk playback. This
functionality is derived from the Company's expertise in digital signal
processing. The RTD offers a single channel option as well as a dual channel
option that can be operated simultaneously by two users. The United States list
price of the RTD ranges from $22,000 to $117,500, depending on features.
Digital News Graphics and Clip Servers
The Axess, formerly known as "Brontostore", is designed to be used by
broadcast professionals for the preparation and on-air presentation of
computer-generated graphics, still images and video clips. The Axess enables
broadcasters to digitally store, categorize, search and obtain quick access to a
library of previously recorded still images, computer-generated graphics and
video clips for use during on-air presentations of news, sports or entertainment
events. The Axess is a networked system of individual nodes, each having its own
storage modules. Storage is configured to meet the needs of each user, but every
node on the network has access to the information stored in other nodes. An
option designed with redundant arrays of individual disks ("RAID") provides
storage, from eight minutes to fourteen and one-half minutes. The storage
options enable a user to record and play back a mixture of still and moving
images. Depending on the selected storage options, a single node can be
configured to store from 1,000 to 190,000 still images or from eight minutes to
one and 3/4 hours of uncompressed video. The price of the Axess varies widely
depending on the number of nodes and the amount of storage per node. The
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United States list price of the Axess ranges from $27,000 for a single node to
more than $1.0 million for a complex, multi-node network.
Digital Video Signal Processing Equipment
The Company offers six digital video signal processing products that
can be utilized in film-to-tape transfer and the color correction process and to
provide bridges between various signal formats. These components are also
sometimes sold as part of the Company's larger systems such as Axial editors and
the Axess. In October 1990 and September 1991, the Company won EMMY Awards from
the National Academy of Television Arts and Sciences for Outstanding Technical
Achievement and, in September 1989 and July 1993, the Company received two ITS
Monitor Awards for Special Achievement in Engineering Excellence for its digital
video signal processing equipment. The United States list price of the Company's
digital video signal processing equipment ranges from $4,000 to $30,000,
depending on model and selected features.
Virtual Set Production Tools
The ELSET Virtual Set is designed to enable content creators to create
virtual sets utilizing standard 2D and 3D painting, modeling and animation tools
and to combine these virtual sets with live actors in real time. The ELSET
Virtual Set combines the virtual world and the real world to create the illusion
that the actors are a part of the virtual set. Thus, content creators are able
to achieve greater artistic control over the environments in which content is
developed. Traditional physical sets can be replaced by virtual sets that appear
realistic and can be readily altered.
The Company believes that the ELSET Virtual Set will enable content
producers and the organizations that service such producers to leverage their
investments in existing studio infrastructures. Content producers can utilize
the same virtual set in different studios and quickly load new sets to alter the
appearance of the set. The Company believes that by implementing the ELSET
Virtual Set, these professionals will be able to greatly increase the amount of
content that can be produced in their existing studios and substantially reduce
the labor and storage costs associated with traditional physical sets. The
Company anticipates that the ELSET Virtual Set will be used primarily in the
production of news and sports broadcasts, news magazines, music videos, video
games and talk shows.
The ELSET Virtual Set currently operates on an Onyx and can be
configured to accommodate one or two live video streams. To broadcast a virtual
set, content creators will also require equipment such as cameras, camera
control heads and video keyers, which are not provided by the Company but are
readily available from a variety of sources. Content creators construct virtual
sets using 3D modeling tools and apply textures to these models utilizing
scanned-in images or 2D paint systems. 3D modeling tools and 2D paint systems
are readily available from a variety of sources, including Wavefront
Technologies, Inc. and Alias Research, Inc. (each of which is a subsidiary of
SGI), SOFTIMAGE Inc. ("SOFTIMAGE"), a subsidiary of Microsoft Corporation
("Microsoft") , Adobe Systems, Inc., Parallax Graphics, Inc., Quantel Ltd. and
Autodesk, Inc. Once textures are applied to the 3D models, lighting is applied
utilizing a
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third-party lighting package included with the ELSET Virtual Set. The virtual
set is then rendered and stored for later use in production.
Accom offers the ELSET Virtual Set as a complete system, including the
ELSET software, the Onyx and interfaces to third-party video equipment. The
Company also offers a software only option for users that purchase or already
own the necessary SGI hardware. The Company's United States list price for the
full ELSET Virtual Set ranges from approximately $675,000 to $1.2 million,
depending on features, and the United States list price of the software only
option ranges from $275,000 to $400,000, depending on the number of video
streams and other features. Actual net prices to the Company of these systems
will likely be much less than list prices due to pending delivery of the Onyx 2,
the successor to the Onyx, from SGI, competition and other factors.
Customers and Applications
The primary end users of the Company's products are production,
post-production, broadcast and cable companies and studios. No customer
accounted for more than 10.0% of the Company's total revenues during fiscal
1996.
Marketing, Sales and Service
The Company markets its products to the high-end production,
post-production and distribution markets and sells its products through a
combination of its direct sales force and indirect distribution channels. The
Company markets its products at major trade shows for the broadcast and computer
graphics industries. The Company also initiates special direct mail and
advertising campaigns prior to certain trade shows and regularly advertises in
industry trade journals.
In the United States, the Company markets its products at trade shows
such as those held by NAB and ACM SIGGRAPH. The Company conducts domestic direct
sales through employees based in New Jersey, Chicago and Los Angeles, and uses
independent representatives to market its products in geographic areas that are
not served by its direct sales organization. The Company utilizes an additional
sales channel of 24 distributors for its WSD/Xtreme product line to more
effectively reach the independent dealers and VARs that integrate workstations,
software and peripheral devices.
Outside the United States, the Company markets its products at trade
shows such as those held by the International Broadcast Conference in Europe and
the InterBee in Japan. The Company sells its products through a network of 59
distributors that cover 59 countries, 13 of which distribute only the WSD/Xtreme
product line. During fiscal 1996, 1995, and 1994 the Company generated 38.2%,
51.1%, and 46.9%, respectively, of its net sales from customers in markets
outside of the United States. The Company maintains an office in Reading,
England to manage and support the Company's distributors in Europe, Africa and
Middle East. The Company manages and supports its international distributors in
the Americas, the Pacific and Asia through its corporate headquarters in Menlo
Park, California.
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The Company provides technical support and training to its customers
directly and through its distributors and maintains a technical support group in
its Menlo Park facility.
The Company generally ships its products within 30 days after
acceptance of a customer purchase order. The Company does not believe that its
backlog at any particular point in time is material or indicative of future
revenue levels.
Research and Development
The Company's research and development efforts currently are focused on
the development of product enhancements and new products for its on-line editor,
digital video disk recorder and virtual set product lines. The Company's
engineering staff consists of software and hardware engineers and other support
personnel. As of September 30, 1996, the Company employed 29 people in its
research and development organization, of which approximately 16 professionals
are focused on software development. During fiscal 1996, 1995 and 1994, the
Company's research and development expenses were approximately $3.9 million,
$3.8 million, and $3.4 million, respectively. Expenses in fiscal 1995 do not
include amounts related to virtual set system research and development, which
was being conducted through ELSET GmbH, and was acquired only shortly before the
end of fiscal 1995; however, the Company incurred a charge of approximately
$10.8 million for acquired in-process technology in fiscal 1995. The Company
believes that its success will depend in part upon its ability to enhance its
existing products and to develop and introduce new products and features to
incorporate new technologies and meet changing customer requirements and
emerging industry standards on a timely and cost-effective basis. Accordingly,
the Company currently intends to continue to increase expenditures for research
and development activities.
Manufacturing and Suppliers
The Company manufactures its systems at its facility in Menlo Park,
California. The Company's manufacturing operation consists primarily of the
testing of subassemblies and components purchased from third parties, the
duplication of software and the configuration, assembly and testing of complete
systems. The Company relies on independent contractors to manufacture certain
systems, components and subassemblies in accordance with the Company's
specifications. Each of the Company's products undergoes testing and quality
inspection during the final assembly stage.
Under a supply agreement with the Company dated June 30, 1995 (the "SGI
Agreement"), SGI agreed to supply the Onyx and certain enhancements on a
non-exclusive basis to the Company for one year, after which the parties may
mutually agree to extend this agreement for subsequent one-year terms. SGI and
the Company have not formally renewed this agreement, but are operating under
the original terms on an interim basis. Under the SGI Agreement, the Company is
required to make a minimum dollar level of Onyx purchases and to use its best
efforts to market the Onyx at or above an annual volume level; the Company's
success in meeting this annual marketing volume level determines the prices the
Company pays for the Onyx. There can be no assurance that the SGI Agreement will
be extended or that the Company will be able to obtain sufficient quantities of
the Onyx or any successor platform to the Onyx or that the
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Company will be able to satisfy the purchase and marketing requirements under
the SGI Agreement. Financial, market or other developments adversely affecting
SGI could have an adverse effect on its ability to supply the Company with the
Onyx or enhancements or upgrades to the Onyx and, consequently, upon the
Company's business, financial condition and results of operations. If the
Company were unable to obtain sufficient quantities of the Onyx or successor
platforms, or certain key enhancements or upgrades, on a timely basis or on a
commercially reasonable terms, or experienced defects or performance,
compatibility or reliability problems with the Onyx or successor platforms,
sales of the ELSET Virtual Set and, therefore, the Company's business, financial
condition and results of operations would be materially and adversely affected.
The Company is dependent on sole source suppliers for certain key
components and parts used in its products. The Company purchases sole source
components in some product lines pursuant to purchase orders placed from time to
time, does not carry significant inventories of these components and has no
long-term supply arrangements. Financial, market or other developments adversely
affecting sole source suppliers could have an adverse effect on its ability to
supply the Company with components and, consequently, upon the Company's
business, financial condition and results of operations. In addition, the
Company and certain of its suppliers subcontract the manufacture of certain
systems, components and subassemblies to third parties. While the timeliness and
quality of deliveries to date from the Company's suppliers and assemblers have
been acceptable, there can be no assurance that supply or assembly problems will
not occur in the future. While the Company believes that alternative sources for
these components or services could be arranged, the process of qualifying new
suppliers or assemblers could be lengthy, and there can be no assurance that any
additional sources would be available to the Company on a timely basis or at a
cost acceptable to the Company. Any disruption or reduction in the future supply
of any key components currently obtained from a single or limited source could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Competition
The video production, post-production and distribution equipment
markets are highly competitive and are characterized by rapid technological
change, frequent new product introductions, short product lives, evolving
industry standards and significant price erosion over the life of a product. The
Company anticipates increased competition in these markets from both existing
vendors and new market entrants. The Company believes that the primary
competitive factors in the high-end market are feature availability, quality,
price, ease of use, compatibility with other manufacturers' products, ability to
provide complete systems, continued introduction of new products and product
enhancements, customer service and support and distribution. The Company
believes that it competes favorably in the high-end segment of the video
production, post-production and distribution market with respect to most of
these factors.
In the digital on-line video editor and digital video disk recorder
market, the Company has to date encountered competition primarily from a limited
number of comparably-sized companies as well as larger vendors such as Sony
Corporation ("Sony"), Abekas Video Systems, Inc. (a subsidiary of Scitex
Corporation Ltd.) ("Abekas"), The Grass Valley Group (a subsidiary
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of Tektronix, Inc.) ("Grass Valley"), and Avid Technology, Inc. ("Avid"). Each
of these larger companies has substantially greater financial, technical,
marketing, sales and customer support resources, greater name recognition and
larger installed customer bases than the Company. As the Company continues to
broaden its lower-priced on-line video editor and digital video disk recorder
product lines, the Company anticipates that it will encounter increased
competition, including from these larger vendors.
The digital news graphics and clip server market is an emerging market.
The Company currently is encountering competition from established video
companies such as Quantel Ltd. (a subsidiary of Carlton Communications plc)
("Quantel"), Leitch Technology Corporation ("Leitch") and Pinnacle Systems, Inc.
("Pinnacle"). In addition, certain established computer and electronics
companies are currently offering or have announced their intentions to offer
products or solutions that compete with the Axess. These companies include
Hewlett-Packard Co. ("Hewlett-Packard") and Sony, through a collaboration with
Oracle Corporation ("Oracle"). In addition, the Company expects that existing
vendors and new market entrants will develop products that will compete directly
with the Axess and that competition will increase significantly as the market
for digital news graphics and clip servers develops. Many of the Company's
current and potential competitors have substantially greater financial,
technical, marketing, sales and customer support resources, greater name
recognition and larger installed customer bases than the Company.
The virtual set system market is also an emerging market. The Company
competes with Discreet Logic, Inc. ("Discreet Logic"), RT-SET Ltd. (a subsidiary
of BVR Technologies Ltd., an Israeli corporation), ORAD (an Israeli corporation)
and privately-held companies such as Brainstorm (a Spanish company). The Company
expects that competition will increase significantly as the market for virtual
set systems develops. In addition, certain established software and computer
companies such as SGI, which have substantially greater financial, technical,
marketing, sales and customer support resources than the Company, may acquire or
develop virtual set technology and compete with the Company.
Increased competition in any of the Company's markets could result in
price reductions, reduced margins and loss of market share, all which would
materially and adversely affect the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to compete successfully against current or future competitors.
Proprietary Rights and Licenses
Proprietary Rights
The Company's success and ability to compete is dependent in part upon
its proprietary technology. The Company relies on a combination of patent, trade
secret, copyright and trademark law, nondisclosure agreements and other
intellectual property methods to protect its technology. The Company's products
are generally sold pursuant to purchase and license agreements that contain
terms and conditions restricting unauthorized disclosure or reverse-compiling of
the proprietary software embodied in the products. The Company has been issued
seven United States patents, six foreign patents and has applications pending
for two additional
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<PAGE>
patents in the United States. The Company is also pursuing patent applications
in certain foreign countries. There can be no assurance that any of the
Company's currently pending patent applications or future applications will be
granted in full or in part or that claims allowed will be sufficiently broad to
protect the Company's technology. The Company also owns certain registered
trademarks in the United States and has one pending foreign trademark
application. Although the Company relies to a great extent on trade secret
protection for much of its technology, and has obtained written confidentiality
agreements from all of its key employees, consultants and vendors, there can be
no assurance that third parties will not either independently develop the same
or similar technology, obtain unauthorized access to the Company's proprietary
technology or misuse the technology to which the Company has granted access.
There has been substantial industry litigation regarding patent,
trademark and other intellectual property rights involving technology companies.
In the future, litigation may be necessary to enforce any patents issued to the
Company, to protect trade secrets, trademarks and other intellectual property
rights owned by the Company, to defend the Company against claimed infringement
of the rights of others and to determine the scope and validity of the
proprietary rights of others. The Company is not aware of any stated claims
against it regarding intellectual property rights. Any litigation arising out of
such claims could result in substantial cost and diversion of resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations. Adverse determinations in such litigation
could result in the loss of the Company's proprietary rights, subject the
Company to significant liabilities, require the Company to seek licenses from
third parties or prevent the Company from manufacturing or selling its products,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company believes that, due to the rapid proliferation of new
technology in the industry, legal protection through means such as the patent
and copyright laws will be less influential on the Company's ability to compete
than such factors as the creativity of its development staff and its ability to
develop new products and markets and to service its customers.
The laws of certain foreign countries treat the protection of
proprietary rights differently from those in the United States, and in many
cases the protection afforded by such foreign laws is weaker than in the United
States.
ELSET Acquisition
Development of the ELSET Virtual Set was initiated by Video Art
Production GmbH ("VAP"), and all title and rights to the ELSET Virtual Set were
contributed to ELSET GmbH when ELSET GmbH was formed as a joint venture by the
Company and VAP in December 1994. Through its wholly-owned subsidiary, Accom
Virtual Studio, Inc. ("AVS"), the Company owns 100% of the outstanding shares of
ELSET GmbH. In connection with the completion of the acquisition of 100% of the
outstanding shares of ELSET GmbH in September 1995 (the "ELSET Acquisition"),
the Company incurred a charge of approximately $10.8 million for acquired
in-process technology in fiscal 1995.
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<PAGE>
Although all title and rights to the ELSET Virtual Set were contributed
to ELSET GmbH when it was formed as a joint venture by the Company and VAP, VAP
has certain obligations under a December 1991 contract with the Commission of
the European Communities entitled "Mona Lisa -- Modeling Natural Images of
Synthesis and Animation" (the "Mona Lisa Contract"). In particular, materials
developed pursuant to the Mona Lisa Contract must be shared with all members of
the consortium of companies that contribute to the Mona Lisa project (the "Mona
Lisa Consortium") for such members' research and development purposes. However,
pursuant to the Mona Lisa Contract, the materials need not be shared with other
members of the Mona Lisa Consortium if such sharing opposes the major business
interests of the developer or the products covered by such materials are about
to become commercially available. It is possible that the ELSET Virtual Set in
the form in which it was contributed to ELSET GmbH by VAP could be deemed to
have been developed pursuant to the Mona Lisa Contract. Even if this is found to
be the case, the Company believes that since the ELSET Virtual Set is about to
become commercially available, the earlier version need not be shared with other
members of the Mona Lisa Consortium. However, there can be no assurance that the
Mona Lisa Contract would not be interpreted to require VAP to share the earlier
version. Although the Company believes that the development work that has been
undertaken since the contribution of the ELSET Virtual Set to ELSET GmbH would
make it difficult for a member of the Mona Lisa Consortium to duplicate the
ELSET Virtual Set, if such sharing is required, there can be no assurance that
members of the Mona Lisa Consortium, acting alone or in concert, would not be
able to use the shared technology to develop, market and sell a competitive
virtual set system. In such event, the Company's business, financial condition
and results of operations would be materially adversely affected. It is also
possible that VAP has granted to the other members of the Mona Lisa Consortium
the right to use the trademark "ELSET." Therefore, there can be no assurance
that the ELSET GmbH will be able to claim the exclusive right to use this
trademark, which could have a material adverse effect on the value of such
trademark to the Company.
Employees
On September 30, 1996, the Company had 83 full-time employees,
including 29 in research and development, 26 in marketing, sales and support, 20
in manufacturing and 8 in finance and administration. The Company's success will
depend in large part on its ability to attract and retain qualified personnel,
who are in great demand throughout the industry. None of the Company's employees
is represented by a labor union. The Company believes that its employee
relations are good.
