SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
|X| Definitive Proxy Statement Commission Only (as
permitted by
Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ACCOM, INC.
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(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
ACCOM, INC.
1490 O'Brien Drive
Menlo Park, CA 94025
Dear Fellow Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of Accom, Inc. ("Accom" or the "Company") which will be
held on Tuesday, July 20, 1999, at 10:00 a.m., local time, at the Company's
principal executive offices in Menlo Park, California.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (1) the election of six directors of the Company, (2) a
proposal to amend the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of the Company's
common stock, (3) a proposal to amend the Amended and Restated Certificate of
Incorporation of the Company to create a classified board of directors
consisting of three classes of directors and to adopt related provisions, (4) a
proposal to amend the Amended and Restated Certificate of Incorporation of the
Company to elect to be governed by the Delaware business combination statue, (5)
a proposal to amend the Company's 1995 Stock Incentive/Stock Issuance Plan; and
(6) the ratification of Ernst & Young LLP as independent auditors of the Company
for the calendar year ended December 31, 1999.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote IN FAVOR OF each
such proposal.
After reading the Proxy Statement, please mark, date, sign and return,
if possible by no later than July 13, 1999, the enclosed proxy card in the
accompanying reply envelope. If you decide to attend the Annual Meeting, please
notify the Secretary of the Company that you wish to vote in person and your
proxy will not be voted. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND
RETURN THE ENCLOSED PROXY, OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Accom, Inc. 1998 Transition Report on Form 10-K (for the
transition period from October 1, 1998 through December 31, 1998) and Quarterly
Report on Form 10-Q (for the quarter ended March 31, 1999) are also enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
Junaid Sheikh
Chairman of the Board of Directors,
President and Chief Executive Officer
Menlo Park, California
June 17, 1999
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IMPORTANT
Please mark, date and sign the enclosed proxy and return it at your earliest
convenience in the enclosed postage-prepaid return envelope so that if you are
unable to attend the Annual Meeting, your shares may be voted.
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<PAGE>
ACCOM, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 20, 1999
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The Annual Meeting of Stockholders (the "Annual Meeting") ofAccom, Inc.
("Accom" or the "Company") will be held at the Company's principal executive
offices at 1490 O'Brien Drive, Menlo Park, California 94025, on Tuesday, July
20, 1999, at 10:00 a.m., for the following purposes:
1. To elect a board of six directors as follows: (a) two directors to
serve a three-year term, two directors to serve a two-year term, and
two directors to serve a one-year term; or (b) if Proposal No. 3 is not
approved, six directors to hold office until the expiration of their
respective terms of office and until their respective successors are
duly elected and qualified.
2. To consider and vote upon a proposal to amend the Company's Amended and
Restated Certificate of Incorporation to increase the number of
authorized shares of the Company's Common Stock from 20,233,497 to
40,000,000, and the total number of shares of authorized stock from
22,233,497 to 42,000,000.
3. To consider and vote upon a proposal to (a) adopt classified board
provisions in the Company's Amended and Restated Certificate of
Incorporation to (i) implement a classified board of directors divided
into three classes of directors, with the term of office of one of the
three classes of directors expiring each year and with each class being
elected for a three-year term, (ii) provide that only the Board of
Directors, and not the stockholders, may set by resolution the number
of directors within the specified range of five (5) to nine (9), (iii)
provide that only the Board of Directors may fill vacancies on the
Board (unless no Board members remain) and that any director appointed
to fill a vacancy on the Board of Directors will serve for the
remainder of the full term of the class in which the vacancy occurred,
and (iv) require a vote of 66 2/3% of the Company's stockholders to
amend or repeal the foregoing classified board provisions (the
"Classified Board Provisions"); and (b) to amend the Company's Bylaws
to conform with the Classified Board Provisions.
4. To consider and vote upon a proposal to amend the Company's Amended and
Restated Certificate of Incorporation to provide that the Company
elects to be governed by the business combination statute set forth in
Section 203 of the Delaware General Corporation Law.
5. To consider and vote upon a proposal to amend the Company' 1995 Stock
Incentive/Stock Issuance Plan to provide that (a) the stock options
previously granted and to be granted to non-employee directors of the
Company be immediately vested and not subject to repurchase by the
Company and (b) each non-employee director be granted each year
fully-vested options to purchase 5,000 shares of Common Stock of the
Company.
6. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the Company's 1999 calendar year; and
7. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The record date for determining those
stockholders entitled to notice of, and to vote at, the Annual Meeting and any
adjournment thereof is June 10, 1999. A complete list of the stockholders
entitled to vote at the Annual Meeting will be available for inspection at the
offices of the Company for at least ten days prior to the Annual Meeting.
<PAGE>
All stockholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the meeting, please carefully read the
accompanying Proxy Statement which describes the matters to be voted upon at the
Annual Meeting and sign, date and return the enclosed proxy card in the reply
envelope provided. Should you receive more than one proxy because your shares
are registered in different names and addresses, each proxy should be returned
to assure that all your shares will be voted. If you attend the Annual Meeting
and vote by ballot, your proxy vote will be revoked automatically and only your
vote at the Annual Meeting will be counted. The prompt return of your proxy card
will assist us in preparing for the Annual Meeting.
By Order of the Board of Directors,
Donald K. McCauley,
Secretary
Menlo Park, California
June 17, 1999
<PAGE>
ACCOM, INC.
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
July 20, 1999
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This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors ofAccom, Inc., a Delaware
corporation ("Accom" or the "Company"), with principal executive offices at 1490
O'Brien Drive, Menlo Park, California 94025, to be voted upon at the Annual
Meeting of Stockholders on Tuesday, July 20, 1999 (the "Annual Meeting") and at
any adjournment or adjournments thereof.
These proxy materials were first mailed to stockholders on or about
June 17, 1999.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy Statement.
REVOCABILITY OF PROXIES
Any stockholder giving a proxy pursuant to this solicitation may revoke
it at any time prior to exercise of such proxy by providing written notice of
such revocation to the Secretary of the Company at its offices at 1490 O'Brien
Drive, Menlo Park, California 94025; by providing a duly executed proxy bearing
a later date; or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Stockholders of record at the close of business on June 10, 1999 are
entitled to notice of and to vote at the Annual Meeting. As of the close of
business on such date, the Company had 10,123,247 shares of Common Stock
outstanding and entitled to vote and approximately 100 stockholders of record,
including several holders who are nominees for an undetermined number of
beneficial owners. Each holder of Common Stock is entitled to one vote for each
share held as of the record date. The holders of a majority of the shares of
Common Stock outstanding on the record date and entitled to be voted at the
Annual Meeting, present in person or by proxy, will constitute a quorum for the
transaction of business at the Annual Meeting and any adjournments and
postponements thereof.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Shares abstained or subject to a broker
non-vote are counted as present for the purpose of determining the presence or
absence of a quorum for the transaction of business. For proposals other than
the election of directors, abstentions are counted in tabulations of the votes
cast on a proposal presented to stockholders and generally have the same effect
as a vote against the proposal, whereas broker non-votes are not counted for
purposes of determining whether a proposal has been approved. With regard to the
election of directors, votes may be cast in favor of the director or withheld.
Because directors are elected by plurality, abstentions from voting and broker
non-votes will be entirely excluded from the vote and will have no effect on its
outcome. If a quorum is present at the Annual Meeting, the nominees receiving
the greatest number of votes (up to six directors) will be elected.
Each proxy submitted by a stockholder will, unless otherwise directed
by the stockholder in the proxy, be voted FOR (a) election of the six director
nominees named herein (Proposal No. 1); (b) amendment of the Company's
<PAGE>
Amended and Restated Certificate of Incorporation (hereinafter, the "Certificate
of Incorporation") to increase the number of authorized shares of the Company's
Common Stock to 40,000,000 and the number of authorized shares of all capital
stock to 42,000,000 (Proposal No. 2); (c) amendment of the Company's Certificate
of Incorporation and Bylaws to add the Classified Board Provisions (Proposal No.