Additional Factors That May Affect Future Results
The company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Specifically, the
Company wishes to alert readers that the following important factors, as well as
other factors, could in the future affect, and in the past have affected, the
Company's actual results and could cause the Company's results for future years
or quarters to differ materially from those expressed in any forward looking
statements made by or on behalf of the Company.
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<PAGE>
Uncertainty as to Development and Market Acceptance of ELSET Virtual
Set. The Company's ability to achieve revenue growth and profitability in fiscal
1997 and subsequent years is dependent to a significant degree upon the
successful development and market acceptance of its ELSET Virtual Set, a
prototype of which was introduced at the April 1995 NAB convention and the first
commercial shipments of which were made in March 1996. The ELSET Virtual Set is
still being further developed with respect to certain key features, including a
user interface, the movement of cameras in the set and porting to the new SGI
Onyx 2 platform . There can be no assurance that the Company will be able to
successfully complete these developments of the ELSET Virtual Set in a timely
manner. The failure to complete the development of the ELSET Virtual Set
successfully and in a timely manner would have a material adverse impact on the
Company's business, financial condition and results of operations. In addition,
the ELSET Virtual Set represents a new approach to studio set creation, and its
commercial success will depend on the rate at which potential end users
transition from the use of traditional physical sets to virtual sets and whether
this transition occurs at all. A potential end user's decision to purchase an
ELSET Virtual Set will depend on many factors that are difficult to predict. For
example, the ELSET Virtual Set is based to a significant extent on new
technology, including continuing enhancements to the Onyx. Therefore, potential
end users such as broadcasters may be reluctant to purchase the ELSET Virtual
Set, especially for mission-critical functions, until the ELSET Virtual Set's
reliability in real time use has been demonstrated. In addition, a potential end
user's decision to purchase the ELSET Virtual Set may be subject to SGI's timing
of shipments of the Onyx and SGI's announcement of enhancements to the Onyx. The
current U.S. list price for the ELSET Virtual Set, including the Onyx, ranges
from approximately $675,000 to over $1.2 million, depending on the desired
functionality. The Company expects that these prices will be less once the new
Onyx 2 platform from SGI is available. Potential end users may therefore be
unwilling to incur the significant cost of converting from physical sets to the
ELSET Virtual Set. Although the Company currently anticipates that broadcasters
and post-production facilities will be the primary end users of virtual set
systems, the Company has not conducted any formal market surveys to determine
the potential market for and acceptance of the ELSET Virtual Set. The Company
expects that sales of the ELSET Virtual Set will entail a longer sales cycle
than with the Company's other products. Although the Company made its first
commercial shipments of the ELSET Virtual Set in March 1996, there can be no
assurance that a significant market for virtual set systems will develop or that
the Company will be able to successfully market the ELSET Virtual Set over time.
If this market development does not occur or occurs over an extended period, or
if the ELSET Virtual Set does not achieve market acceptance, the Company's
business, financial condition and results of operations will be materially and
adversely affected.
Potential Fluctuations in Operating Results. The Company incurred a net
loss of $916,000 for fiscal 1996. The Company also incurred a net loss of $10.8
million in fiscal 1995, primarily as a result of a charge of approximately $10.8
million for acquired in-process technology. There can be no assurance that the
Company will be profitable on a quarterly or annual basis in the future. The
Company's quarterly operating results have in the past fluctuated and may
fluctuate significantly in the future depending on such factors as the timing
and shipment of significant orders, new product introductions and changes in
pricing policies by the Company and its competitors, the timing and market
acceptance of the Company's new products
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<PAGE>
and product enhancements, particularly the ELSET Virtual Set, the Company's
product mix, the mix of distribution channels through which the Company's
products are sold, the Company's inability to obtain sufficient supplies of sole
or limited source components for its products and charges related to refocusing
and streamlining operations. In response to competitive pressures or new product
introductions, the Company may make certain pricing changes or other actions,
such as restructuring the product lines, that could materially and adversely
affect the Company's operating results. In addition, new product introductions
by the Company could contribute to quarterly fluctuations in operating results
as orders for new products commence and orders for existing products decline.
The Company believes that its net sales generally will decrease in the second
quarter of each fiscal year as compared to the prior quarter (as occurred in the
second quarter of fiscal 1996) due to decreased expenditures in the
post-production market during that period and delayed customer purchasing
decisions in anticipation of new product introductions by the Company and others
at the annual NAB convention.
The Company currently anticipates that a number of factors will cause
its gross margins to decline in future periods from current levels. The Company
believes that the market for on-line video editors and digital video disk
recorders will continue to mature and, therefore, that the gross margins the
Company derives from sales of these products will decline in future periods. The
Company intends to increase its sales of lower-margin on-line video editor and
digital video disk recorder products in the future as it pursues the strategy of
broadening its lower-priced product lines. Furthermore, as the Company expands
its indirect sales channels, its gross margins will be negatively impacted
because of discounts associated with sales through these channels. In addition,
the Company currently anticipates that revenues from sales of the ELSET Virtual
Set will positively impact the Company's net sales but negatively impact its
gross margins because a significant portion of ELSET Virtual Set sales are
expected to be the resale of the Onyx, which generates lower gross margins than
sales of the Company's products.
The Company's expense levels are based, in part, on its expectations of
future revenues. In particular, the Company expects to incur significant
expenses in connection with the further development and marketing of the ELSET
Virtual Set. The Company may therefore be required to incur significant expenses
to support continuing development and marketing of the ELSET Virtual Set. Many
of the Company's expenses are relatively fixed and cannot be changed in short
periods of time. Because a substantial portion of the Company's revenue in each
quarter frequently results from orders booked and shipped in the final month of
that quarter, revenue levels are extremely difficult to predict. If revenue
levels are below expectations, net income will be disproportionately affected
because only a small portion of the Company's expenses varies with its revenue
during any particular quarter. In addition, the Company typically does not have
material backlog as of any particular date.
As a result of the foregoing factors and potential fluctuations in
operating results, the Company believes that its results of operations in any
particular quarter should not be relied upon as an indicator of future
performance. In addition, in some future quarter the Company's operating results
may be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would likely be materially and
adversely affected.
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Dependence on Silicon Graphics, Inc. The ELSET Virtual Set currently
operates only on the Onyx. Under its agreement with the Company (the "SGI
Agreement"), SGI has agreed to supply the Onyx and certain enhancements to the
Company for one year, after which the parties may mutually agree to extend this
agreement for subsequent one-year terms. SGI and the Company have not formally
renewed this agreement, but are operating under the original terms on an interim
basis. Although the Company expects to renew this agreement under similar terms,
there can be no assurance that such renewal will occur. Under the SGI Agreement,
the Company is required to make a minimum dollar level of Onyx purchases and to
use its best efforts to market the Onyx at or above an annual volume level.
There can be no assurance that the SGI Agreement will be extended or that the
Company will be able to obtain sufficient quantities of the Onyx or any
successor platform to the Onyx or that the Company will be able to satisfy the
purchase and marketing requirements under the SGI Agreement. Financial, market
or other developments adversely affecting SGI could have an adverse effect on
its ability to supply the Company with the Onyx or enhancements or upgrades to
the Onyx and, consequently, upon the Company's business, financial condition and
results of operations. If the Company were unable to obtain sufficient
quantities of the Onyx or successor platforms, or certain key enhancements or
upgrades, on a timely basis or on commercially reasonable terms, or experienced
defects or performance, compatibility or reliability problems with the Onyx or
successor platforms, sales of the ELSET Virtual Set and, therefore, the
Company's business, financial condition and results of operations would be
materially and adversely affected.
Rapid Technological Change; Product Development. The market for the
Company's products is characterized by rapidly changing technology, evolving
industry standards and frequent new product introductions. The Company's success
will depend in part upon its ability to enhance its existing products and to
develop and introduce new products and features to incorporate new technologies
and meet changing customer requirements and emerging industry standards in a
timely and cost-effective manner. The Company is currently developing new
products and product enhancements for its ELSET Virtual Set, on-line video
editor and digital video disk recorder product lines. There can be no assurance
that the Company will be successful in developing, manufacturing and marketing
these or other new products and product enhancements, that the Company will not
experience difficulties that delay or prevent the successful development and
introduction of these products and enhancements or that the Company's new
products and product enhancements will achieve market acceptance. The Company's
business, financial condition and results of operations would be materially and
adversely affected if the Company were to experience delays in developing new
products or product enhancements or if these products or enhancements did not
gain market acceptance. In addition, the introduction of products embodying new
technologies or the emergence of new industry standards can render existing
products unmarketable. There can be no assurance that products or technologies
developed by others will not render the Company's products non-competitive or
obsolete. In such case, the Company's business, financial condition and results
of operations would be materially and adversely affected.
The introduction of new products or product enhancements with
reliability, quality or compatibility problems can result in reduced or delayed
sales, delays in collecting accounts receivable or additional service and
warranty costs. In the past, the Company has delivered certain new products to
customers prematurely, and, as a result, such products have contained
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performance deficiencies. For example, in the first half of fiscal 1995, the
Company first delivered its Axess (formerly known as Brontostore) to certain
customers. The Company experienced technical problems with the introduction of
Axess, including delays in delivering additional functionality when originally
requested by these customers. Similarly, the software component of the Company's
products, particularly the ELSET Virtual Set, may contain errors that may be
detected at any point in the product's life cycle, including after product
introduction. For example, the Company has from time to time needed to update
the software for its products to address performance problems. The Company
expects the software content of its products to increase in the future. There
can be no assurance that the Company will not experience delays and software or
hardware related technical problems in its current and future efforts to develop
products and product enhancements. Any such delays or problems could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Dependence on Key Personnel. The Company's success depends in large
part on the continued service of its key technical and senior management
personnel and on its ability to attract, motivate and retain highly qualified
employees. None of the Company's key technical and senior management personnel
is bound by an employment agreement or an agreement not to compete with the
Company following termination of employment. Competition for highly qualified
employees is intense, and the process of identifying and successfully recruiting
personnel with the combination of skills and attributes required to execute the
Company's strategies is often lengthy. Accordingly, the loss of the services of
key personnel could have a material adverse effect upon the Company's research
and development efforts and on its business, financial condition and results of
operations. There can be no assurance that the Company will be successful in
retaining its key technical and management personnel and in attracting and
retaining the personnel it requires for continued growth. The Company has key
person life insurance covering certain of its management personnel.
Management of Growth. The Company's long-term success will depend in
part on its ability to manage growth, both domestically and internationally. In
addition, the Company will be required to enhance its operational, management
information and financial control systems. The Company may be required at some
point to recruit a substantial number of qualified employees to continue the
development and marketing of the ELSET Virtual Set. To support growth, the
Company will be required to increase the personnel in its sales, marketing and
customer support departments. If the Company is unable to hire a sufficient
number of employees with the appropriate levels of experience to increase the
capacity of these departments in a timely manner, or if the Company is unable to
effectively manage its growth, the Company's business, financial condition and
results of operations could be materially and adversely affected.
International Operations. In the fiscal 1996 and 1995, international
sales accounted for 38.2% and 51.1%, respectively, of the Company's total net
sales. The Company expects that international sales will continue to represent a
significant portion of its net sales in the future. The Company's results of
operations may be adversely affected by fluctuations in exchange rates,
difficulties in collecting accounts receivable, tariffs and difficulties in
obtaining export licenses. Although the Company's sales are currently
denominated in U.S. dollars, future international sales of the ELSET Virtual Set
may result in foreign currency denominated sales. Gains and losses on the
conversion to U.S. dollars of receivables and payables arising from
international
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operations may contribute to fluctuations in the Company's results of
operations. In addition, international sales are primarily made through
distributors and result in lower gross margins than direct sales. Moreover, the
Company's international sales may be adversely affected by lower sales levels
that typically occur during the summer months in Europe and other parts of the
world. International sales and operations are also subject to risks such as the
imposition of governmental controls, political instability, trade restrictions
and changes in regulatory requirements, difficulties in staffing and managing
international operations, generally longer payment cycles and potential
insolvency of international dealers. There can be no assurance that these
factors will not have a material adverse effect on the Company's future
international sales and, consequently, on the Company's business, financial
condition and results of operations.
Dependence on Distributors. The Company derives a majority of its
revenues from sales through distributors. The Company depends on distributors
for substantially all of its international sales. The loss of certain of these
distributors could have a material adverse effect on the Company. Certain of the
Company's distributors also act as distributors for competitors of the Company
and could devote greater effort and resources to marketing competitive products.
Because the Company's products are sold to high-end video professionals,
effective distributors must possess sufficient technical, marketing and sales
resources and must devote these resources to a lengthy sales cycle and
subsequent customer support. There can be no assurance that the Company's
current distributors will be able to continue to market and support the
Company's existing products effectively or that economic conditions or industry
demand will not adversely affect such distributors. The markets for new products
such as the ELSET Virtual Set and digital video disk based servers require a
different marketing, sales, distribution and support strategy than markets for
the Company's other products. In addition, the Company currently intends to
expand its existing indirect sales channels to implement its strategy of
broadening its lower-priced on-line video editor and digital video disk recorder
product lines. There can be no assurance that the Company's distributors will
choose or be able to effectively market and support these new products or to
continue to market the Company's existing products. A failure of the Company's
distributors to successfully market and support the Company's products would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Substantial Control by Existing Stockholders; Effect of Certain
Anti-Takeover Provisions. As of December 16, 1996, the Company's executive
officers and directors, and their affiliates, beneficially own approximately 45%
of the Company's outstanding Common Stock. As a result, the Company's executive
officers and directors and their affiliates will be able to exercise significant
influence over the Company and its business and affairs as well as over the
election of directors, regardless of how other stockholders of the Company may
vote. Furthermore, acting together, such stockholders may be able to block any
change in control of the Company. In addition, the Board of Directors has the
authority to issue up to 2,000,000 shares of undesignated Preferred Stock and to
determine the rights, preferences, privileges and restrictions of such shares
without further vote or action by the Company's stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely effected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock could have the effect of making it more
difficult for third parties to acquire a majority of the outstanding voting
stock of the Company. In September 1996, the Company's Board of Directors
adopted a
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stockholder rights plan, which entitles existing stockholders of the Company to
certain rights (including the right to purchase shares of Preferred Stock) in
the event of the acquisition of 15% or more of the Company's outstanding common
stock, or an unsolicited tender offer for such shares. The existence of the
rights plan could delay, prevent, or make more difficult a merger, tender offer
or proxy contest involving the Company. Further, certain provisions of the
Company's Amended and Restated Certificate of Incorporation and Bylaws and of
Delaware law could delay or make difficult a merger, tender offer or proxy
contest involving the Company.
Possible Volatility of Stock Price. The Company's stock price may be
subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by securities analysts or
others could have an immediate and significant adverse effect on the trading
price of the Company's common stock in any given period. Additionally, the
Company may not learn of, or be able to confirm, revenue or earnings shortfalls
until late in the fiscal quarter or following the end of the quarter, which
could result in an even more immediate and adverse effect on the trading of the
Company's common stock. Finally, the Company participates in a highly dynamic
industry, which may result in significant volatility of the Company's common
stock price.
Item 2. Properties
The Company's principal offices are located in Menlo Park, California
and consist of approximately 30,000 square feet under a lease that expires in
February 1997. The Company is currently in negotiations with its landlord and
expects to renew the lease. The Company occupies a sales office in Reading,
England under a tenancy agreement that is renewable every 90 days. The Company
believes that its existing facilities are adequate to meet its requirements for
the near term and that additional space will be available on commercially
reasonable terms if needed.
Item 3. Legal Proceedings
There is no material legal proceeding to which the Company is a party
or to which any of its properties are subject. No material legal proceedings
were terminated in the year ended September 30, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Company
<TABLE>
The executive officers of the Company, and their ages as of December
31, 1996, are as follows:
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Junaid Sheikh.................... 43 Chairman of the Board, President and Chief Executive Officer
Robert L. Wilson................. 42 Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director
-22-
<PAGE>
Ian Craven....................... 42 Senior Vice President, Engineering
Paul G. Hansil................... 52 Senior Vice President, Sales and Marketing
Lance E. Kelson.................. 35 Vice President,Virtual Studios
Donald W. Petersen............... 51 Vice President, Manufacturing
</TABLE>
Junaid Sheikh has served as the Chairman of the Company's Board of
Directors since June 1988 and as the Company's President and Chief Executive
Officer since November 1991. Mr. Sheikh was also the President and Chairman of
the Board of Directors of Axial Systems Corporation ("Axial"), a maker of
on-line editing systems, from May 1990 to October 1991.
Robert L. Wilson has served as Executive Vice President, Chief
Operating Officer and Chief Financial Officer of the Company since joining the
Company in May 1994 and has served on the Company's Board of Directors since
April 1995. From March 1991 to April 1994, Mr. Wilson served as President and
Chief Executive Officer of Grass Valley, which provides video systems to the
high-end production post-production and broadcast market. From March 1989 to
March 1991, Mr. Wilson was a Vice President of the Merchant Banking Group of
Wasserstein Perella & Co., Inc. ("Wasserstein Perella"), an investment bank; in
that capacity, he was Chief Financial Officer and a director of the Wickes
Companies, which was an affiliate of Wasserstein Perella.
Ian Craven has served as Senior Vice President, Engineering since the
merger of Axial with and into the Company in October 1991. From October 1991 to
April 1995 he also served as a director of the Company. From February 1990 to
October 1991, Mr. Craven served as Vice President of Engineering and a director
of Axial, which he co-founded.
Paul G. Hansil has served as Senior Vice President, Sales and Marketing
of the Company since March 1995. From January 1992 to March 1995, Mr. Hansil was
with Crawford Communications, Inc., a diversified media production and
post-production company, serving initially as Vice President of Business
Development and then as Executive Vice President. From November 1990 to January
1992, Mr. Hansil was Senior Vice President of Quantel, a digital video systems
manufacturer. From May 1987 to November 1990, Mr. Hansil served as Regional
Sales Manager and as Vice President of Sales and Marketing for Abekas, a digital
video systems manufacturer.
Lance E. Kelson has served as Vice President, Virtual Studios since
July 1996 and Vice President of Product Planning of the Company from October
1994 through June 1996. From October 1991 to October 1994, Mr. Kelson served as
Vice President of Marketing. In January 1990, Mr. Kelson co-founded Axial and
served as Vice President of Marketing until the merger of Axial with and into
the Company in October 1991.