3); (d) amendment of the Company's Certificate of Incorporation to provide that
the Company elects to be governed by the business combination statute set forth
in Section 203 of the Delaware General Corporation Law (Proposal No. 4); (e)
amendment of the Company's 1995 Stock Incentive/Stock Issuance Plan, as amended
(the "Plan") to provide that the stock options previously granted and to be
granted to non-employee directors of the Company be immediately vested and not
subject to repurchase by the Company and that each non-employee director be
granted each year options to purchase 5,000 shares of Common Stock of the
Company (Proposal No. 5); and (f) ratification of Ernst & Young LLP as
independent auditors of the Company for 1999 (Proposal No. 6). The Company's
directors and executive officers (who currently hold Common Stock representing
approximately 53% of the Company's outstanding Common Stock) have indicated that
they intend to vote all shares of voting stock over which they exercise voting
power as of the record date for approval of each of the proposals described in
this Proxy Statement.
If a stockholder has submitted a proxy appropriately directing how the
shares represented thereby are to be voted, such shares will be voted according
to the stockholder's direction. Any stockholder has the power to revoke his or
her proxy at any time before it is voted at the Annual Meeting by submitting a
written notice of revocation to the Secretary of the Company or by filing a duly
executed proxy bearing a later date. A proxy will not be voted if the
stockholder who executed it is present at the Annual Meeting and elects to vote
the shares represented thereby in person.. If a stockholder has submitted a
proxy appropriately directing how the shares represented thereby are to be
voted, such shares will be voted according to the stockholder's direction. Any
stockholder has the power to revoke his or her proxy at any time before it is
voted at the Annual Meeting by submitting a written notice of revocation to the
Secretary of the Company or by filing a duly executed proxy bearing a later
date. A proxy will not be voted if the stockholder who executed it is present at
the Annual Meeting and elects to vote the shares represented thereby in person.
The Board of Directors reserves the right to withhold any proposal
described herein from a vote at the Annual Meeting if the Board of Directors
deems a vote on such proposal to be contrary to the best interests of the
Company and its stockholders. In such an event, the proposal withheld will be
neither adopted nor defeated.
The cost of soliciting these proxies consisting of the printing,
handling and mailing of the proxy card and related material and the actual
expense incurred by brokerage houses, custodians, nominees and fiduciaries in
forwarding proxy material to the beneficial owners of stock. These costs will be
paid by the Company. In order to assure a majority vote will be present in
person or by proxy at the Annual Meeting, it may be necessary for certain
officers, directors, regular employees and other representatives of the Company
to solicit proxies by telephone, facsimile, telegraph or electronic means or in
person. These persons will receive no extra compensation for their services. The
Company reserves the right to have an outside solicitor conduct the solicitation
of proxies and to pay such solicitor for its services.
Each of the following documents of the Company (collectively, the
"Company Reports") has been mailed to all stockholders entitled to notice of and
to vote at the Annual Meeting: (a) Transition Report on Form 10-K for the
transition period ended December 31, 1998, and (b) Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999. The Company Reports are not incorporated
into this Proxy Statement and are not considered proxy soliciting material.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
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Under the current charter documents, the Company's directors are
elected at each annual meeting of stockholders. Currently, the number of
authorized directors of the Company is six. At the Annual Meeting, six directors
will be elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified, provided however that the effect of
Proposal No. 3, if approved, would be to classify the Board of Directors into
three classes having staggered terms of three years each and make an initial
classification of the nominees as listed below. Such an amendment would
therefore extend the terms of two of the directors for two years and the term of
two other directors for one year. Each director would then serve until the
annual meeting of stockholders at which directors of his or her class are to be
elected and/or until their respective successors are duly elected and qualified.
If a quorum is present at the Annual Meeting, the nominees receiving the
greatest number of votes (up to six directors) will be elected.
All of the nominees for election as directors at the Annual Meeting set
forth in the table below are incumbent directors. Each of the nominees has
consented to serve as a director if elected. Except to the extent that authority
to vote for any directors is withheld in a proxy, shares represented by proxies
will be voted FOR such nominees. In the event that any of the nominees for
director should before the Annual Meeting become unable to serve if elected,
shares represented by proxies will be voted for such substitute nominees as may
be recommended by the Company's existing Board of Directors, unless other
directions are given in the proxies. Proxies cannot be voted for a greater
number of persons than the number of nominees herein. To the Company's
knowledge, all the nominees will be available to serve.
Information with Respect to Nominees
<TABLE>
Set forth below is information regarding the directors, including
information furnished by them as to their principal occupation at present and
for the last five years, certain other directorships held by them, the year in
which each became a director of the Company and their ages as of April 20, 1999.
There are no family relationships among any of the directors or executive
officers of the Company.
<CAPTION>
Class/End of Term of
Director Director if Classified
Nominees Position with the Company Age Since Board Approved
- -------- ------------------------- --- ----- --------------
<S> <C> <C> <C> <C>
Junaid Sheikh Chairman of the Board, President, 45 1988 Class 3/2002
and Chief Executive Officer
Lionel M. Allan Director 55 1995 Class 1/2000
Thomas E. Fanella Director 52 1997 Class 2/2001
David A. Lahar Director 41 1998 Class 2/2001
Eugene M. Matalene, Jr. Director 51 1999 Class 1/2000
Michael Luckwell Director 57 1999 Class 3/2002
</TABLE>
Business Experience of Board Nominees
Junaid Sheikh has served as the Chairman of the 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, a maker of on-line editing systems, from
May 1990 to October 1991.
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<PAGE>
Lionel M. Allan has served on the Board of Directors since April 1995.
Since March 1992, Mr. Allan has been President of Allan Advisors, Inc., a board
of directors and legal consulting firm. Mr. Allan also is a director and past
Chairman of the Board of KTEH Public Television Channel 54 in San Jose,
California, a director of Catalyst Semiconductor, Inc., a semiconductor company,
and a former director (from June 1994 to December 1998) of Global Motorsport
Group, Inc., a motorcycle products company.
Thomas E. Fanella has served on the Board of Directors since March
1997. Since August 1988, Mr. Fanella has been President and Chief Executive
Officer of KTEH Public Television Channel 54 in San Jose, California. Mr.
Fanella is also a director of the Catholic Television Network, the Pacific
Mountain Network and the Silicon Valley Forum.
David A. Lahar has served on the Board of Directors since February
1998. Since September 1992, Mr. Lahar has been a Managing Director of EOS
Capital, Inc., an investment, venture capital and consulting firm. From 1992 to
June 1996, Mr. Lahar was the President of Aurora Electronics, Inc. ("Aurora"), a
company which he co-founded and which is a provider of spare parts distribution
services and electronics recycling and recovery services to computer
manufacturers and field service providers. From 1986 to 1992, Mr. Lahar was a
Managing Director in the Investment Banking Division of PaineWebber
Incorporated.
Eugene M. Matalene, Jr. has served on the Board of Directors since
March 1999. Since 1997, Mr. Matalene has served as President of Strata Capital
Management Corp., a merchant bank. He was a Managing Director of Furman Selz, an
investment bank, from 1996 to 1997 and a Managing Director of PaineWebber
Incorporated, an investment bank, from 1989 to 1996. Mr. Matalene has been a
director of American Bankers Insurance Group, Inc., a specialty insurance
products company, since 1990.
Michael Luckwell has served on the Board of Directors since May 1999.
Since 1986, Mr. Luckwell's principal occupation has been as an individual
investor and a manager of his personal investments. In addition, for six months
in 1995, Mr. Luckwell served as the Chief Executive of Riverside Plc, a company
based in England which operated health and fitness centers. Mr. Luckwell has
been a director of HIT Entertainment Plc, a publicly traded entertainment
company based in England, since May 1993. In 1970, Mr. Luckwell founded The
Moving Picture Company, a leading European video facility and film and
television production company. In 1983, The Moving Picture Company was merged
with Carlton Communications Plc, and Mr. Luckwell served as the Managing
Director of Carlton until 1986.
Arrangements in Connection with the Election of Two Directors
On March 12, 1999, the Company issued 6% Senior Subordinated
Convertible Notes due March 12, 2004 (the "Convertible Notes") in the aggregate
principal amount of $3,500,000 to a group of six investors led by American
Bankers Insurance Group, Inc. ("American Bankers"), including Mr. Matalene. So
long as American Bankers holds either shares or Convertible Notes representing
at least 50% of the Company's Common Stock (the "Common Stock") issuable upon
conversion of the Convertible Notes, American Bankers has the right to nominate
an individual as a member of the Company's management slate of directors
submitted for election to the Company's Board of Directors (the "Board of
Directors"). American Bankers nominated Mr. Matalene, a director of American
Bankers. After the Company expanded its Board of Directors from four to five
directors, Mr. Matalene was appointed as the Company's fifth director in
accordance with the Company's Bylaws.