Donald W. Petersen has served as Vice President, Manufacturing of the
Company since April 1990.
Each executive officer serves at the sole discretion of the Board of
Directors.
-23-
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters
The Company's Common Stock has been traded on the Nasdaq National
Market under the symbol ACMM since the effective date of the Company's initial
public offering on September 26, 1995. Prior to the initial public offering, no
public market existed for the Common Stock. The price per share reflected in the
table below represents the range of low and high closing sale prices for the
Company's Common Stock as reported in the Nasdaq National Market for the
quarters indicated.
Fiscal Year ended September 30, 1996 High Low
---- ---
First Quarter............................... $9.75 $6.25
Second Quarter.............................. $7.75 $5.00
Third Quarter............................... $5.63 $2.38
Fourth Quarter.............................. $4.25 $1.00
Fiscal Year ended September 30, 1995 High Low
---- ---
Fourth Quarter ended September 30, 1995
(from September 26, 1995)................... $9.50 $8.00
The Company had approximately 95 stockholders of record as of December
16, 1996, including several holders who are nominees for an undetermined number
of beneficial owners.
The Company has never paid cash dividends on its capital stock. The
Company currently anticipates that it will retain all available funds for use in
the operation and expansion of its business, and does not anticipate paying any
cash dividends in the foreseeable future. However, the Board of Directors of the
Company will review the dividend policy periodically to determine whether the
declaration of dividends is appropriate.
-24-
<PAGE>
Item 6. Selected Consolidated Financial Data
The following table presents selected consolidated financial data of
the Company. This historical data should be read in conjunction with the
attached consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in Item 7 of this Form 10-K. In addition, in order to take
advantage of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, the Company hereby notifies readers that the factors set
forth above in Item 1 under "Additional Factors That May Affect Future Results,"
as well as other factors, could in the future affect, and in the past have
affected, the Company's actual results and could cause the Company's results for
future periods to differ materially from those expressed in any forward looking
statements made by or on behalf of the Company, including without limitation
those made in the discussion set forth in Item 7 below.
<TABLE>
Selected Consolidated Financial Data
(in thousands, except per share data)
<CAPTION>
Fiscal Year Ended September 30,
-------------------------------
1992 1993 1994 1995(1) 1996
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net sales........................... $8,533 $12,230 $18,034 $21,312 $21,408
Gross margin........................ 5,401 6,927 9,591 11,175 10,398
Operating income (loss)............. 972 1,254 1,428 (10,792) (1621)
Net income (loss)................... 665 909 918 (10,840) (916)
Net income (loss) per share(2)...... 0.15 0.21 0.20 (3.85) (0.14)
Shares used in computing
net income (loss) per share(2)... 4,364 4,392 4,660 2,816 6,439
Fiscal Year Ended September 30,
-------------------------------
1992 1993 1994 1995 1996
------ ------- ------- ------- -------
Balance Sheet Data:
Working capital..................... $3,210 $3,809 $4,522 $12,220 $11,171
Total assets........................ 6,075 8,169 10,111 19,712 17,279
Long-term obligations............... -- -- -- 83 24
Total stockholders' equity.......... $3,796 $4,731 $5,650 $13,679 $12,952
<FN>
- ---------------
(1) Reflects a charge of approximately $1.7 million in the second quarter and
$9.02 million in the fourth quarter of fiscal 1995 for acquired in-process
technology.
(2) Computed on the basis described in Note 1 of Notes to Consolidated Financial
Statements.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Accom designs, manufactures, markets and supports digital video systems
for the high-end production, post-production and broadcast markets. The Company
was incorporated in December 1987 and began shipments of its digital signal
processing products in fiscal 1988. In
-25-
<PAGE>
November 1991, the Company merged with Axial Systems Corporation ("Axial"), a
developer of digital on-line editing systems. The first shipments of the
Company's Axial(R) 2020 Visual On-Line Editing System ("Axial 2020") and RTD
4224 digital video disk recorder (the "RTD") occurred in fiscal 1992. The first
shipments of the Company's Brontostore(TM) news graphics and clip server (the
"Brontostore", renamed "Axess" in April 1996) and the Company's lower cost Axial
2010 On-Line Editing System ("Axial 2010") and WSD(R) Work Station Disk Recorder
(the "WSD") occurred in fiscal 1994. In January 1995, the Company began shipping
the WSD(R)/XL Work Station Disk Recorder ("WSD/XL") , in June 1996 began
shipping the WSD(R)/XLS and in September 1996 began shipping the WSD(R)/Xtreme.
In September 1995, the Company increased its ownership interest in
ELSET Electronic-Set GmbH, a German limited liability company ("ELSET GmbH"), to
100% for approximately $7.6 million in cash, funded with a portion of the
proceeds of the Company's initial public offering (the "ELSET Acquisition"). At
the April 1995 National Association of Broadcasters ("NAB") convention, the
Company introduced a prototype of the ELSET(TM) virtual set system (the "ELSET
Virtual Set"), which operates on a Silicon Graphics, Inc. ("SGI") Onyx(TM)
Reality Engine2 or OnyxTM Infinite Reality workstation (an "Onyx"). The Company
shipped its first ELSET Virtual Set in the second quarter of fiscal 1996. See
"Additional Factors That May Affect Future Results" above.
The Company's gross margin has historically fluctuated from quarter to
quarter and declined on an annual basis. As the Company begins to resell the
Onyx as part of the ELSET Virtual Set, gross margins may decline. In the future,
gross margins will be dependent on the mix of higher and lower-priced products
and the percentage of sales made through direct and indirect distribution
channels.
The Company's revenues are currently derived primarily from product
sales. The Company generally recognizes revenue upon product shipment. If
significant obligations exist at the time of shipment, revenue recognition is
deferred until obligations are met. Beginning in the second quarter of fiscal
1996, the Company's revenues included revenues from licensing of ELSET software.
In the fourth quarter of 1996, revenues also included the resale of SGI Onyxs.
Software development costs are recorded in accordance with Statement of
Financial Accounting Standards No. 86. To date, the Company has expensed all of
its software development costs.
Results of Operations
<TABLE>
The following table sets forth, for the periods indicated, certain
consolidated statement of operations data as a percentage of net sales:
<CAPTION>
Fiscal Year Ended
September 30,
-----------------------------------
1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
Net sales .......................................... 100.0% 100.0% 100.0%
Cost of sales ...................................... 51.4 47.6 46.8
----- ----- -----
-26-
<PAGE>
Gross margin ..................................... 48.6 52.4 53.2
Operating expenses:
Research and development ......................... 18.3 17.8 18.7
Marketing and sales .............................. 34.4 28.8 20.6
General and administrative ....................... 6.9 5.9 5.9
Charge (credit)for acquired in-process technology (3.5) 50.5
----- ----- -----
Total operating expenses ...................... 56.1 103.1 45.3
Operating income (loss) .......................... (7.6) (50.6) 7.9
Interest and other income (expense), net ........... 1.0 (0.8) (0.6)
----- ----- -----
Income (loss) before income taxes ................ (6.6) (51.5) 7.4
Provision (benefit) for income taxes ............... (2.3)% (0.6) 2.3
----- ----- -----
Net income (loss) ................................ (4.3)% (50.9)% 5.0%
===== ===== =====
</TABLE>
Years Ended September 30, 1996, 1995 and 1994
Net Sales. The Company's annual net sales increased by 0.5% to $21.4 million
in fiscal 1996, 18.3% to $21.3 million in fiscal 1995, and 47.5% to $18.0
million in fiscal 1994. The increase in fiscal 1996 was due to increased
shipments of the Axial editors and Axess (formerly called Brontostore) and the
initial shipments of the ELSET Virtual Set, offset by decreased shipments of the
RTD, WSD, and the Company's digital video signal processing products. The
increase in fiscal 1995 was primarily due to increased shipments of the WSD and
Axial 2010, partially offset by lower Brontostore shipments. The increase in
fiscal 1994 was primarily due to the initial shipments of the WSD, Brontostore
and Axial 2010, partially offset by lower RTD shipments. International sales
represented approximately 38.2%, 51.1%, and 46.9% of the Company's sales during
fiscal 1996, 1995, and 1994.
Cost of Sales. Gross margin was 48.6%, 52.4%, and 53.2% in fiscal 1996, 1995,
and 1994, respectively. Gross margin declined in fiscal 1996 due to increases in
inventory reserves and increased costs of manufacturing disk recording products.
Gross margin declined in fiscal 1995 due to increases in inventory reserves
partially offset by sales of higher margin disk recording products. Gross margin
declined in fiscal 1994 due to increased sales of lower-margin WSD and Axial
2010 products.
Research and Development. Research and development expenses increased by 3.6%
to $3.9 million in fiscal 1996, by 12.3% to $3.8 million in fiscal 1995, and by
19.8% to $3.4 million in fiscal 1994. The increase in fiscal 1996 was primarily
due to an increase in personnel costs related to ELSET development partially
offset by reduced personnel costs in other product development areas and by a
decrease in prototyping expenses related to new product introductions. The
increase in fiscal 1995 was primarily due to an increase in prototyping expenses
related to new product introductions and expenses related to the hiring of
additional software engineers. The increase in fiscal 1994 was primarily due to
an increase in expenses related to the hiring of software engineers. Research
and development expenses as a percentage of net sales were 18.3%, 17.8%, and
18.7% in fiscal 1996, 1995, and 1994, respectively.
-27-
<PAGE>
Marketing and Sales. Marketing and sales expenses increased by 19.8% to $7.4
million in fiscal 1996, by 65.2% to $6.1 million in fiscal 1995, and by 74.6% to
$3.7 million in fiscal 1994. The increase in fiscal 1996 resulted from a charge
of $594,000 related to write-downs of demonstration inventory used for marketing
purposes and staff reductions as a result of implementing a plan to refocus and
streamline operations and as a result of an increase in ELSET marketing
activities and an increase in salary expense for sales personnel. The increase
in fiscal 1995 was attributable to the initiation of ELSET marketing activities
which included personnel and promotional expenses, an increase in costs related
to sales and marketing personnel, an increase in promotional activities,
increased trade show expenditures, an increase due to commissions paid to
independent sales representatives, and higher travel expenses. The increase in
fiscal 1994 was significantly attributable to an increase in expenses related to
the hiring of additional product and technical support personnel, and expenses
related to trade show and promotion expenditures for the Company's on-line video
editors and desktop digital video recorders. Marketing and sales expenses as a
percentage of net sales were 34.4%, 28.8%, and 20.6% in fiscal 1996, 1995, and
1994, respectively.
General and Administrative. General and administrative expenses increased
17.3% to $1.5 million in fiscal 1996, 18.4% to $1.3 million in fiscal 1995, and
by 47.5% to $1.1 million in fiscal 1994. The increase in fiscal 1996 was
primarily due to an increase in insurance expenses. The increases in fiscal 1995
and fiscal 1994 were primarily due to an increase in financial and
administrative personnel and costs associated with higher staffing levels.
General and administrative expenses as a percentage of net sales were 6.9%,
5.9%, and 5.9% in fiscal 1996, 1995, and 1994, respectively.
Charge for acquired in-process technology. In fiscal 1996, the Company
reversed $750,000 of charges for acquired in-process technology which had been
accrued in connection with the ELSET Acquisition in fiscal 1995. The original
charges were for accrual of expenses which the Company determined in 1996 would
not be incurred. The Company incurred a charge of approximately $10.8 million
for acquired in-process technology in fiscal 1995. No such charge was incurred
in fiscal 1994.
Interest and Other Income (Expense). Net interest and other income
increasedto $209,000 in fiscal 1996. Net interest and other expense was $180,000
in fiscal 1995, a 17.6% increase over fiscal 1994. The increase in interest and
other income in fiscal 1996 was attributable to an increase in interest earned
on short-term investments, which consist primarily of proceeds from the
Company's initial public offering in September 1995, and as a result of the
Company paying down its outstanding bank borrowings. The increases in interest
and other expense in fiscal 1995 and 1994 were due primarily to increases in
indebtedness under the Company's bank line of credit.
Provision (Benefit) for Income Taxes. For fiscal 1996, there was a tax
benefit of approximately $496,000, or 35.1% of the pretax loss. The Company's
tax rate was reduced below the applicable statutory rates primarily due to the
utilization of research and development tax credits.
-28-
<PAGE>
Income tax expense as a percentage of pretax income (loss) was 1.2% and 30.8% in
fiscal 1995 and 1994, respectively.
Liquidity and Capital Resources
Since inception, the Company has financed its operations and expenditures
for property and equipment through the sale of capital stock, borrowings under a
bank line of credit and term loans. On September 29, 1995 the Company completed
its initial public offering and received approximately $17.8 million in net
proceeds. On September 29, 1995 it completed the acquisition of the shares of
ELSET GmbH it did not already own for approximately $7.6 million. As of
September 30, 1996, the Company had $4.2 million of cash and cash equivalents.
Operating activities used $3.7 million in net cash during fiscal 1996.
Operating activities provided $419,000 in net cash during fiscal 1995 and used
net cash in operations of $371,000 in fiscal 1994. Net cash used in 1996 was due
primarily to decreases in other accrued liabilities and increases in accounts
receivable and inventories partially offset by increases in accounts payable.
Net cash provided in fiscal 1995 consisted primarily of increases in accounts
payable and accrued liabilities, partially offset by increases in inventories.
Net cash used in fiscal 1994 consisted primarily of increases in accounts
receivable and inventories, partially offset by net income and increases in
accrued liabilities.
The Company has a revolving line of credit with Comerica Bank that allows
for borrowings of up to $4.0 million, subject to the level of accounts
receivable. As of September 30, 1996, approximately $4.0 million of borrowings
was available under this line of credit, of which the Company had no borrowings
outstanding. Indebtedness under the line of credit accrues interest at
Comerica's base rate and is secured by substantially all of the Company's
assets. The line of credit may be terminated by either party upon 30 days'
notice. Borrowings under the line of credit are subject to certain financial
covenants, and the Company was in compliance with all such covenants at
September 30,1996.
The Company believes that its existing cash, cash equivalents and credit
facilities will be sufficient to meet its cash requirements for at least the
next twelve months. Although operating activities may provide cash in certain
periods, to the extent the Company grows in the future, its operating and
investing activities may use cash and, consequently, such growth may require the
Company to obtain additional sources of financing. There can be no assurance
that any necessary additional financing will be available to the Company on
commercially reasonable terms, or at all.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the consolidated financial statements
and supplementary financial information that are attached hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
-29-
<PAGE>
Not applicable.
PART III
Certain information required by Part III is omitted from this report
because the Company will file a definitive proxy statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement")
for its annual meeting of shareholders to be held February 18, 1996 and the
information included therein is incorporated herein by reference.
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors of the Company is incorporated by
reference from the information under the caption "Election of
Directors--Nominees" in the Company's Proxy Statement.
Information as to the Company's executive officers appears at the end
of Part I of this report.
Information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by refrence from the information
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's Proxy Statement.
Item 11. Executive Compensation
Incorporated by reference from the information under the caption
"Executive Compensation and Related Information" in the Company's Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from the information under the caption
"Common Stock Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference from the information under the caption
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement.
-30-
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
(1) Financial Statements and Report of Ernst & Young
LLP, Independent Auditors
Report of Ernst & Young LLP, Independent Auditors.
Consolidated Balance Sheet at September 30, 1996 and 1995.
Consolidated Statements of Operations Years ended September
30, 1996, 1995 and 1994.
Consolidated Statement of Shareholders' Equity - Three years
ended September 30, 1996.
Consolidated Statements of Cash Flows Years ended September
30, 1996, 1995, and 1994.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules
The following financial statement schedule
is included herein:
Schedule II - Valuation and Qualifying
Accounts
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable
or is shown in the financial statements or notes thereto.
(3) Exhibits (numbered in accordance with Item 601 of
Regulation S-K)
Number Description
------ -----------
2.1(1) Agreement and Plan of Merger, dated October 14, 1991, by and
between the Company and Axial Systems Corporation.
3.1(1) Certificate of Incorporation of the Company.
3.2(1) Bylaws of the Company.
3.3(1) Amended and Restated Certificate of Incorporation of the Company
filed with the Delaware Secretary of State upon the Company's
reincorporation in Delaware
3.4(3) Amended and Restated Certificate of Incorporation of the Company
filed with the Delaware Secretary of State upon the closing of
the Company's initial public offering.
-31-
<PAGE>
3.5 Certificate of Designation of Rights, Preferences and Privileges
of Series A Participating Preferred Stock. Reference is made to
Exhibit 4.4
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 4.3 and
4.4.
4.2(1) Specimen Common Stock Certificate.
4.3(1) Amended and Restated Investors' Rights Agreement dated as of
December 3, 1994, by and among the Company and the persons listed
on Schedule A, B, and C thereto.
4.4(4) Preferred Shares Rights Agreement, dated as of September 13,
1996, between the Company and U.S. Stock Transfer Corporation,
including the Certificate of Designation of Rights, Preferences
and Privileges of Series A Participating Preferred Stock, the
form of Rights Certificate and the Summary of Rights attached
thereto as Exhibits A, B and C, respectively.
10.1(1) Form of Indemnification Agreement between the Company and its
directors and officers.
10.2(1)* 1995 Stock Option/Stock Issuance Plan.
10.3(1)* Employee Stock Purchase Plan.
10.4(1) Investment Agreement, dated February 2, 1995, by and among VAP
Video Art Production GmbH, ELSET Electronic-Set GmbH, Richard
Kunicki, and Accom Virtual Studio, Inc.
10.5(1) Distribution Agreement, dated February 2, 1995, by and between
ELSET Electronic-Set GmbH and the Company.
10.6(1) Voting Agreement, dated February 2, 1995, by and among VAP Video
Art Production GmbH, Richard Kunicki, Accom Virtual Studio, Inc.,
and the Company.
10.7(1) Agreement dated August 10, 1995 by and between the Company, Accom
Virtual Studio, Inc., ELSET Electronic-Set GmbH, and Richard
Kunicki.
10.8(1) Value-Added Reseller Agreement dated June 30, 1995 between the
Company and Silicon Graphics, Inc., and Addendum dated June 30,
1995.
10.9(1) Lease dated January 28, 1992, by and between Menlo Business Park
and Patrician Associates, Inc., and the Company.