On December 10, 1998, the Company entered into a Stock Purchase
Agreement with Michael Luckwell, pursuant to which Mr. Luckwell purchased
$1,500,000 of Common Stock of the Company. Pursuant to the Stock Purchase
Agreement, Mr. Luckwell has the right to be nominated as a member of the
Company's management slate of directors submitted for election to the Company's
Board of Directors. Mr. Luckwell requested to be appointed to the Board of
Directors and, after the Company expanded its Board of Directors from five to
six directors, Mr. Luckwell was appointed as the Company's sixth director in
accordance with the Company's Bylaws.
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<PAGE>
Compensation of Directors
Of the Company's six directors, one director is a salaried employee of
the Company. Directors who are employees of the Company do not receive any
additional compensation or benefits for their service as directors.
The five remaining non-employee directors are compensated for their
services through the issuance of stock options. When first elected or appointed
as directors, non-employee directors are granted non-statutory stock options to
purchase 10,000 shares of Common Stock. Then, after each annual meeting, each
non-employee director currently receives options to purchase 2,500 shares of
Common Stock, provided the non-employee directors has served on the Board of
Directors for at least six months. All such options expire 10 years from the
date of grant, have an exercise price at the fair market value of the Common
Stock on the date of grant and are immediately exercisable. However, any shares
purchased under such options are subject to repurchase by the Company. The
Company's repurchase right with respect to the initial grant of options lapses
in a series of four equal annual installments over the director's period of
continued service, with the first such installment to lapse upon the director's
completion of one year of Board service measured from the date of grant. The
Company's repurchase right with annual grants lapses one year from the date of
grant.
In accordance with the Company's standard arrangements, the Company
made the following issuances in calendar year 1998. Mr. Lahar was issued 10,000
options upon his first becoming a director of the Company on February 17, 1998.
Messrs. Fanella and Mr. Allan were issued 2,500 options upon re-election as
directors of the Company on February 17, 1998. Mr. Matalene was issued 10,000
options upon his first becoming a director of the Company on March 12, 1999. Mr.
Luckwell was issued 10,000 options upon his first becoming a director of the
Company on May 4, 1999
If Proposal No. 5, described below, is approved by the stockholders,
then each non-employee director will be granted options to purchase 5,000 shares
of the Company's Common Stock each year (instead of 2,500 shares) and such
options will be immediately vested and exercisable and will not be subject to
repurchase by the Company. In addition, all outstanding options held by
non-employee directors will become immediately vested and exercisable and will
not be subject to repurchase by the Company.
See, also, "Certain Relationships and Related Transactions," below, for
a discussion of certain transactions between the Company and certain members of
the Board of Directors.
Board Meetings and Committees
The Board of Directors held a total of eight meetings in fiscal year
1998 (ending September 30, 1998) and one meeting during the transition period
from October 1, 1998 to December 31, 1998 (the "Transition Period"). Each
incumbent director attended at least 75% of the board meetings and meetings of
the committee on which they served during fiscal year 1998 and the Transition
Period. During fiscal year 1998, one meeting of the Audit Committee was held and
during the Transition Period no committee meetings were held. The Company's
Audit Committee is comprised of Messrs. Fanella and Lahar. The Company does not
have a compensation or nominating committee and did not during the last fiscal
year and the Transition Period.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Report of the Board of Directors
The Board of Directors has general responsibility for establishing the
compensation payable to the Company's executive officers and other key
executives and has the sole and exclusive authority to administer the Company's
1995 Stock Option/Stock Issuance Plan (the "Stock Option Plan") under which
grants may be made to such individuals. Until September 15, 1996, such functions
were performed by the Compensation Committee of the Board and are now performed
by the full Board of Directors.
General Compensation Policy. Under the supervision of the Board of
Directors, the Company's compensation policy is designed to attract and retain
qualified key executives critical to the Company's growth and
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<PAGE>
long-term success. It is the objective of the Board of Directors to have a
portion of each executive's compensation contingent upon the Company's
performance as well as upon the individual's personal performance. Accordingly,
each executive officer's compensation package is comprised of three elements:
(i) base salary which reflects individual performance and expertise, (ii)
variable bonus awards payable in cash and tied to the achievement of certain
performance goals for the Company or the executive and (iii) long-term,
stock-based incentive awards that are designed to strengthen the mutuality of
interests between the executive officers and the Company's stockholders. The
summary below describes in more detail the factors which the Board of Directors
considers in establishing each of the three primary components of the
compensation package provided to the executive officers.