10.10(1) Loan and Security Agreement dated May 31, 1994 between Comerica
Bank -- California and the Company.
10.12(1) Offer made by Accom Virtual Studio, Inc. and Accom Virtual Studio
GmbH to purchase from Mr. Robert Vogel shares in ELSET
Electronic-Set GmbH, and Mr. Vogel's acceptance of such offer.
(Translation from German original.)
10.13 Master Revolving Note dated July 7, 1996 between Comerica Bank
-- California and the Company
11.1 Statement Re: Computation of Net Income per Share
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (reference is made to page 34 of this Report).
27.1 Financial Data Schedule.
- ----------------
(1) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Registrant's Registration Statement on Form S-1 and
Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto (File No.
33-95728), which became effective on September 26, 1995.
-32-
<PAGE>
(2) Confidential treatment has been granted as to certain portions of this
Exhibit by the Securities and Exchange Commission.
(3) Incorporated by reference from an exhibit filed with the Company's
Annual Report on 10-K for the fiscal year ended September 30, 1995
(File No. 0-26620).
(4) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form 8-A (File No. 0-26620) to register
Preferred Share Purchase Rights under the Company's stockholder rights
plan, adopted by the Company's board of directors on September 3, 1996.
* Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the three months ended
September 30, 1996.
-33-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Menlo
Park, California on this 17 day of December 1996.
ACCOM, INC.
By: /s/ ROBERT L. WILSON
-----------------------------------------
Robert L. Wilson
Executive Vice President, Chief Operating
Officer and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Junaid Sheikh and Robert L. Wilson,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes may do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JUNAID SHEIKH Chairman of the Board of Directors, President December 17, 1996
- ---------------------------
(Junaid Sheikh) and Chief Executive Officer (Principal
Executive Officer)
/s/ ROBERT L. WILSON Executive Vice President, Chief Operating December 17, 1996
- ---------------------------
(Robert L. Wilson) Officer, Chief Financial Officer, and Director
(Principal Financial and Accounting Officer)
/s/ LIONEL M. ALLAN Director December 17, 1996
- ---------------------------
(Lionel M. Allan)
/s/ GARY W. KALBACH Director December 17, 1996
- ---------------------------
(Gary W. Kalbach)
</TABLE>
-34-
<PAGE>
Consolidated Financial Statements
Accom, Inc.
Years ended September 30, 1996, 1995 and 1994
with Report of Independent Auditors
<PAGE>
Accom, Inc.
Consolidated Financial Statements
Years ended September 30, 1996, 1995 and 1994
Contents
Report of Ernst & Young LLP, Independent Auditors.......................... F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................................ F-2
Consolidated Statements of Operations...................................... F-3
Consolidated Statement of Stockholders' Equity............................. F-4
Consolidated Statements of Cash Flows...................................... F-5
Notes to Consolidated Financial Statements................................. F-7
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Accom, Inc.
We have audited the accompanying consolidated balance sheets of Accom, Inc. at
September 30, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 and schedule
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Accom, Inc. at
September 30, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1996, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
Ernst & Young LLP
Palo Alto, California
October 29, 1996
F-1
<PAGE>
<TABLE>
Accom, Inc.
Consolidated Balance Sheets
<CAPTION>
September 30,
1996 1995
----------------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,221 $ 8,769
Accounts receivable, net of allowance for doubtful accounts of $223 and $221
in 1996 and 1995, respectively 4,714 3,754
Inventories 5,447 4,736
Deferred tax assets 695 508
Prepaid expenses and other current assets 377 295
-------- --------
Total current assets 15,454 18,062
Property and equipment, net 1,683 1,596
Other assets 142 54
-------- --------
$ 17,279 $ 19,712
======== ========
Liabilities and stockholders' equity
Current liabilities:
Bank borrowings - line of credit $ -- $ --
Notes payable 58 58
Accounts payable 2,242 1,719
Accrued compensation 328 318
Accrued inventory purchases (6) 530
Accrued initial public offering costs 11 830
Accrued ELSET transaction costs 265 619
Other accrued liabilities 792 706
Income taxes payable -- 650
Customer deposits 65 76
Deferred revenue 528 336
-------- --------
Total current liabilities 4,283 5,842
Note payable - noncurrent 24 83
Deferred tax liabilities 20 108
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized, issuable in
series; no shares issued and outstanding in 1996 and 1995
-- --
Common stock, $0.001 par value; 20,233,497 shares authorized; 6,493,734
shares and 6,404,197 shares issued and outstanding in 1996 and 1995,
respectively 7 6
Additional paid-in capital 21,317 21,128
Retained earnings (accumulated deficit) (8,372) (7,455)
-------- --------
Total stockholders' equity 12,952 13,679
-------- --------
$ 17,279 $ 19,712
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
F-2
<PAGE>
Accom, Inc.
Consolidated Statements of Operations
(In thousands, except per-share data)
Years ended September 30,
1996 1995 1994
-------- -------- --------
Net sales $ 21,408 $ 21,312 $ 18,034
Cost of sales 11,010 10,137 8,443
-------- -------- --------
Gross margin 10,398 11,175 9,561
Operating expenses:
Research and development 3,926 3,791 3,375
Marketing and sales 7,356 6,142 3,717
General and administrative 1,487 1,268 1,071
Charge (credit) for acquired in-process
technology (750) 10,766 --
-------- -------- --------
Total operating expenses 12,019 21,967 8,163
-------- -------- --------
Operating income (loss) (1,621) (10,792) 1,428
Interest income 235 7 8
Interest expense (12) (120) (102)
Other expense (14) (67) (8)
-------- -------- --------
Income (loss) before income taxes (1,412) (10,972) 1,326
Provision (benefit) for income taxes (496) (132) 408
-------- -------- --------
Net income (loss) $ (916) $(10,840) $ 918
======== ======== ========
Net income (loss) per share $ (0.14) $ (3.85) $ 0.20
======== ======== ========
Shares used in computation of net income
(loss) per share 6,439 2,816 4,660
======== ======== ========
See accompanying notes.
F-3
<PAGE>
<TABLE>
Accom, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
<CAPTION>
Convertible Preferred Stock Common Stock
------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1993 1,478,965 $ 1 2,337,914 $ 2
Issuance of common stock upon exercise of stock
options -- -- 1,040 --
Net income -- -- -- --
--------- ----------- --------- -----------
Balance at September 30, 1994 1,478,965 1 2,338,954 2
Issuance of Series B preferred stock, net of
issuance costs of $83 416,914 1 -- --
Issuance of common stock upon exercise of stock
options -- -- 44,364 --
Conversion of preferred stock into common stock (1,895,879) (2) 1,895,879 2
Initial public offering of common stock, net of
issuance costs of $2,496 -- -- 2,125,000 2
Net loss -- -- -- --
--------- ----------- --------- -----------
Balance at September 30, 1995 -- -- 6,404,197 6
Issuance of common stock upon exercise of stock
options 36,364
Purchase of common stock through
Employee Stock Purchase Plan 53,173
Net Loss
--------- ----------- --------- -----------
Balance at September 30, 1996 -- $ - 6,493,734 $ 6
========= =========== ========= ===========
</TABLE>
F-4
<PAGE>
Continued ....
<TABLE>
Accom, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
<CAPTION>
Retained
Additional Earnings Total
Paid-In (Accumulated Stockholders'
Capital Deficit) Equity
------------------------------------------------
<S> <C> <C> <C>
Balance at September 30, 1993 $ 2,261 $ 2,467 $ 4,731
Issuance of common stock upon exercise of stock
options 1 -- 1
Net income -- 918 918
----------- ----------- -----------
Balance at September 30, 1994 2,262 3,385 5,650
Issuance of Series B preferred stock, net of
issuance costs of $83 2,217 -- 2,218
Issuance of common stock upon exercise of stock
options 22 -- 22
Conversion of preferred stock into common stock -- -- --
Initial public offering of common stock, net of
issuance costs of $2,496 16,627 -- 16,629
Net loss -- (10,840) (10,840)
----------- ----------- -----------
Balance at September 30, 1995 21,128 (7,455) 13,679
Issuance of common stock upon exercise of stock
options 19 19
Purchase of common stock through
Employee Stock Purchase Plan 170 170
Net Loss (916) (916)
----------- ----------- -----------
Balance at September 30, 1996 $ 21,317 $ (8,371) $ 12,952
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4(a)
<PAGE>
<TABLE>
Accom, Inc.
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<CAPTION>
Years ended September 30,
1996 1995 1994
------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (916) $(10,840) $ 918
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Change (credit) for acquired in-process technology (750) 10,766 --
Depreciation and amortization 760 533 343
Changes in operating assets and liabilities, net of
effects of acquisition:
Accounts receivable (960) 173 (775)
Inventories (711) (539) (1,075)
Deferred tax assets, net (275) (17) (65)
Prepaid expenses and other current assets (82) (155) (31)
Accounts payable 523 503 (66)
Accrued compensation 10 84 17
Other accrued liabilities (873) 283 470
Income taxes payable (650) (128) 128
Customer deposits (11) (206) (39)
Deferred revenue 192 (38) (196)
-------- -------- --------
Net cash provided by (used in) operating activities (3,743) 419 (371)
-------- -------- --------
Cash flows from investing activities
Acquisition of ELSET, net of cash acquired -- (9,195) --
Expenditures for property and equipment (847) (965) (588)
Other assets (88) (1) 5
-------- -------- --------
Net cash used in investing activities (935) (10,161) (583)
-------- -------- --------
Cash flows from financing activities
Borrowings on line of credit -- 1,850 1,350
Payments on line of credit -- (2,875) (1,175)
Borrowings on notes payable -- 175 500
Repayments on notes payable (58) (534) --
Issuance of convertible preferred stock -- 2,218 --
Issuance of common stock 188 17,481 1
-------- -------- --------
Net cash provided by financing activities 130 18,315 676
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (4,548) 8,573 (278)
Cash and cash equivalents at beginning of period 8,769 196 474
-------- -------- --------
Cash and cash equivalents at end of period $ 4,221 $ 8,769 $ 196
======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
F-5
<PAGE>
Accom, Inc.
Consolidated Statements of Cash Flows (continued)
Increase (Decrease) in Cash and Cash Equivalents (continued)
(In thousands)
Years ended September 30,
1996 1995 1994
-----------------------------
Supplemental disclosure of cash flow information
Interest paid $ 11 $ 120 $ 87
===== ===== =====
Income taxes paid $ 2 $ 118 $ 366
===== ===== =====
Supplemental disclosure of noncash
investing and financing activities
Accrued acquisition costs $(354) $ 619 $ --
===== ===== =====
Net liabilities assumed in acquisition $ -- $ 892 $ --
===== ===== =====
Conversion of preferred stock to common
stock (par value) $ -- $ 1 $ --
===== ===== =====
Accrued initial public offering costs $(819) $ 830 $ --
===== ===== =====
F-6
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements
September 30, 1995
1. Summary of Significant Accounting Policies
Accom, Inc. (the "Company" or "Accom") was founded in California in December
1987 and reincorporated in the State of Delaware on September 14, 1995. Accom
designs, manufactures, markets and supports digital video systems for the
high-end production, post-production and broadcast markets.
On September 29, 1995, the Company completed an underwritten public offering of
its common stock. At the closing of the IPO, all outstanding shares of Series A
and B convertible preferred stock were converted into shares of common stock on
a one-for-one basis.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries after elimination of significant intercompany
transactions and balances.
Major Customers and Concentration of Credit Risk
The Company sells its processing equipment to customers in the content creation
and broadcast markets primarily in North America, Europe and the Pacific Rim.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains allowances for potential
credit losses and such losses have historically been within management's
expectations. No customers accounted for 10% or more of net sales in fiscal 1996
and fiscal 1995. During fiscal 1994, one customer accounted for 11% of net
sales. Export sales for fiscal 1996, 1995, and 1994 were approximately 38%, 51%
and 47%, respectively. Export sales to Europe and the Pacific Rim as percentage
of total sales were 14% and 19%, respectively, for fiscal 1996, 19% and 24%,
respectively, for fiscal 1995, 14% and 21%, respectively, for fiscal 1994.
Revenue Recognition
The Company generally recognizes revenue upon shipment of its systems. Estimated
costs for insignificant post shipment obligations are accrued for at the time of
shipment. If significant post shipment obligations exist or there are concerns
about collection at the time of shipment, revenue is deferred until obligations
are met or collection occurs.
F-7
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Investment in ELSET; Acquired In-Process Technology
The Company's investment in ELSET (see Note 2), a development stage enterprise,
was charged to expense as acquired in-process technology, reflecting ELSET's
stage of product development. At September 30, 1996, ELSET is a wholly owned
consolidated subsidiary.
Cash, Cash Equivalents and Short-Term Investments
Cash equivalents consist of financial investments with maturities of 90 days or
less at the time of acquisition that are readily convertible into cash and have
insignificant interest rate risk. At September 30, 1996, cash equivalents
consist of money market accounts, commercial paper, treasury bills, and
municipal auction notes.
Inventories
Inventories, which include demonstration equipment, are stated at the lower of
cost (first-in, first-out) or market.
Property and Equipment
Property and equipment is stated at cost and is depreciated using the
straight-line method over the assets' estimated useful lives, generally three to
five years.
Per-Share Data
Except as noted below, net income (loss) per share is computed using the
weighted average number of common and dilutive common equivalent shares
(dilutive in 1994 only) outstanding during the period. Dilutive common
equivalent shares consist of the incremental common shares issuable upon
conversion of the convertible preferred stock (using the if-converted method)
and shares issuable upon the exercise of stock options (using the treasury stock
method). In addition, pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins and Staff policy, such computations through June 30, 1995
include all dilutive and antidilutive common and common equivalent shares issued
at prices below the public offering price during the 12-month period prior to
the initial filing of the public offering and have been included as if they were
outstanding for all periods presented using the treasury stock method and the
initial public offering price of $9.00.
F-8
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Per-Share Data (continued)
Had the conversion of the shares taken place at the beginning of the year, net
loss per share for the year ended September 30, 1995 would have been $2.47 and
the number of shares 4,394,000.
Accounting Change - Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement No.
109, "Accounting for Income Taxes." The Company adopted the provisions of the
standard in its 1993 financial statements and has elected to restate all prior
periods. The effect of adopting Statement 109 was to reduce net income by
$156,000 for the year ended September 30, 1993. The cumulative effect of
adopting Statement 109 as of October 1, 1992 was to increase the beginning
balance of retained earnings by $407,000. The cumulative effect is primarily the
result of recording a benefit for the 1991 net operating loss of Axial Systems,
Inc. in the year incurred in accordance with the principles of Statement 109.
Under Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
2. ELSET Acquisition
On February 2, 1995, the Company and its wholly owned subsidiary, Accom Virtual
Studio, Inc. ("AVS"), entered into several related agreements with VAP Video Art
Production GmbH ("VAP"), ELSET Electronic-Set GmbH ("ELSET"), a newly formed
German company, and Richard Kunicki, the majority shareholder of VAP.
As of June 30, 1995, AVS had acquired 25% of ELSET's share capital from VAP, and
recorded a charge for acquired in-process technology of $1,742,000, which
reflects a $1,500,000 investment made or accrued through June 30, 1995 plus
$242,000 of other costs, including transaction costs.
F-9
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements (continued)
2. ELSET Acquisition (continued)
On September 29, 1995, the Company completed the acquisition of the remaining
75% from VAP and one individual stockholder, of ELSET's outstanding share
capital for $7.6 million. The Company accounted for the transaction as a
purchase. The purchase price was $9,024,000 and consisted of the $7.6 million
paid for the share capital, $892,000 of ELSET liabilities assumed in excess of
its assets and $532,000 of estimated transaction costs. Based on the stage of
the acquired technology at the date of acquisition, the purchase price was
charged to acquired in-process technology and charged to expense in the quarter
ended September 30, 1995.
At September 30, 1996, the Company re-evaluated its estimates of the liabilities
assumed based on information available at the time. As a result of this
re-evaluation, $750,000 was reversed as a credit for acquired in-process
technology in the quarter ended September 30, 1996.
The following unaudited pro forma financial summary is presented as if the
operations of the Company and ELSET were combined as of October 20, 1994, the
date of inception of ELSET. The unaudited pro forma combined results are not
necessarily indicative of the actual results that would have occurred had the
purchase been consummated at this date, or of the future operations of the
combined entities.
In accordance with SEC Regulation S-X, Rule 11-02(b)(5), nonrecurring charges,
such as the charge for acquired in-process technology resulting from the
acquisition of the 75% interest in ELSET, are not reflected in the following pro
forma financial summary:
Fiscal Year
Ended
September 30,
1995
----------------
(In thousands)
(Unaudited)
Revenues $21,312
================
Net loss $(1,978)
================
Net loss per share $ (0.70)
================
F-10
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements (continued)
3. Inventories
Inventories consist of the following:
September 30,
1996 1995
-----------------------------------
(In thousands)
Purchased parts and materials $ 1,105 $1,075
Work-in-process 1,842 985
Finished goods 440 611
Demonstration inventory 2,060 2,065
------------------------------------
$ 5,447 $4,736
====================================
4. Property and Equipment
Property and equipment consist of the following:
September 30,
1996 1995
------------------------------------
(In thousands)
Machinery and equipment $ 2,574 $ 2,033
Furniture and fixtures 207 204
Computer equipment 1,171 868
------------------------------------
3,952 3,105
Less accumulated depreciation (2,269) (1,509)
------------------------------------
Net property and equipment $ 1,683 $ 1,596
====================================
F-11
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements (continued)
5. Bank Borrowings
The Company has a revolving line of credit with a bank which allows for
borrowings up to $4,000,000, subject to the level of accounts receivable. As of
September 30, 1996, the Company had no borrowings outstanding. The line of
credit remains in effect until terminated by either party upon 30 days' notice.
Interest on the line of credit accrues at the bank's base rate (8.25% at
September 30, 1996). Borrowings under the line are secured by all property of
the Company. Borrowings on the credit arrangement are subject to certain
financial covenants. As September 30, 1996, the Company was in compliance with
these financial covenants.
In March 1995, the Company entered into a variable interest note payable with
the same bank in the amount of $175,000, which is due in equal monthly
installments plus interest through April 1, 1998. The interest rate on the note
is equal to the bank's base rate plus 0.75% (9.0% at September 30, 1996).