Base Salary. The level of base salary is established primarily on the
basis of the individual's qualifications and relevant experience, the strategic
goals for which he has responsibility, the compensation levels at companies that
compete with the Company for business and executive talent, and the incentives
necessary to attract and retain qualified management. Base salary is reevaluated
each year to take into account the individual's performance and to maintain a
competitive salary structure. Company performance does not play a significant
role in the determination of base salary.
Cash-Based Incentive Compensation. Cash bonuses are awarded on a
discretionary basis to executive officers on the basis of their success in
achieving designated individual goals and the Company's success in achieving
specific company-wide goals, such as customer satisfaction, revenue growth and
earnings growth.
Long-Term Incentive Compensation. The Company has utilized the Stock
Option Plan to provide executives and other key employees with incentives to
maximize long-term stockholder values. Awards under this plan by the Board of
Directors take the form of stock options designed to give the recipient a
significant equity stake in the Company and thereby closely align his interests
with those of the Company's stockholders. Factors considered in making such
awards include the individual's position in the Company, his performance and
responsibilities, and internal comparability considerations. In addition, the
Board of Directors takes into account each individual's position with the
Company and his existing holdings of unvested options. Each option grant allows
the executive officer to acquire shares of Common Stock at a fixed price per
share (the fair market value on the date of grant) over a specified period of
time (up to 10 years). The options typically vest in periodic installments over
a four-year period, contingent upon the executive officer's continued employment
with the Company. Accordingly, the option will provide a return to the executive
officer only if he remains in the Company's service, and then only if the market
price of the Common Stock appreciates over the option term.
CEO Compensation. In setting the compensation payable during the 1998
calendar year to the Company's Chief Executive Officer, Junaid Sheikh, the Board
of Directors used the same factors as described above for the executive
officers. The Board established a combination compensation package for Mr.
Sheikh, including a base salary and stock option grants in line with those
received by other executives of comparably-sized companies in similar
industries. In December 1998, the Board granted Mr. Sheikh options to purchase
250,000 shares of common stock, a portion of which were general compensation
options commensurate with options granted to other officers and key employees of
the Company and a portion of which were in consideration of the extraordinary
efforts expended by Mr. Sheikh in the negotiation and consummation of the
Company's acquisition of Scitex Digital Video.
Report on Repriced Stock Options. In May 1998, the Board of Directors
determined that it was in the best interest of the Company to offer to reprice
the then-existing stock options of the Company with exercise prices in excess of
the then-current fair market value of the Company's Common Stock. The Company
also changed the vesting on all outstanding options from a five-year period to a
four-year period, with 25% of the shares vesting at the end of the first year
and the rest vesting equally over the following three years. Included in the
repricing actions were options held by the Company's executive officers and
certain directors, but not any of the options that had been automatically
granted to the non-employee directors pursuant to the Stock Option Plan. The
objectives of the Stock Option Plan are to promote the interests of the Company
by providing employees, certain directors, and certain consultants or
independent contractors an incentive to acquire a proprietary interest in the
Company and to continue to render services to the Company. It was the view of
the Board of Directors that stock options with exercise prices substantially
above the current market price of the Company's Common Stock were viewed
negatively by most optionees of the Company, and provided little, if any, equity
incentive to the optionees. The Board thus concluded that such option grants
seriously undermined the specific objectives of the Stock Option Plan and should
properly be repriced. In
6
<PAGE>
making this decision, the Board also considered the fairness of such a
determination in relation to other stockholders. In the opinion of the Board,
the stockholders' long-term best interests were clearly served by the retention
and motivation of optionees.
In this context, the Board decided that effective May 15, 1998 (the
"Grant Date") all optionees holding stock options with exercise prices in excess
of the fair market value of the Company's Common Stock should receive a
one-for-one repricing of their then-existing unexercised stock options with a
new exercise price set at $1.03125 per share, the fair market value of the
Company's Common Stock on the Grant Date. The Company completed this repricing
through a one-for-one stock option exchange of "underwater" stock options for
all optionees. The vesting schedule of the new options, as well as all other
options, was changed from a vesting schedule over a five-year period to a
vesting schedule over a four-year period (with 25% vesting after one year and
the balance vesting on a equal monthly basis thereafter). The exchange was
completed in May 1998. It is the opinion of the Board of Directors that this
program helped build optionee morale and provided new incentives for the
Company's employees and management.
The Board of Directors
Junaid Sheikh
Lionel M. Allan
Thomas E. Fanella
David A. Lahar
Michael Luckwell
Eugene M. Matalene, Jr.
Compensation Committee Interlocks and Insider Participation
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Board of Directors. Mr. Sheikh,
Chairman of the Board of Directors, is also President and Chief Executive
Officer of the Company. Mr. Sheikh participated in deliberations of the Board of
Directors concerning executive officer compensation.
Stock Performance Graph
The following graph shows a comparison of cumulative total stockholder
returns for the Company, the Nasdaq Total Return Index, and the Hambrecht &
Quist Technology Index for the period commencing September 26, 1995, the date of
the initial public offering of the Company's Common Stock, to the last day of
the Company's fiscal year on December 31, 1998.
<TABLE>
[The following descriptive data is supplied in accordance with Rule
304(d) of Regulation S-T.]
<CAPTION>
9/26/95 9/30/95 9/30/96 9/30/97 9/30/98 12/31/98
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Accom, Inc. $100 $ 97.22 $ 22.22 $ 29.17 $ 4.17 $ 6.94
NASDAQ Total Return Index $100 $100.55 $119.31 $163.79 $164.19 $211.23
Hambrecht & Quist Technology Index $100 $101.14 $111.02 $165.53 $153.80 $217.10
</TABLE>
7
<PAGE>
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, which might incorporate future
filings made by the Company under those statutes, the preceding Report of the
Board of Directors on Executive Compensation and Stock Performance Graph are not
to be incorporated by reference into any of those previous filings; nor is such
report or graph to be incorporated by reference into any future filings which
the Company may make under those statutes.
Summary of Cash and Certain Other Compensation
The following Summary Compensation Table sets forth the compensation
earned by the Company's Chief Executive Officer and the three other highest-paid
executive officers whose salary and bonus for the calendar year ended December
31, 1998 was in excess of $100,000 (collectively, the "Named Officers") for
services rendered in all capacities to the Company for that calendar year. As a
result of the change in the Company's fiscal year from September 30 to December
31 in December 1998, the table below reflects compensation information for the
calendar year 1998 and for fiscal years ended September 30, 1996, 1997 and 1998.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Long-Term
Compensation Compensation
Fiscal ------------------------ --------------- --------------
Year Securities All Other
Name and Present Ended Calendar Bonus Underlying Compensation
Principal Position Sept. 30 Year Salary ($) ($) (1) Options (#)* ($)
- ----------------------------------- -------- ---------- ---------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Junaid Sheikh...................... 1998 $176,973 $0 397,286 (2) $2,782 (5)
President, Chief Executive 1998 $170,528 $0 147,286 (2) $2,722 (5)
Officer and Chairman of the Board 1997 $149,220 $0 87,286 (3) $866 (5)
1996 $159,644 $0 137,286 (4) $2,266 (5)
Ian Craven......................... 1998 $145,000 $2,000 98,125 (6) $1,458 (5)
Senior Vice President, 1998 $141,596 $2,000 88,125 (6) $1,449 (5)
Engineering 1997 $130,000 $5,000 58,125 (7) $351 (5)
1996 $129,000 $0 33,125 (8) $1,203 (5)
Harris Rogers...................... 1998 $128,199 $0 65,499 (9) $554 (12)
Vice President, Marketing 1998 $118,199 $1,000 65,499 (9) $492 (12)
1997 $101,439 $4,716 54,166 (10) $351 (12)
1996 $ 84,251 $1,439 34,166 (11) $369 (12)
Donald Petersen.................... 1998 $128,115 $0 117,916 (13) $553 (12)
Vice President, Manufacturing 1998 $124,345 $0 107,916 (13) $549 (12)
1997 $111,416 $5,000 75,833 (14) $330 (12)
1996 $105,502 $0 50,833 (15) $347 (12)
<FN>
- ------------------
(*) Includes options repriced in the fiscal years ending September 30, 1996 and 1997.
(1) Represents bonus compensation earned in such calendar year.