Borrowings under the note are secured by certain assets of the Company.
6. Commitments
Leasing Arrangements
The Company leases its office and manufacturing facility under operating lease
agreements. Rent expense for fiscal years 1994, 1995 and 1996 was approximately,
$424,000, $430,000 and $ 424,000, respectively.
Minimum future rental payments under noncancelable leases at September 30, 1996
are as follows (in thousands):
1997 $245
1998 19
--------
Total $264
========
F-12
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements (continued)
6. Commitments (continued)
401(k) Plan
The Company has a 401(k) plan under which the employee may defer and invest a
portion of his or her annual compensation up to certain annual limitations. The
Company may, at its discretion, make certain matching contributions to the plan.
The Company has made no contributions to the 401(k) plan through September 30,
1996.
7. Stockholders' Equity
Stock Options
Under the Company's Restated 1990 Stock Option Plan (the "1990 Plan") up to
833,333 shares of common stock could have been issued upon exercise of incentive
stock options issued to employees or officers. Options were granted at a price
not less than 100% of the fair market value of the Company's common stock on
date of grant. Options generally vested over a period of five years. In July
1995, the 1990 Plan was terminated with respect to future grants.
In July 1995, the 1995 Stock Option/Stock Issuance Plan (the "1995 Plan") was
adopted, increasing the number of shares available for grant by 1,258,036 plus
automatic annual increases in 1996, 1997 and 1998. Options may be granted and
shares may be issued at a price not less than 85% of the fair value of the
Company's common stock on date of grant.
F-13
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity (continued)
Stock Options (continued)
<TABLE>
Stock option activity is summarized below:
<CAPTION>
Shares Outstanding Options
Available ------------------------------------------
for Grant Number of Price Per
of Options Shares Share
-------------------------------------------------------------------
<S> <C> <C> <C>
Balance at September 30, 1993 86,692 273,308 $0.48-$2.40
Shares authorized 416,667 -- --
Options granted (12,909) 12,909 $2.40-$4.80
Options exercised -- (1,040) $0.48-$2.40
Options canceled 2,208 (2,208) $0.48-$2.40
-------------------------------------------------------------------
Balance at September 30, 1994 492,658 282,969 $0.48-$4.80
Shares authorized 1,258,036 -- --
Options granted (507,645) 507,645 $4.80-$7.20
Options exercised -- (44,364) $0.48
Options canceled 6,161 (6,161) $0.48-$4.80
-------------------------------------------------------------------
Balance at September 30, 1995 1,249,210 740,089 $0.48-$7.20
Shares authorized 64,042 -- --
Options granted (1,530,703) 1,530,703 $1.88-$9.25
Options exercised -- (36,364) $0.48-$4.80
Options canceled 1,066,612 (1,066,612) $0.48-$9.25
-------------------------------------------------------------------
Balance at September 30, 1996 849,161 1,167,816 $0.48-$5.88
===================================================================
</TABLE>
At September 30, 1996, options to purchase 439,630 common shares were
exercisable and vested.
As of September 30, 1995, the Company has reserved 2,016,977 shares of common
stock for issuance upon the exercise of stock options.
F-14
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity (continued)
Employee Stock Purchase Plan
In July 1995, the Company's Employee Stock Purchase Plan (the "Purchase Plan")
was adopted which authorizes the issuance of 250,000 shares of common stock.
Shares may be purchased under the Purchase Plan at 85% of the lesser of the fair
market value of the common stock on the grant or purchase date.
Stockholder Rights Plan
In September 1996, the Company's Board of Directors adopted a stockholder rights
plan, which entitles existing stockholders of the Company to certain rights
(including the right to purchase shares of Preferred Stock) in the event of the
acquisition of 15% or more of the Company's outstanding common stock, or an
unsolicited tender offer for such shares.
8. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities computed in accordance with
FAS 109 are as follows:
September 30,
1996 1995
-------------------------------------
(In thousands)
Deferred tax assets:
Deferred revenue $ 189 $135
Nondeductible reserves and accruals 256 204
Inventory valuation 441 158
Valuation allowance (199) --
Other 8 11
-------------------------------------
695 508
Deferred tax liabilities:
Depreciation 20 108
-------------------------------------
Net deferred tax assets $ 675 $400
=====================================
F-15
<PAGE>
Accom, Inc.
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
The provision (benefit) for income taxes consists of the following:
September 30,
1996 1995 1994
-----------------------------------------------------------
(In thousands)
Federal:
Current $(231) $(100) $334
Deferred (231) (23) 3
-----------------------------------------------------------
(462) (123) 337
State:
Current 11 (20) 139
Deferred (45) 6 (68)
-----------------------------------------------------------
(34) (14) 71
Foreign:
Current -- 5 --
-----------------------------------------------------------
Total $(496) $(132) $408
===========================================================
A reconciliation of the income tax provision (benefit) at the federal statutory
rate to the income tax provision at the effective tax rate is as follows:
September 30,
1996 1995 1994
----------------------------------------
(In thousands)
Income taxes computed at the federal
statutory rate $(480) $(3,730) $451
State taxes (net of federal benefit) (23) (9) 47
Foreign sales corporation tax benefit -- -- (17)
Research and development tax credit (18) (62) (63)
Acquired in-process technology (204) 3,660 --
Valuation allowance 199
Other 30 9 (10)
----------------------------------------
Total $(496) $ (132) $408
========================================
The Company believes that net deferred tax assets are more likely than not to be
realized because of a history of past earnings and carryback refund potential.
F-16
<PAGE>
SCHEDULE II
<TABLE>
ACCOM, INC.
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(In thousands)
<CAPTION>
Balance at Charges to Balance
Beginning of Cost and at End of
Period Expenses Deductions* Period
--------------- -------------- --------------- -----------
<S> <C> <C> <C> <C>
Year ended September 30, 1994............... 123 52 1 174
Year ended September 30, 1995............... 174 80 33 221
Year ended September 30, 1996............... 221 67 65 223
<FN>
* All deductions represent write-offs of bad debt.
</FN>
</TABLE>
[LOGO OMITTED]
MASTER REVOLVING NOTE
Variable Rate-Demand-Obligatory Advances (Business and Commercial Loans Only)
- --------------------------------------------------------------------------------
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION #
$4,000,000.00 JULY 7, 1996 ON DEMAND 94-3055907
- --------------------------------------------------------------------------------
For Value Received, the undersigned promise(s) to pay ON DEMAND to the order of
COMERICA BANK-CALIFORNIA ("Bank"), at any office of the Bank in the State of
California, FOUR MILLION AND NO/100 Dollars (U.S.) (or that portion of it
advanced by the Bank and not repaid as later provided) with interest until
demand or an Event of Default, as later defined, at a per annum rate equal to
the Bank's base rate from time to time in effect PLUS 0.000% per annum and after
that at a rate equal to the rate of interest otherwise prevailing under this
Note plus 3% per annum (but in not event in excess of the maximum rate permitted
by law). The Bank's "base rate" is that annual rate of interest so designated by
the Bank and which is changed by the Bank from time to time. Interest rate
changes will be effective for interest computation purposes as and when the
Bank's base rate changes. Interest shall be calculated on the basis of a 360-day
year for the actual number of days the principal is outstanding. Unless sooner
demanded, accrued interest on this Note shall be payable on the 1ST day of each
MONTH commencing AUGUST 1, 1996. If the frequency of interest payments is not
otherwise specified, accrued interest on this Note shall be payable monthly on
the first day of each month, unless sooner demanded. If any payment of principal
or interest under this Note shall be payable on a day other than a day on which
the Bank is open for business, this payment shall be extended to the next
succeeding business day and interest shall be payable at the rate specified in
this Note during this extension. A late payment charge equal to 5% of each late
payment may be charged on any payment not received by the Bank within 10
calendar days after the payment due date, but acceptance of payment of this
charge shall not waive any Default under this Note.
**SEE ADDENDUM ATTACHED HERETO AND MADE A PART HEREOF. RLW (initial here)
---
The principal amount payable under this Note shall be the sum of all advances
made by the Bank to or at the request of the undersigned, less principal
payments actually received in cash by the Bank. The books and records of the
Bank shall be the best evidence of the principal amount and the unpaid interest
amount owing at any time under this Note and shall be conclusive absent manifest
error. No interest shall accrue under this Note until the date of the first
advance made by the Bank; after that interest on all advances shall accrue and
be computed on the principal balance outstanding from time to time under this
Note until the same is paid in full.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other security or
collateral agreement which has been, or will at any time(s) later be, executed
by any (or all) of the undersigned to or for the benefit of the Bank
(collectively "Collateral"). Notwithstanding the above, (i) to the extent that
any portion of the Indebtedness is a consumer loan, that portion shall not be
secured by any deed of trust or mortgage on or other security interest in any of
the undersigned's principal dwelling or any of the undersigned's real property
which is not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if the undersigned
(or any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure this
Note or any other indebtedness of the undersigned (or any of them), unless
expressly provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the Indebtedness ("guarantor") (i) fail(s) to pay any of the
Indebtedness when due, by maturity, acceleration or otherwise, or fails(s) to
pay any Indebtedness owing on a demand basis upon demand; or (ii) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any such guarantor and the Bank; or (iii)
become(s) insolvent or the subject of a voluntary or involuntary proceeding in
bankruptcy, or a reorganization, arrangement or creditor composition proceeding,
(if a business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation or a limited liability company) is
the subject of a dissolution, merger or consolidation; or (a) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the Indebtedness shall be discovered to be untrue or
incomplete; or (b) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the Indebtedness; or (c) if there is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (other than to the Bank) or in the observance or performance of any
term, covenant or condition in any document evidencing, securing or relating to
such indebtedness; or (d) if the Bank deems itself insecure believing that the
prospect of payment of this Note or any of the Indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (e) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
Indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence of it to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the Indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant Indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law. In
addition, if this Note is secured by a deed of trust or mortgage covering real
property, then the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other indebtedness or obligations. This
Note, together with all other indebtedness secured by said deed of trust or
mortgage, shall become due and payable immediately, without notice, at the
option of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge
the mortgaged premises for any other indebtedness or obligations or shall
convey, assign or transfer the mortgaged premises by deed, installment sale
contract or other instrument, or (b) if the title to the mortgaged premises
shall become vested in any other person or party in any manner whatsoever, or
(c) if there is any disposition (through one or more transactions) of legal or
beneficial title to a controlling interest of said trustor or mortgagor.
The undersigned acknowledge(s) that this Note matures upon issuance, and that
the Bank, at any time, without notice, and without reason, may demand that this
Note be immediately paid in full. The demand nature of this Note shall not be
deemed modified by reference to a Default in this Note or in any agreement to a
default by the undersigned or to the occurrence of an event of default
(collectively an "Event of Default"). For purposes of this Note, to the extent
there is reference to an Event of Default this reference is for the purpose of
permitting the Bank to accelerate Indebtedness not on a demand basis and to
receive interest at the default rate provided in the document evidencing the
relevant Indebtedness. It is expressly agreed that the Bank may exercise its
demand rights under this Note whether or not an Event of Default has occurred.
The Bank, with or without reason and without notice, may from time to time make
demand for partial payments under this Note and these demands shall not preclude
the Bank from demanding at any time this Note be immediately paid in full. All
payments under this note shall be in immediately available United States funds,
without setoff or counterclaim.
<PAGE>
[LOGO OMITTED]
Borrower's Telephone and Facsimile Authorization
- --------------------------------------------------------------------------------
Date: August 16, 1996
-----------------------------
Obligor Number: Obligation Number:
---------------------- -----------------------
Assignment Unit:
---------------------
The undersigned confirms certain borrowing arrangements pursuant to and subject
to the terms of the $4,000,000.00 Note, and all renewals, extensions,
modifications, and/or substitutions thereof (the "Note") dated July 7, 1996,
executed and delivered by the undersigned to COMERICA BANK-CALIFORNIA ("Bank").
Until notice to the contrary to the undersigned, Bank has agreed that advances
under the Note may be requested from time to time at the discretion of the
undersigned by telephone or facsimile transmission. Immediately upon receipt
from time to time of such telephone request or facsimile transmission from the
undersigned, Bank is authorized to lend and credit such sums of money as
requested to any of the following accounts or any other account with Bank
designated by the undersigned (together with the Security Code) (such
accounts(s) referred to as "Designated Accounts(s)")
A/C #8511006945
Bank may rely on receipt of the Security Code as proof that the caller or sender
is authorized to make the request for advance, repayment, or change of
Designated Accounts(s) on behalf of the undersigned.
The undersigned acknowledges that borrowings under the Note may be repaid from
time to time at the election of the undersigned, but subject to the terms of the
Note and any related agreement with Bank, upon receipt of instructions to do so
sent from the undersigned to Bank by telephone or facsimile transmission
(together with the Security Code). Repayment may be effected (in whole or in
part) by debiting any account designated above (or designated in compliance
with the above paragraph) in accordance with the undersigned's instructions
(together with the Security Code). The undersigned shall remain fully
responsible for any amounts outstanding under the Note if the undersigned's
accounts with Bank are insufficient for the repayment of the Note. All requests
for payments are to be against collected funds.
The undersigned acknowledges that if Bank makes an advance or effects a
repayment based on a request made by telephone or facsimile transmission, it
shall be for the convenience of the undersigned and all risks involved in the
use of this procedure shall be borne by the undersigned, and the undersigned
expressly agrees to indemnify and hold Bank harmless therefor. Without
limitation of the foregoing, the undersigned acknowledges that Bank shall have
no duty to confirm the authority of anyone requesting an advance or repayment by
telephone or facsimile transmission, and further the Bank has advised the
undersigned to protect and safeguard the Security Code to prevent its
unauthorized use. The undersigned assumes any losses or damages whatsoever which
may occur or arise out of its failure to protect and safeguard the Security Code
or out of its unauthorized use.
Borrower(s): ACCOM, INC.
--------------------------------------------------------------------
Address: 1490 O'BRIEN DR., MENLO PARK, CA 94025
--------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP CODE
By: /s/ ROBERT L. WILSON Its: C.F.O.
-------------------------- ------------------------------
SIGNATURE OF TITLE (if applicable)
By: Its:
-------------------------- ------------------------------
SIGNATURE OF TITLE (if applicable)
By: Its:
-------------------------- ------------------------------
SIGNATURE OF TITLE (if applicable)
By: Its:
-------------------------- ------------------------------
SIGNATURE OF TITLE (if applicable)
<PAGE>
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-605 of the California Uniform
Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell, assign,
or grant participations, or any interest, in any or all of the Indebtedness, and
that, in connection with this right, but without limiting its ability to make
other disclosures to the full extent allowable, the Bank may disclose all
documents and information which the Bank now or later has relating to the
undersigned or the Indebtedness. The undersigned agree(s) that the Bank may
provide information relating to the Note or to the undersigned to the Bank's
parent, affiliates, subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not suit is instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding or
otherwise) incurred in collecting or attempting to collect this Note or incurred
in any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note in unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USURY CEILING.
See Business Loan Agreement dated 7/23/96.
[Paragraph deleted and initialed by RLW.]
For Corporations, Partnerships, Trust or Estates
ACCOM, INC. By: /S/ ROBERT L. WILSON Its: CFO
- -------------------------- ------------------------ ---------------------
OBLIGOR NAME TYPED/PRINTED SIGNATURE OF TITLE
1490 O'BRIEN DR. By: Its:
- -------------------------- ------------------------ ---------------------
STREET ADDRESS SIGNATURE OF TITLE
MENLO PARK By: Its:
- -------------------------- ------------------------ ---------------------
CITY SIGNATURE OF TITLE
CA 94025 By: Its:
- -------------------------- ------------------------ ---------------------
STATE ZIP CODE SIGNATURE OF TITLE
<TABLE>
<CAPTION>
For Individuals or Sole Proprietorships
Name(s) of Obligor(s)(Type or Print) Signature(s) or Obligor(s)
<S> <C> <C>
------------------------------------- ---------------------------
- ---------------------------- ------------------------------------- ---------------------------
STREET ADDRESS
- ---------------------------- ------------------------------------- ---------------------------
CITY
- ---------------------------- ------------------------------------- ---------------------------
STATE ZIP CODE
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
For Bank Use Only CCAR #
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loan Officer Initials Loan Group Name Obligor(s) Name
AMY AZAR OAKLAND METRO ACCOM, INC.
- ----------------------------------------------------------------------------------------------------
Loan Officer I.D. No. Loan Group No. Obligor # Note # Amount
48302 95750 $4,000,000.00
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Addendum To Master Revolving Note Dated July 7,
1996
This Addendum to the Master Revolving Note (this "Addendum") is entered
into as of this 7th day of July, 1996, by and between Comerica Bank-California
("Bank") and ACCOM, INC. ("Borrower"). This Addendum supplements the terms of
the Note date July 7, 1996.
1. Definitions.
a. Advance. As used herein, "Advance" means a borrowing requested by
Borrower and amde by Bank under the Note, including a LIBOR Option Advance
and/or a Base Rate Option Advance.
b. Business Day. As used herein, "Business Day" means any day except a
Saturday, Sunday or any other day designated as a holiday under Federal or
California statute or regulation.
c. LIBOR. As used herein, "LIBOR" means the rate per annum (rounded
upward, if necessary, to the nearest whole 1/8 or 1%) and determined pursuant to
the following formula:
LIBOR = Base LIBOR
--------------------------------
100% - LIBOR Reserve Percentage
(1) "Base LIBOR" means the rate per annum for United States
dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a LIBOR Period for delivery of funds on said date for a period of time
approximately equal to the number of days in such LIBOR Period and in an amount
approximately equal to the principal amount to which such LIBOR Period applies.
Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.
(2) "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserved System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable LIBOR Period.
1
<PAGE>
d. LIBOR Period. As used herein, "LIBOR Period" means a period
commencing on a Business Day, and continuing for, in every case, no greater than
thirty (30), sixty (60) or ninety (90) days, as designated by Borrower, during
which all or a portion of the outstanding principal balance of the Note bears
interest determined in relation to Bank's LIBOR, provided that:
(1) In any LIBOR Period would end on day that is not a Business
Day, then such LIBOR Period shall be extended to the next
succeeding Business Day; and
(2) No LIBOR Period shall extend beyond the Maturity Date of the
Note.
e. Note. As used herein, "Note" means the Master Revolving Note dated
July 7, 1996 herewith.
f. Regulation D. As used herein, "Regulation D" means Regulation D of
the Board of Governors of the Federal Reserve System as amended or supplemented
from time to time.
g. Regulatory Development. As used herein, "Regulatory Development"
means any or all of the following: (I) any change in any law, regulation or
interpretation thereof by any public authority (whether or not having the force
of law); (ii) the application of any existing law, regulation or the
interpretation thereof by any public authority (whether or not having the force
of law); and (iii) compliance by Bank with any request or directive (whether or
not having the force of law) of any public authority.
2. Selection of Interest Rate Options. Borrower shall have the following
options regarding the interest rate to be paid by Borrower on advances under the
Note or portions of principal balance of the outstanding amount on the Note in
such amount as set forth by the borrower:
a. A rate equal to Two and Three Quarter percent (2.75%) above Bank's
LIBOR, (the "LIBOR Option"), which LIBOR Option shall be in effect
during the relevant LIBOR Period; or
b. A rate equal to Zero percent (0.00%) above the "Base Rate" as
referenced in the Note and quoted from time to time by Comerica
Bank-California, as such rate may change from time to time (the
"Base Rate Option").
2
<PAGE>
3. LIBOR Option Advance. The minimum LIBOR option advance will be not less
than $200,000.00 for any LIBOR Option Advance.
4. Payment of LIBOR Option. Interest on each LIBOR Option Advance shall be
payable on the last day of the LIBOR Period applicable thereto. Interest on such
LIBOR Option Advance shall be computed on the basis of a 360-day year and shall
be assessed for the actual number of days elapsed from the first day of the
LIBOR Period applicable thereto but not including the last day thereof.
5. Bank's Records Re: LIBOR Option Advances. With respect to each
LIBOR-Option Advance, Bank is hereby authorized to note the day, principal
amount, interest rate and LIBOR Period applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to the Note, which notations shall be prima
facie evidence of the accuracy of the information noted.
6. Conversion of Interest Rate Options. At any time the LIBOR Option is in
effect, Borrower may, at the end of the applicable LIBOR Period, convert to the
Base Rate Option. At any time the Base Rate Option is in effect, Borrower may
convert to the LIBOR Period designated by Borrower. At the time each advance is
requested under the Note and/or Borrower wishes to select the LIBOR Option for
all or a portion of the outstanding principal balance of the Note, and at the
end of each LIBOR Period, Borrower shall give Bank notice specifying (a) the
interest rate option selected by Borrower; (b) the principal amount subject
thereto; and (c) if the LIBOR Option is selected, the length of the applicable
LIBOR Period. Any such notice may be given by telephone so long as, with respect
to each LIBOR Option selected by Borrower, (I) Bank receives written
confirmation from Borrower not later than three (3) Business Days after such
telephone notice is given; and (ii) such notice is given to Bank prior to 10:00
a.m., California time, on the first day of the LIBOR Period. For each LIBOR
Option requested hereunder, Bank will quote the applicable fixed LIBOR rate to
Borrower at approximately 10:00 a.m., California time, on the first day of the
LIBOR Period. If Borrower does not immediately accept the rate quoted by Bank,
any subsequent acceptance by Borrower shall be subject to a redetermination by
Bank; provided however, that if Borrower fails to accept any such quotation is
given, then the quoted rate shall expire and Bank shall have no obligation to
permit a LIBOR Option to be selected on such day. If no specific designation of
interest is made at the time any advance is requested under the Note or at the
end of any LIBOR Period, Borrower shall be deemed to have selected the Base Rate
Option for such advance or the principal amount to which such LIBOR Period
applied.
3
<PAGE>
7. Default Interest. From and after the maturity date of the Note, or such
earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of the Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to Three percent (3.00%)
above the rate of interest from time to time applicable to the Note.
8. Prepayment. Bank does not have to accept any prepayment of principal
under the Note except as described below or as required under applicable law.
Borrower may prepay the principal balance of the Note in increments of Five
Hundred Dollars ($500.00) at any time, as long as Bank is provided written
notice of the prepayment at least five (5) business days prior to the date of
prepayment (the "Prepayment Date"). The notice of prepayment shall contain the
following information: (a) the Prepayment Date and (b) the amount of principal
to be prepaid. On the Prepayment Date, Borrower will pay to Bank, in addition to
the other amounts then due on the Note, the Prepayment Amount described below.
Bank, in its sole discretion, may accept any prepayment of principal even if not
required to do so under the Note and may deduct from the amount to be applied
against principal the other amounts required as part of the Prepayment Amount.
The Prepaid Principal Amount (as defined below) will be applied to the Note
in the reverse order of which the principal payments would have been due under
the Note's principal amortization schedule. In other words, if the Note requires
multiple principal payments, then as opposed to prepaying the next Principal
Payment due, the Prepaid Principal Amount will be applied beginning with the
final principal payment due on the Note.
If Bank exercise its right to accelerate the payment the Note prior to
maturity, Borrower will pay to Bank, in addition to the other amounts then due
on the Note, on the date specified by Bank as the Prepayment Date, the
Prepayment Amount.
Bank's determination of the Prepayment Amount will be conclusive in the
absence of obvious error or fraud. If requested in writing by Borrower, Bank
will provide Borrower a written statement specifying the Prepayment Amount.
The following (the "Prepayment Amount") shall be due and payable in full on
the Prepayment Date:
a. If the face amount of the Note exceeds Seven Hundred Fifty
Thousand Dollars ($750,000) (regardless of what the outstanding
principal balance may be on the Prepayment Date) then
4
<PAGE>
the Prepayment Amount is the sum of: (I) the amount of principal
which Borrower has elected to prepay or the amount of principal
which Bank has required Borrower to prepay because of
acceleration, as the case may be (the "Prepaid Principal
Amount"); (ii) interest accruing on the Prepaid Principal Amount
up to, but not including, the Prepayment Date; (iii) Five Hundred
Dollars ($500.00); plus (iv) the present value, discounted at the
Reinvestment Rates (as defined below) of the positive amount by
which (A) the interest Bank would have earned had the Prepaid
Principal Amount been paid according to the Note's amortization
schedule at the Note's interest rate exceeds (B) the interest
Bank would earn by reinvesting the Prepaid Principal Amount at
the Reinvestment Rates.
b. If the face amount of the Note is Seven Hundred Fifty Thousand
Dollars ($750,000) or less (regardless of what the outstanding
principal balance may be on the Prepayment Date) then the
Prepayment Amount is the sum of: (I) the amount of principal
which Borrower has elected to prepay or the amount of principal
which Bank has required Borrower to prepay because of
acceleration, as the case may be (the "Prepaid Principal
Amount"); (ii) interest accruing on the Prepaid Principal Amount
up to, but not including, the Prepayment Date; plus (iii) an
amount equal to one percent (1%) of the Prepaid Principal Amount
multiplied by the number of calendar years remaining until the
maturity date of the Note, but in no event less than two percent
(2%) of the Prepaid Principal Amount. For purposes of this
computation, any portion of a calendar year until the maturity
date of the Note shall be deemed to be a full calendar year.
"Reinvestment Rates" mean the per annum rates of interest equal to one half
percent (1/2%) above the rates of interest reasonably determined by Bank to be
in effect not more than seven (7) days prior to the Prepayment Date in the
secondary market for United States Treasury Obligations in amount(s) and with
maturity(ies) which correspond (as closely as possible) to the principal
installment amount(s) and the payment date(s) against which the Prepaid
Principal Amount will be applied.
5
<PAGE>
BY INITIALING BELOW, BORROWER ACKNOWLEDGE(S) AND AGREE(S) THAT: (A) THERE
IS NO RIGHT TO PREPAY THE NOTE, IN WHOLE OR IN PART, WITHOUT PAYING THE
PREPAYMENT AMOUNT, EXCEPT AS OTHERWISE REQUIRED UNDER APPLICABLE LAW; (B)
BORROWER SHALL BE LIABLE FOR PAYMENT OF THE PREPAYMENT AMOUNT IF BANK EXERCISES
ITS RIGHT TO ACCELERATE PAYMENT OF THE NOTE, INCLUDING WITHOUT LIMIT,
ACCELERATION UNDER A DUE-ON-SALE PROVISION; (C) BORROWER WAIVES(S) ANY RIGHTS
UNDER SECTION 2954.10 OF THE CALIFORNIA CIVIL CODE, OR ANY SUCCESSOR STATUTE;
AND (D) BANK HAS MADE THE LOAN EVIDENCED BY THE NOTE IN RELIANCE ON THESE
AGREEMENTS. RLW
-----
BORROWER'S INITIALS
9. Hold Harmless and Indemnification. Borrower agrees to indemnify Bank and
to hold harmless from, and to reimburse Bank on demand for, all losses and
expenses which Bank sustains or incurs as a result of (I) any payment of a LIBOR
Option Advance prior to the last day of the LIBOR period for such LIBOR Option
Advance for any reason, including termination of the Note, whether pursuant to
this Addendum or the occurrence of an Event of Default for any reason; (ii) any
termination of a LIBOR Period in accordance with this Addendum; or (iii) any
failure by Borrower, for any reason, to borrow any portion of a LIBOR Option
Advance.
10. Funding Losses. The indemnification and hold harmless provisions set
forth in this Addendum shall include, without limitation, all losses and
expenses arising from interest and fees that Bank pays to lenders of funds it
obtained in order to fund the loans to Borrower on the basis of the LIBOR
Option(s) and all losses incurred in liquidating or re-deploying deposits from
which such funds were obtained and loss of profit for the period after
termination. A written statement by Bank to Borrower of such losses and expenses
shall be conclusive and binding, absent manifest error, for all purposes. This
obligation shall survive the termination of this Addendum and the payment of the
Note.
11. Regulatory Developments Or Other Circumstances Relating to Illegality
or Impracticality of LIBOR. If any Regulatory Development or other circumstances
relating to the interbank Euro-dollar markets shall, at any time, in Bank's
reasonable determination, make it unlawful or impractical for Bank to fund or
maintain, during any LIBOR Period, to determine or charge interest rates based
upon LIBOR, Bank shall give notice of such circumstances to Borrower and:
(I) In the case of a LIBOR Period in progress, Borrower shall, if
requested by Bank, promptly pay any interest which had accrued
prior to such request and the date of such request shall be
deemed to be the last day of the term of the LIBOR Period; and
6
<PAGE>
(ii) No LIBOR Period may be designated thereafter until Bank
determines that such would be practical.
[Item 12 deleted and initialed by RLW.]
13. Legal Effect. Except as specifically modified hereby, all of the terms
and conditions of the Note remain in full force and effect.
IN WITNESS WHEREOF, the parties have agreed to the foregoing as of the date
first set forth above.
ACCOM, INC. COMERICA BANK-CALIFORNIA
By: /S/ ROBERT L. WILSON By:/s/ AMY AZAR
-------------------------- -------------------------------
Amy Azar
Title: CFO Assistant Vice President
--------------------------
<PAGE>
[LOGO OMITTED]
BORROWER'S AUTHORIZATION
DATE: JULY 7, 1996
I (we) hereby authorize and direct COMERICA BANK-CALIFORNIA ("Bank") to pay
to PAYOFF AND CLOSE LOAN #0059970008-26 $ 0
---------------------------
to__________________________________________________ $__________________________
to__________________________________________________ $__________________________
to__________________________________________________ $__________________________
of the proceeds of my (our) loan from the Bank evidenced by a note in the
original principal amount of $4,000,000.00, dated JULY 7, 1996.
Borrower(s): ACCOM, INC.
By: /S/ ROBERT L. WILSON Its: CFO
-------------------------------------- ---------------------------
Signature of Title (if applicable)
By:______________________________________ Its:____________________________
Signature of Title (if applicable)
By:______________________________________ Its:____________________________
Signature of Title (if applicable)
By:______________________________________ Its:____________________________
Signature of Title (if applicable)
<PAGE>
COLLATERAL ASSIGNMENT, PATENT MORTGAGE
AND SECURITY AGREEMENT
This Collateral Assignment, Patent Mortgage and Security Agreement is
made as of JULY 7, 1996, by and between ACCOM, INC. ("Assignor"), and COMERICA
BANK-CALIFORNIA "Assignee").
RECITALS
A. Assignee has agreed to lend to Assignor certain funds (the "Loan"), and
Assignor desires to borrow such funds from Assignee. The Loan will be evidenced
by one or more promissory notes of even date herewith (a "Note" or,
collectively, the "Notes") and will be secured in part pursuant to the terms of
a Master Revolving Note of even date herewith (the "Loan Agreement").
B. In order to include Assignee to make the Loan, Assignor has agreed to
assign certain intangible property to Assignee for purposes of securing the
obligations of Assignor to Assignee.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Assignment, Patent Mortgage and Grant of Security Interest. As
collateral security for the prompt and complete payment and performance of all
of Assignor's present or future indebtedness, obligations and liabilities to
Assignee, Assignor hereby assigns, transfers, conveys and grants a security
interest and mortgage to Assignee, as security, Assignor's entire right, title
and interest in, to and under the following (all of which shall collectively be
called the "Collateral"):
(a) Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, nor or hereafter existing, created,
acquired or held, including without limitation those set forth on Exhibit A
attached hereto (collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Assignor nor or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections
including, without limitation, improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including without
limitation the patents and patent applications set forth on Exhibit B attached
hereto (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered
or not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Assignor connected with
and symbolized by such trademarks, including without limitation those set forth
on Exhibit C, attached hereto (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above:
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use;
and
<PAGE>
(h) All amendments, extensions, renewals and extensions of any
of the Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE
CONSTRUED AS A CURRENT ASSIGNMENT, BUT AS A CONTINGENT ASSIGNMENT TO SECURE
ASSIGNOR'S OBLIGATIONS TO ASSIGNEE UNDER THE NOTE AND SECURITY AGREEMENT.
2. Authorization and Request. Assignor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this conditional assignment.
3. Covenants and Warranties. Assignor represents, warrants, covenants
and agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except
for non-exclusive licenses granted by Assignor to its customers in the ordinary
course of business and except for liens, encumbrances or security interests
described in Schedule 3 attached hereto;
(b) Performance of this Assignment does not conflict with or
result in a breach of any agreement to which Assignor is party or by which
Assignor is bound;
(c) During the term of this Assignment, Assignor will not
transfer or otherwise encumber any interest in the Collateral, except for
non-exclusive licenses granted by Assignor in the ordinary course of business;
(d) Each of the Patents is valid and enforceable, and no part
of the Collateral has been judged invalid or unenforceable, in whole or in part,
and no claim has been made that any part of the Collateral violates the rights
of any third party;
(e) Assignor shall promptly advise Assignee of any material
change in the composition of the Collateral, including but not limited to any
subsequent ownership right of the Assignor in or to any Trademark, Patent or
Copyright not specified in this Assignment;
(f) Assignor shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use
its best efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Assignee in writing of material infringements
detected and (iii) not allow any Trademarks, Patents or Copyrights to be
abandoned, forfeited or dedicated to the public without the written consent of
Assignee, which shall not be unreasonably withheld; subject to reasonable review
and the materiality of the trademarks, patents, or copyrights by Assignee and
Assignor.
[ADDITION TO PARAGRAPH INITIALED BY RLW.]
(g) Assignor shall promptly register the most recent version
of any of Assignor's Copyrights, if not so already registered, and shall, from
time to time, execute and file such other instruments, and take such further
actions as Assignee may request from time to time to perfect or continue the
perfection of Assignee's interest in the Collateral to perfect or continue the
perfection of Assignee's interests in the Collateral at Assignor's sole expense.
(h) This Assignment creates, and in the case of after acquired
Collateral, this Agreement will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and perfected first
priority security interest in the Collateral in the United States securing the
payment and performance of the obligations evidenced by the Note upon making the
filings referred to in clause (i) below;
(i) Except for, and upon, the filing with the United States
Patent and Trademark office with respect to the Patents and Trademarks and the
Register of Copyrights with respect to the Copyrights necessary to perfect the
security interests and assignment created hereunder, and, except as has been
already made or obtained, no authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required either (i) for the grant by Assignor of the security interest granted
hereby or for the execution,
2
<PAGE>
delivery or performance of this Assignment by Assignor or (ii) for the
perfection in the United States or the exercise by Assignee of its rights and
remedies hereunder;
(j) All information heretofore, herein or hereafter supplied
to Assignee by or on behalf of Assignor with respect to the Collateral is
accurate and complete in all material respects.
(k) Assignor shall not enter into any agreement that would
materially impair or conflict with Assignor's obligation hereunder without
Assignee's prior written consent. Assignor shall not permit the inclusion in any
contract to which it becomes a party of any provisions that could or might in
any way impair or prevent the creation of a security interest in Assignor's
rights and interests in any property included within the definition of the
Collateral acquired under such contracts.
(l) Upon any officer of Assignor obtaining knowledge thereof,
Assignor will promptly notify Assignee in writing of any event that materially
adversely affects the value of any of the Collateral, the ability of Assignor or
Assignee to dispose of any of the Collateral or the rights and remedies of
Assignee in relation thereto, including the levy of any legal process against
any of the Collateral.
4. Assignee's Rights. Assignee shall have the right, but not the
obligation, to take in the event of default at Assignor's sole expense, any
actions that Assignor is required under this Assignment to take but which
Assignor fails to take, after five (5) days' notice to Assignor. Assignor shall
reimburse and indemnify Assignee for all costs and expenses incurred in the
reasonable exercise of its rights under this section 4.
[ADDITION TO PARAGRAPH INITIALED BY RLW.]
5. Inspection Rights. Assignor hereby grants to Assignee and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable notice to Assignor, and any of Assignor's and its
subcontractors' plants and facilities that manufacture, install or store
products (or that have done so during the prior six-month period) that are sold
under any of the Collateral, and to inspect the products and quality control
records relating thereto upon reasonable notice to Assignor and as often as may
be reasonably requested; provided, however, nothing herein shall entitle
Assignee access to Assignor's trade secrets and other proprietary information.
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Assignor will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including, appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the Register of Copyrights,
and take all such action as may reasonably be deemed necessary or advisable, or
as requested by Assignee, to perfect Assignee's security interest in all
Copyrights, Patents and Trademarks and otherwise to carry out the intent and
purposes of this Collateral Assignment, or for assuring and confirming to
Assignee the grant or perfection of a security interest in all Collateral.
(b) Assignor hereby irrevocably appoints Assignee as
Assignor's attorney-in-fact, with full authority in the place and stead of
Assignor and in the name of Assignor, Assignee or otherwise, from time to time
in Assignee's discretion, to take any action and to execute any instrument which
Assignee may deem necessary or advisable to accomplish the purposes of this
Collateral Assignment, including:
(i) To modify, in its sole discretion, this
Collateral Agreement without first obtaining Assignor's approval of or signature
to such modification by amending Exhibit A, Exhibit B and Exhibit C, thereof, as
appropriate, to include reference to any right, title or interest in any
Copyrights, Patents or Trademarks acquired by Assignor after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Assignor no longer has or claims any
right, title or interest; and
(ii) To file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of Assignor where permitted by law.
The assignee agrees not to exercise the Power of Attorney granted
herein unless there has been a material event of default or bankruptcy is
imminent in the reasonable opinion of the Assignee.
[ADDITION TO PARAGRAPH INITIALED BY RLW.]
3
<PAGE>
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under the Assignment:
(a) An Event of Default occurs under the Loan Agreement or any
Note; or
(b) Assignor breaches any warranty or agreement made by
Assignor in this Agreement.
8. Remedies. Upon the occurrence of an Event of Default. Assignee shall
have the right to exercise all the remedies of a secured party under the
California Uniform Commercial Code, including without limitation the right to
require Assignor to assemble the Collateral and any tangible property in which
Assignee has a security interest and to make it available to Assignee at a place
designated by Assignee. Assignee shall have a nonexclusive, royalty free license
to use the Copyrights, Patents and Trademarks to the extent reasonably necessary
to permit Assignee to exercise its rights and remedies upon the occurrence of an
Event of Default. Assignor will pay any expenses (including attorneys' fees)
incurred by Assignee in connection with the exercise of any of Assignee's rights
hereunder, including without limitation any expense incurred in disposing of the
Collateral. All of Assignee's rights and remedies with respect to the Collateral
shall be cumulative.
9. Indemnity. Assignor agrees to defend, indemnity and hold harmless
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement, and (b) all
losses or expenses in any way suffered, incurred, or paid by Assignee as a
result of or in any way arising out of, following or consequential to
transactions between Assignee and Assignor, whether under this Assignment or
otherwise (including without limitation attorneys fees and expenses), except for
losses arising from or out of Assignee's gross negligence or willful misconduct.
10. Reassignment. At such time as Assignor shall completely satisfy all
of the obligations secured hereunder, Assignee shall execute and deliver to
Assignor all deeds, assignments and other instruments as may be necessary or
proper to revest in Assignor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Assignee pursuant
hereto.
11. Course of Dealing. No course of dealing, nor any failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
12. Attorneys Fees. If any action relating to this Assignment is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys fees, costs and disbursements.
13. Amendments. This Assignment may be amended only by a written
instrument signed by both parties hereto.
14. Counterparts. This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. California Law and Jurisdiction. This Assignment shall be governed
by the laws of the State of California, without regard for choice of law
provisions. Assignor and Assignee consent to the nonexclusive jurisdiction of
any state or federal court located in Santa Clara County, California.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on
the day and year first above written.
4
<PAGE>
Address of Assignor: ASSIGNOR: ACCOM, INC.
1490 O'Brien Drive By: /s/ ROBERT L. WILSON
Menlo Park, CA 94025 ------------------------------
Title: C.O.O CFO
------------------------------
Address of Assignee: ASSIGNEE: COMERICA BANK-CALIFORNIA
333 W. Santa Clara St. By: /s/ AMY AZAR
San Jose, CA 95113 ------------------------------
Amy Azar
Assistant Vice President
Exhibit "A"
List of Copyrights
None
RLW
INITIAL HERE
<PAGE>
EXHIBIT B
Patents
Description Patent Issue
- ----------- Number Date
------ -----
Still Store System and Method With Simple Image Access 5,451,982 09/19/95
Three-Dimensional Median and Recursive Filtering
Apparatus and Method for Video Image Enhancement 5,446,501 08/29/95
Real-Time Disk System 5,396,339 03/07/95
Digital Image Compositing System and Method 5,347,622 09/13/94
Three-Dimensional Adaptive Decoding System and Method 5,097,321 03/17/92
RLW
INITIAL HERE
<PAGE>
EXHIBIT C
Trademarks
Trademark
Application Application
Number Date
- ------ ----
75-005,784 10/16/95
Trademark
Registration Registration
Number Date
- ------ ----
1,886,994 04/04/95
1,845,523 07/19/94
1,879,377 02/14/95
1,872,319 01/10/95
1,881,686 02/28/95
1,883,174 03/07/95
1,847,645 08/02/94
RLW
INITIAL HERE
<PAGE>
BUSINESS LOAN AGREEMENT
This Business Loan Agreement (this "Agreement") is entered into by and
between Comerica Bank-California ("Bank") and Accom, Inc. ("Borrower") as of
this 23 day of July, 1996.
1. Loans to Borrower. Bank is prepared to make loans to Borrower
subject to the terms and conditions of this Agreement, that promissory note(s)
executed in connection herewith and/or previously or subsequently executed, and
all amendments, renewals and extensions thereof (singularly or collectively, the
"Note"), and those certain security agreements and/or such other security or
other documents as Bank may now or hereafter require (collectively, the "Loan
Documents") in connection with Loans made now or in the future by Bank pursuant
to the Loan Documents sometimes hereinafter collectively referred to as the
"Loan").
2. Legal Effect. This Agreement supplements the terms and conditions of
the Loan Documents. Except as otherwise specified herein, all terms used in this
Agreement shall have the same meaning as given in the Note and/or Loan Documents
which are incorporated herein by this reference. Any and all terms used in this
Agreement, the Note and/or the Loan Documents shall be construed and defined in
accordance with the meaning and definition such term under and pursuant to the
California Uniform Commercial Code, as amended. Except as specifically modified
hereby, all of the terms and conditions of the Note and/or the Loan Documents
shall remain in full force and effect.
3. Interest Rate; Payment Terms; Loan Fees. The principal and interest
on the Loan shall be payable on the terms set forth in the Note and/or the Loan
Documents. A 1/2% ($20,000) loan fee in equivalent of fees and/or deposit
balances shall be collected quarterly in arrears and automatically debited from
the general account, as described in Example B. In addition, Borrower shall pay
such additional loan fees from time to time in the future as agreed between Bank
and Borrower.
4. Security. As security for Borrower's obligations to Bank under this
Agreement, the Note and/or the Loan Documents and all other indebtedness and
liabilities whatsoever of Borrowed to Bank, whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising,
evidenced by the Note and/or the Loan Documents (collectively, the
"Indebtedness"). Borrower hereby grants to Bank, prior to or simultaneously with
the borrowing hereunder, a continuing security interest of first priority in all
accounts receivable, inventory, equipment and intangibles and all proceeds
thereof, and in all collateral provided to Bank pursuant to any security
agreement and/or all collateral that is delivered to Bank and/or which Bank
possesses and all proceeds thereof, (collectively, the "Collateral").
5. Guaranty. [OMITTED. Initialed by RLW]
6. Conditions Precedent. As conditions precedent to the making of the
Loan and the extension of the financial accommodations hereunder, Borrower shall
execute, or cause to be executed, and deliver to Bank, in form and substance
satisfactory to Bank and its counsel, the following:
(a) This Agreement, the Note, and/or the Loan Documents and
such other documents required by Bank;
(b) Financing statements (Form UCC-1) in form satisfactory to
Bank for filing and recording with the appropriate governmental authorities;
(c) If Borrowers is a corporation, certified extracts from the
minutes of meeting of its board of directors, authorizing the borrowings and the
granting of the security interest provided for herein and authorizing specific
officers to execute and deliver the agreements provided for herein;
(d) If Borrower is a corporation, a certificate of good
standing showing that Borrower is in good standing under the laws of the state
of its incorporation and certificates indicating that Borrower is qualified to
transact business and is in good standing in any other state in which it
conducts business;
(e) If Borrower is a partnership, a copy of Borrower's
partnership agreement certified by each general partner of Borrower;
(f) UCC searches, tax lien and litigation searches, fictitious
business statement filings, insurance certificates, notices or other similar
documents which Bank may require and in such form as Bank may require, in order
to reflect, perfect or protect Bank's first priority security interest in the
Collateral and in order to fully consummate all of the transactions contemplated
under this Agreement, the Note and/or the Loan Documents;
(g) Waivers executed by landlords and mortgagees of any real
property on which any Collateral is located;
1
<PAGE>
(h) Warranties and representations of officers; and
(i) Payment of all loan fees and expenses, if any.
7. Representations and Warranties of Borrower. Borrower represents and
warrants to Bank that as of the date of acceptance of this Agreement, the Note
and/or the Loan Documents, as of the date of borrowing hereunder and at all
times the Loan or any other Indebtedness are outstanding heredunder:
(a) If Borrower is a corporation, Borrower is duly organized,
validly existing and in good standing under the laws of the state of its
incorporation; or if a partnership, Borrower is duly organized and validly
existing under the partnership agreement and the applicable laws of the state in
which the partnership is formed or exists;
(b) Borrower has the legal power and authority, to own its
properties and assets and to carry out its business as now being conducted; it
is qualified to do business in every jurisdiction wherein such qualification is
necessary; it has the legal power and authority to execute and perform this
Agreement, the Note and/or the Loan Documents to borrow money in accordance with
its terms, to execute and deliver the Note and the Loan Documents, and to do any
and all other things required of it hereunder; and this Agreement, the Note and
all the Loan Documents, when executed on behalf of Borrower by its duly
authorized officers, shall be its valid and binding obligations legally
enforceable in accordance with their terms;
(c) The execution, delivery and performance of this Agreement,
the Note and/or the Loan Documents and the borrowings hereunder and thereunder
(i) have been duly authorized by all requisite corporate action; (ii) do not
require governmental approval; (iii) will not result (with or without notice
and/or the passage of time) in any conflict with or breach or violation of or
default under, any provision of law, the articles of incorporation, bylaws or
partnership agreement of Borrower, any provision of any indenture, agreement or
other instrument to which Borrower is a party, or by which it or any of its
properties or assets are bound; and (iv) will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of Borrower;
(d) The balance sheet of Borrower as provided to Bank in
connection herewith and the related statement of income of Borrower for the
period ended 5/25/96, fairly present the financial condition of Borrower in
accordance with accounting principles ("GAAP"); and from the date thereof to the
date hereof, there has been no material adverse change in such condition or
operations; and
(e) There is not pending nor, to the best of Borrower's
knowledge, threatened, any litigation, proceeding or governmental investigation
which could materially and adversely affect its business or its ability to
perform its obligations, pay the Indebtedness and/or comply with the covenants
set forth herein and/or in the Note and/or the other Loan Documents.
8. Affirmative Covenants. Until the Indebtedness is paid in full,
Borrower covenants and agrees to do the following:
(a) Furnish within thirty (30) days after the end of each
month, a company-prepared balance sheet and profit and loss statement covering
Borrower's operations, 10Q's within forty-five (45) days after the quarter-end,
and deliver to Bank within one hundred twenty (120) days of the end of each of
Borrower's fiscal years a statement of the financial condition of Borrower for
each such fiscal year, including but not limited to, a (an) CPA-audited balance
sheet and profit and loss statement, 10K, and any other report requested by Bank
relating to any Collateral and the financial condition of Borrower, and a
certificate signed by an authorized employee of Borrower to the effect that all
reports, statements, computer disc or tape files, computer printouts, computer
runs or other computer prepared information of any kind or nature relating to
the foregoing or documents delivered or caused to be deliver to Bank under this
subparagraph are complete, correct and thoroughly present the financial
condition of Borrower and that there exists on the date of delivery to Bank no
condition or event which constitutes a breach or an event of default under this
Agreement, the Note and/or the Loan Documents. Monthly company-prepared
financial statements and covenant compliance certificates to be received within
30 days of month-end until first quarter of net profitability is attained. After
reaching first quarter of net profitability, quarterly company prepared
financial statements, 10Q's and covenant compliance certificates to be received
within 45 days of quarter-end.
(b) In addition to the financial statements requested above,
Borrower agrees to provided Bank with the following schedules:
X Accounts Receivable Aging Reports on a monthly basis within 15 days
of month-end
X Accounts Payable Aging Summary on a monthly basis; and within 15 days
of month-end
if no borrowings on line of credit, quarterly accounts receivable aging reports
and accounts payable aging summary to be received within 15 days of quarter-end.
2
<PAGE>
(c) Promptly inform Bank of the occurrence of any event of
default (as defined in the Note and/or the Loan Documents) or of any event which
could have a materially adverse effect upon Borrower's business, properties,
financial condition or ability to comply with its obligations hereunder,
including without limitation its ability to pay the indebtedness;
(d) Furnish such other information as Bank may reasonably
request;
(e) Keep in full force and effect its own corporate or
partnership existence in good standing; continue to conduct and operate its
business substantially as presently conducted and operated and maintain and
protect all franchises and trade names and preserve all the remainder of its
property used or useful in the conduct of its business and keep the same in good
repair and condition;
(f) Comply with the financial covenants set forth in Addendum
A, attached hereto and made a part hereof;
(g) Maintain a standard and modern system of accounting in
accordance with GAAP consistently applied with ledger and account cards and/or
computer tapes and computer disks, computer printouts and computer records
pertaining to the Collateral which contain information as may from time to time
be requested by Bank, no modify or change its method of accounting without the
written consent of Bank first obtained, permit Bank and any of its employees,
officers, or agents, upon demand, during Borrower's usual business hours, or the
usual business hours of any third person having control thereof, to have access
to and examine all of Borrower's records relating to the Collateral, Borrower's
financial condition and the results of Borrower's operations and in connection
therewith, permit Bank or any of its agents, employees, or officer to copy and
make extracts therefrom;
(h) Provide personal financial statement on an annual basis
and tax returns of any Guarantor, within thirty (30) days of the filing of such
tax returns;
(i) Maintain Borrower's same place of business or chief
executive office or residence as indicated below, and not relocate said address
without giving Bank prior written notice; and
(j) Maintain insurance in such amounts and of a type
satisfactory to Bank, with Bank to be designated as the payee of any such
insurance policies.
9. Negative Covenants. Borrower shall not, without Bank's prior written
consent, do any of the following:
(a) Grant a security interest in or permit a lien, claim or
encumbrance upon any of the Collateral to any person, association, firm,
corporation, entity, governmental agency or instrumentality;
(b) Permit any levy, attachment or restraint to be made
affecting any of Borrower's assets;
(c) Permit any judicial officer or assignee to be appointed or
to take possession of any or all of Borrower's assets;
(d) Other than sales of inventory in the ordinary course of
Borrower's business, to sell, lease or otherwise dispose of, move, or transfer,
whether by sale or otherwise, any of Borrower's assets;
(e) Change its name, business structure, corporate identity or
structure; add any new fictitious name, liquidate, merge or consolidate with or
into any other business organization;
(f) Move or relocate any collateral except in the ordinary
course of Borrower's business;
(g) Enter into any transaction not in the usual course of
Borrower's business;
(h) Make any investment in securities of any person,
association, firm, entity or corporation other than securities of the United
States of America;
(i) Make any change in Borrower's financial structure or in
any of its business objects, purposes or operations which would adversely affect
the ability of Borrower to pay its obligations;
(h) Incur any debt outside the ordinary course of Borrower's
business;
(i) Make any advance or loan except in the ordinary course of
Borrower's business as currently conducted;
(j) Make loans, advances of extensions of credit to any
person, except for sales on open account and otherwise in the ordinary course of
business;
(k) Guaranty or otherwise, directly or indirectly, in any way
be or become responsible for obligations of any other person, whether by or
agreement to purchase the indebtedness of any other person,
3
<PAGE>
agreement for the furnishing of funds to any other person through the furnishing
of goods, supplies or services, by way of stock purchase, capital contribution,
advance or loan, for the purpose of paying and discharging (or causing the
payment or discharge of) the indebtedness of any other person, or otherwise,
except for the endorsement of negotiable instruments by Borrower in the ordinary
course of business for deposit or collection;
(l) Sell, lease, transfer or otherwise dispose of properties
and assets having an aggregate book value of more than Five Hundred Thousand
Dollars ($500,000) (whether in one transaction or in a series of transactions)
except as to the sale of the inventory in the ordinary course of business;
change its name, consolidate with or merge into any corporation, permit another
corporation to merge into it, acquire all or substantially all of the properties
or assets of any other person, enter into any reorganization or recapitalization
or reclassify its capital stock, or enter into any sale-lease back transaction;
(m) Purchase or hold beneficially any stock or other
securities of, or make any investment or acquire any interest whatsoever in, any
other person, except for the common stock of the subsidiaries owned by Borrower
on the date of this Agreement or other applicable date and except for
certificates of deposit with maturities of one year or less of a United States
commercial bank with capital, surplus and undivided profits in excess of one
hundred million dollars ($100,000,000), and direct obligations of the United
States government maturing within one (1) year from the date of acquisition
thereof; or
(n) Allow any fact, condition or event to occur or exist with
respect to any employee, pension or profit sharing plan established or
maintained by it which might constitute grounds for termination of any such plan
or for the court appointment of a trustee to administer any such plan.
10. Default. The term "Default", as used herein, shall have the meaning
given in the Note and/or the Loan Documents. In addition, the parties agree that
any one or more of the following events shall constitute a default by Borrower
under this Agreement, the Note and/or the Loan Documents: (a) if Borrower fails
or neglects to perform, keep or observe any term, provision, condition,
covenant, agreement, warranty or representation contained in this Agreement, the
Note, the Loan Documents or any other present or future agreement between
Borrower and Bank; (b) if any material representation, statement, report or
certificate made or delivered by Borrower, or any of its officers, employees or
agents to Bank is not true and correct; (c) if Borrower fails to pay when due
and payable or declared due and payable, all or any portion of the Indebtedness
(whether or principal, interest, taxes, reimbursement of Bank expenses, or
otherwise); (d) if there is a material impairment of the prospect of repayment
of all or any portion of Borrower's obligations, including without limitation
the Indebtedness or a material impairment of the value or priority of Bank's
security interest in the collateral; (e) if all or any of Borrower's assets are
affected, become subject to a writ or distress warrant, or are levied upon, or
come into the possession of any judicial officer or assignee and the same are
not released, discharged or bonded against within ten (10) days thereafter; (f)
if any insolvency proceeding is filed or commenced by or against Borrower
without being dismissed within ten (10) days thereafter; (g) if any proceeding
is filed or commenced by or against Borrower for its dissolution or liquidation
without being dismissed within ten (10) days of its commencement; (h) if
Borrower is enjoined, restrained or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs; (i) if a
notice of lien, levy or assessment is filed of record with respect to any or all
of Borrower's assets by the United States Government, or any department, agency
or instrumentality thereof, or by any state, county, municipal or other
governmental agency, or if any taxes or debts owing at any time hereafter to any
one or more of such entities becomes a lien, whether choate or otherwise, upon
any or all of the Borrower's assets and the same is not paid on the payment date
thereof; (j) if a judgment or other claim becomes a lien or encumbrance upon any
or all of Borrower's assets and the same is not satisfied, dismissed or bonded
against within ten (10) days thereafter; (k) if Borrower's records are prepared
and kept by an outside computer service bureau at the time this Agreement, the
Note and/or the Loan Documents are entered into or during the term of this
Agreement, the Note and/or the Loan Documents, such an agreement with an outside
service bureau is entered into, and at any time thereafter, without first
obtaining the written consent of Bank, Borrower terminates, modifies, amends or
changes its contractual relationship with said computer service bureau or said
computer service bureau fails to provide Bank with any requested information or
financial data pertaining to Bank's Collateral, Borrower's financial condition
or the results of Borrower's operations; (l) if Borrower permits a default in
any material agreement to which Borrower is a party with third parties so as to
result in an acceleration of the maturity of Borrower's indebtedness to others,
whether under any indenture, agreement or otherwise; (m) if Borrower makes any
payment on account of indebtedness which has been subordinated to Borrower's
obligations to Bank, including without limitation the Indebtedness; (n) if any
material misrepresentation exists now or thereafter in any warranty or
representation made to Bank by any officer or director of Borrower, or if any
such warranty or representation is withdrawn by any officer or director; (o) if
any party subordinating its claims to that of Bank's or any guarantor of
Borrower's obligations terminates its subordination or guaranty, becomes
insolvent or any insolvency proceeding is commenced by or against any such
subordinating party or guarantor; (p) if Borrower is an individual and Borrower
dies; (q) if there is a change of ownership or control of n/a percent ( %) or
more of the issued and outstanding stock of Borrower; or (r) if any reportable
event, which the Bank determines constitutes grounds for the termination of any
deferred compensation plan by the Pension Benefit Guaranty Corporation or for
the appointment by the appropriate Untied States District Court of a trustee to
administer any such plan, shall have occurred and be continuing thirty (30) days
after written notice of such determination shall have been given to Borrower by
Bank, or any such Plan shall be terminated within the meaning of Title IV of the
Employment Retirement Income Security Act ("ERISA"), or a trustee shall be
appointed by the appropriate Untied States District Court to administer any such
plan, or the Pension Benefit Guaranty Corporation shall institute proceedings to
terminate any plan and in case of any event described in this
4
<PAGE>
Section 10, the aggregate amount of the Borrower's liability to the Pension
Benefit Guaranty Corporation under Sections 4062, 4063 or 4064 of ERISA shall
exceed five percent (5%) of Borrower's Tangible Effective Net Worth. (s) It
shall be an event of default hereunder and under the Loan Documents if for any
reason Bank's security interest in any collateral is not in first priority.
Notwithstanding anything contained in this Section 10 to the contrary,
Bank shall refrain from exercising its rights and remedies and Event of Default
shall thereafter not be deemed to have occurred by reason of the occurrence of
any of the events set forth in Sections 10(e), 10(f), 10(j), 10(r) of this
Agreement if, within ten (10) days from the date thereof, the same is released,
discharged, dismissed, bonded against or satisfied; provided, however, that Bank
shall not be obligated to make advances to Borrower during only such ten (10)
day cure period.
11. Rights and Remedies. The parties have agreed as follows with
respect to Bank's rights and remedies upon default: (a) upon default, Bank shall
have all rights and remedies available hereunder and under the Note and the Loan
Documents and under applicable law: (b) upon default, Bank may at its option,
accelerate the Indebtedness and declare all Indebtedness to be due, owing and
payable in full; (c) no default (as defined in this Agreement, the Note and/or
the Loan Documents) shall be waived by Bank except in writing and a waiver of
any default shall not be a waiver of any other default or of the same default on
a future occasion; (d) no single or partial exercise of any right, power or
privilege hereunder, or any delay in the exercise hereof, shall preclude other
or further exercise of the rights of the parties under this Agreement, the Note
and/or the Loan Documents; and (e) no forbearance on the part of Bank in
enforcing any of its rights under this Agreement, the Note and/or the Loan
Documents nor any renewal, extension or rearrangement of any payment or covenant
be made or performed by Borrower hereunder shall constitute a waiver of any of
the terms of this Agreement, the Note, and/or the Loan Documents, or of any such
right.
12. Cross-Default. A default under this Agreement shall also be a
default under the Note and the Loan Documents, and vice versa. A default under
this Agreement, the Note and/or the Loan Documents shall also be a default under
every other note and other agreement between Bank and Borrower, and vice versa.
13. Cross-Collateral. Any Collateral for this Agreement, the Note
and/or the Loan Documents shall also be Collateral for any other obligations
owing by Borrower to Bank, except that no real property collateral shall be
security for the Note pursuant to this paragraph unless Bank gives its prior
written express consent therein.
14. Survival of Covenants, Agreements, Representations and Warranties.
All covenants, agreements, representations and warranties (a) previously made
(except as specifically subsequently modified); (b) made in connection herewith
or with the Note and/or the Loan Documents and/or any document contemplated
hereby; or (c) executed hereafter (unless such document expressly states that
this Agreement does not apply thereto) shall survive the borrowing hereunder and
thereunder and the repayment in full of the Note and/or the Loan Documents and
any amendments, renewals or extensions thereof and shall be deemed to have been
relied upon by Bank. All statements contained in any certificate or other
document delivered to Bank at any time by or on behalf of Borrower shall
constitute representations and warranties by Borrower.
15. Miscellaneous. The parties agree to the following miscellaneous
terms:
(a) This Agreement, the Note and the Lon Documents shall be
governed by California law, without regard for the effect of conflict of laws;
(b) Borrower agrees that it will pay all out of pocket costs
of Bank and expenses (including, without limitation, Bank's attorneys' fees and
costs and/or fees and costs of Bank's in house counsel) and other expenses in
connection with the preparation of this Agreement, the Note and/or the Loan
Documents and/or the documents contemplated hereby;
(c) This Agreement, the Note and/or the Loan Documents shall
inure to the benefit of and shall be binding upon the parties hereto and their
respective successors and assigns; provided, however, that Borrower shall not
assign or transfer its right or obligations under this Agreement, the Note
and/or the Loan Documents without the prior written consent of Bank;
(d) Borrower acknowledges that Bank may provide information
regarding Borrower and the Loan to Bank's parent, subsidiaries and affiliates
and service providers in the ordinary course of business as required by law or
regulation, and
(e) This Agreement is an integrated agreement and supersedes
all prior negotiations and agreements regarding the subject matter hereof. Any
amendments hereto shall be in writing and be signed by all parties hereto.
IN WITNESS WHEREOF, the parties have executed this Business Loan
Agreement as of the date first set forth above.
5
<PAGE>
Borrower:
Accom, Inc.
1490 O'Brien Drive, Menlo Park, CA 94025
By: /s/ ROBERT L. WILSON
------------------------------------------
Title: Exec VP C.O.O. CFO
------------------------------------------
Comerica Bank-California
("Bank")
By: /s/ AMY AZAR
------------------------------------------
Title: AVP
------------------------------------------
6
<PAGE>
ADDENDUM A TO BUSINESS LOAN AGREEMENT
1. Definitions Relating to Financial Covenants.
Cash Flow as used in this Agreement means for any applicable
period of determination, the net income (after deduction for income taxes and
other taxes of Borrower or its subsidiaries, determined by reference to income
or profits of Borrower or its subsidiaries) for such period, plus, to the extent
deducted in computation of such net income, the amount of depreciation and
amortization expense and the amount of deferred tax liability during such
period, all as determined in accordance with GAAP. The applicable period of
determination will be N/A, beginning with the period from N/A.
Current Assets as used in this Agreement means as of any
applicable date of determination, all cash, non-affiliated accounts receivable,
United States government securities and/or claims against the United States
government, securities acceptable to Bank inventories of Borrower and its
subsidiaries.
Current Liabilities as used in this Agreement means as of any
applicable date of determination, (i) all liabilities of Borrower or its
subsidiaries that should be classified as current in accordance with GAAP,
including without limitation any portion of the principal of the Indebtedness
under this Agreement, the Note and/or the Loan Documents classified as current,
plus (ii) to the extent not otherwise included, all liabilities of Borrower to
any of its affiliates (including officers, directors, subsidiaries and commonly
held companies), whether or not classified as current in accordance with GAAP.
Fixed Charges as used in this Agreement means as of any
applicable period of determination with respect to Borrower and its
subsidiaries, the sum, without duplication, of (a) all interest paid or payable
during such period by Borrower or its subsidiaries on debt of such person; plus
(b) all payments of principal or other sums paid or payable during such period
by such person with respect to Debt having a final maturity more than one year
from the date of creation of such Debt; plus (c) all debt discount and expense
amortized or required to be amortized during such period by such person; plus
(d) the maximum amount of all rents and other payments paid or required to be
paid by such person during such period under any lease or other contract or
arrangement providing for use of real or personal property in respect of which
such person is obligated as a lessee, user or obligor; plus (e) all dividends
and other distributions paid or payable by Borrower or its subsidiaries or
otherwise accumulating during such period on any capital stock of Borrower or
its subsidiaries; plus (f) all loans or other advances made by Borrower or its
subsidiaries during such period to any affiliate of such person. The applicable
period of determination will be N/A, beginning with the period from N/A to N/A.
Quick Assets as used in this Agreement means as of any
applicable date of determination, the cash and net accounts receivable arising
from the sale of goods and services of Borrower and its subsidiaries.
Tangible Effective Net Worth as used in this Agreement means
net worth as determined in accordance with GAAP consistently applied as of any
applicable date of determination, increased by subordinated debt, if any, and
decreased by the following: Patents, licenses, goodwill, subscription lists,
organization expenses, trade accounts receivable converted to notes, money due
from affiliates (including officers, directors, subsidiaries and commonly held
companies), and any soft assets such as $100,000 invested in Lightscape.
Tangible Net Worth as used in this Agreement means, as of any
applicable date of determination, the excess of:
(a) the net book value of all assets of a person (other than
patents, patent rights, trademarks, trade names, franchises, copyrights,
licenses, goodwill and similar intangible assets) after all appropriate
deductions in accordance with GAAP (including, without limitation, reserves for
doubtful receivables, obsolescence, depreciation and amortization), over
(b) all total liabilities
Total Liabilities as used in this Agreement means as of any
applicable date, the total of all items of indebtedness, obligation or liability
which, in accordance with GAAP consistently applied, would be included in
determining the total liabilities of Borrower or its subsidiaries, including
without limitation (a) all obligations secured by any mortgage, pledge, security
interest or other lien on property owned or acquired, whether or not the
obligations secured thereby shall have been assumed; (b) all obligations which
are capitalized lease obligations; and (c) all guaranties, endorsements or other
contingent or surety obligations with respect to the indebtedness of others,
whether or not reflected on the balance sheets of Borrower or its subsidiaries,
including without limitation any obligation to furnish funds, directly or
indirectly through the purchase of goods, supplies, services, or by way of stock
purchase, capital contribution, advance or loan or any obligation to enter into
a contract for any of the foregoing.
Subordinated Debt as used in this Agreement means indebtedness
of Borrower to third parties which has been subordinated to all indebtedness
owing by Borrower to Bank pursuant to a subordination agreement in form and
content satisfactory to Bank.
7
<PAGE>
Working Capital as used in this Agreement means as of any
applicable date of determination, Current Assets less Current Liabilities.
Other. N/A
-------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. Financial Covenants. Borrower shall maintain the following financial
ratios and covenants on a and non-consolidated basis:
(a) Working Capital in an amount not less than N/A;
(b) Tangible Effective Net Worth in an amount less than N/A;
(c) a ratio of Current Assets to Current Liabilities of not
less than N/A;
(d) a ratio of Quick Assets to Current Liabilities of not less
than 1.5x;
(e) a ratio of Total Liabilities to Tangible Effective Net
Worth of less than .75x;
(f) a ratio of Cash Flow to Fixed Charges of not less than
N/A;
(g) No two consecutive quarters of losses with no one quarter
loss to exceed $250,000.
(h) Annual net profitability beginning with YE9/30/97.
(i) Annual YE9/30/96 net loss not to exceed $1,000,000.
[Initialed by RLW.]
(j) Borrower shall not without Bank's prior written consent
acquire or expend for or commit itself to acquire or expend for fixed assets by
lease, purchase or otherwise in an aggregate amount that exceeds n/a ($______)
except in any fiscal year;
(k) Borrower shall not, unless approved in writing by Bank,
merge into or otherwise consolidate with another person, corporation or
partnership nor shall it sell or otherwise dispose of assets in excess of n/a
($______) except in the ordinary course of Borrower's business; and
(l) Borrower shall not without Bank's prior written consent
pledge or otherwise hypothecate any of its assets except for n/a nor shall it
become liable for borrowed money or finance loans in excess of n/a ($_______)
during any fiscal year.
(m) Other applicable terms: Annual Bank A/R audits and annual
projections.
(n) Borrowings on line of credit not to exceed 100% of prior
month-end's gross accounts receivable.
All financial covenants shall be computed in accordance with GAAP consistently
applied except as otherwise specifically set forth in this Agreement. All monies
due from affiliates (including officers, directors and shareholders) shall be
excluded from Borrower's assets for all purposes hereunder.
/s/ RLW
- -------------------
Debtor's Initials
8
<PAGE>
Example B
$2,000 average service charges/quarter x 4=$8,000 service charges/year
$8,000 service charges/year divided by 5.10%
(earnings credit rate as of quarter end) = $156,862 average
investable balances to be
kept to cover service charges
$20,000 Bank fee/3% (Bank profit on demand deposits) = $666,666 investable
balances
9.98% Federal Reserve Requirement x ($666,666 + $156,862) = $82,188
Total balances to be held in general depository account = $905,716
========
If actual investable balance is lower than $905,716, a fee would be collected at
the end of the quarter. For example, if actual investable balance at the end of
the quarter was $535,000, then quarterly fee would be $2,780 calculated as
follows:
$905,716 - $535,000=$370,716 balance shortfall
$370,716 x 3% (Bank profit on demand deposits)=$11.121/4=$2,780 fee/quarter
==================
EXHIBIT 11.1
<TABLE>
ACCOM, INC.
STATEMENT RE COMPUTATION OF NET INCOME (LOSS) PER SHARE
(In thousands, except share data)
<CAPTION>
Fiscal Years Ended September 30,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Historical primary and fully diluted:
Shares used in calculation of net income (loss) per share:
Weighted average common stock outstanding 6,439,272 2,363,545 2,338,578
Series A preferred stock, if converted -- -- 1,478,965
Net effect of dilutive stock options assumed exercised, based on
the treasury stock method -- -- 239,238
Shares related to SAB Nos. 55, 64 and 83:
Stock Options (1) -- 139,788 186,384
Series B preferred stock, if-converted -- 312,686 416,914
------------ ------------ ------------
6,439,272 2,816,019 4,660,079
Net Income (loss) $ (916,000) $(10,840,000) $ 918,000
============ ============ ============
Net income (loss) per share $ (.14) $ (3.85) $ 0.20
============ ============ ============
Pro forma:
Shares used in calculation of pro forma net income (loss) per share: 2,363,546 2,338,578
Weighted average common stock outstanding 1,577,931 1,478,965
Series A preferred stock, if converted
Net effect of dilutive stock options assumed exercised, based on
the treasury stock method -- 239,238
Shares related to SAB Nos. 55, 64 and 83:
Stock Options (1) 139,788 186,384
Series B preferred stock, if-converted 312,686 416,914
------------ ------------
4,393,951 4,660,079
Net Income (loss) $(10,840,000) $ 918,000
============ ============
Pro forma net income (loss) per share $ (2.47) $ 0.20
============ ============
<FN>
(1) Assumed exercise of stock options granted during the 12 months ended
September 1995, and purchase of treasury stock at the assumed IPO Price
applied retroactively for all periods presented.
</FN>
</TABLE>
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
Accom Virtual Studio, Inc., a Delaware corporation ("AVS").
Accom Europe, Ltd., a United Kingdom corporation.
Accom International, Inc., a Barbados corporation.
Accom Virtual Studio GmbH, a German corporation ("AVS GmbH").
ELSET Electronic-Set GmbH, a German corporation, which is owned by AVS
and AVS GmbH.
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-97538) pertaining to the Accom, Inc. 1995 Stock Option/Stock Issuance
Plan and the Accom, Inc. Employee Stock Purchase Plan of our reports dated
October 29, 1996, with respect to the consolidated financial statements and the
schedule included in this Annual Report (Form 10-K) of Accom, Inc.
Ernst & Young LLP
Palo Alto, California
December 20,1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 4,221,000
<SECURITIES> 0
<RECEIVABLES> 4,937,000
<ALLOWANCES> (223,000)
<INVENTORY> 5,447,000
<CURRENT-ASSETS> 15,454,000
<PP&E> 3,952,000
<DEPRECIATION> (2,269,000)
<TOTAL-ASSETS> 17,279,000
<CURRENT-LIABILITIES> 4,283,000
<BONDS> 0
<COMMON> 6,000,000
0
0
<OTHER-SE> 6,952,000
<TOTAL-LIABILITY-AND-EQUITY> 17,279,000
<SALES> 21,408,000
<TOTAL-REVENUES> 0
<CGS> 11,010,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,019,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (209,000)
<INCOME-PRETAX> (1,412,000)
<INCOME-TAX> (496,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (916,000)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