(2) Includes options to purchase 87,286 shares of the Company's Common Stock that were canceled on May 15, 1998 and
repriced to $1.03125 per share. See "Option Grants in Last Calendar Year" below.
(3) Represents options to purchase 87,286 shares of the Company's Common Stock that were canceled on February 18, 1997
and repriced to $1.3125 per share.
(4) Includes options to purchase 54,166 shares of the Company's Common Stock that were canceled on April 23, 1996 and
repriced to $3.25 per share.
(5) Represents standard life insurance and key man insurance premiums paid by the Company for the benefit of the named
Officer.
8
<PAGE>
(6) Includes options to purchase 58,125 shares of the Company's Common Stock that were canceled on May 15, 1998 and
repriced to $1.03125 per share. See "Option Grants in Last Calendar Year" below.
(7) Includes options to purchase 18,125 shares of the Company's Common Stock that were canceled on February 18, 1997 and
repriced to $1.3125 per share.
(8) Includes options to purchase 18,125 shares of the Company's Common Stock that were canceled on April 23, 1996 and
repriced to $3.25 per share.
(9) Includes options to purchase 45,499 shares of the Company's Common Stock that were canceled on May 15, 1998 and
repriced to $1.03125 per share. See "Option Grants in Last Calendar Year" below.
(10) Represents options to purchase 34,166 shares of the Company's Common Stock that were canceled on February 18, 1997
and repriced to $1.3125 per share.
(11) Includes options to purchase 14,166 of the Company's Common Stock that were canceled on April 23, 1996 and repriced
to $3.25 per share.
(12) Represents standard life insurance premiums paid by the Company for the benefit of the Named Officer.
(13) Includes options to purchase 75,833 shares of the Company's Common Stock that were canceled on May 15, 1998 and
repriced to $1.03125 per share. See "Option Grants in Last Calendar Year" below.
(14) Includes options to purchase 35,833 shares of the Company's Common Stock that were canceled on February 18, 1997 and
repriced to $1.3125 per share.
(15) Includes options to purchase 35,833 shares of the Company's Common Stock that were canceled on April 23, 1996 and
repriced to $3.25 per share.
</FN>
</TABLE>
Option Grants
The following table provides information with respect to the stock
option grants made during the year ended December 31, 1998 under the Company's
1995 Stock Option/Stock Issuance Plan to the Named Officers. No stock
appreciation rights were granted to these individuals during such calendar year.
<TABLE>
OPTION GRANTS IN LAST CALENDAR YEAR
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rate of Stock
Price Appreciation
Individual Grants for Option Term
------------------------------------------------------------- ----------------------
% of Total
Options
Granted to Exercise
Options Employees in Price (2) Expiration
Name Granted Calendar Year(1) ($/share) Date 5% ($)(3) 10% ($)(3)
- ---- ------- ---------------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Junaid Sheikh 250,000(4) 23.7% $0.6500 12/04/08 41,112 161,718
60,000(5) 5.7% $0.8750 2/05/08 33,017 83,671
4,166(6) N/A $1.0313 1/19/05 1,656 3,826
50,000(6) N/A $1.0313 1/15/06 23,407 55,557
33,120(6) N/A $1.0313 9/03/06 17,062 41,212
Ian Craven 10,000(4) 0.9% $0.6500 12/04/08 1,644 6,469
30,000(5) 2.8% $0.8750 2/05/08 16,508 41,836
40,000(6) N/A $1.0313 3/14/07 22,214 54,453
3,125(6) N/A $1.0313 1/15/05 1,240 2,864
15,000(6) N/A $1.0313 1/15/06 7,022 16,667
9
<PAGE>
Potential Realizable
Value at Assumed Annual
Rate of Stock
Price Appreciation
Individual Grants for Option Term
------------------------------------------------------------- ----------------------
% of Total
Options
Granted to Exercise
Options Employees in Price (2) Expiration
Name Granted Calendar Year(1) ($/share) Date 5% ($)(3) 10% ($)(3)
- ---- ------- ---------------- --------- -------- --------- ----------
Harris Rogers 20,000(5) 1.9% $0.8750 2/05/08 11,005 27,890
20,000(6) N/A $1.0313 3/14/07 11,007 27,227
15,000(6) N/A $1.0313 7/10/06 7,557 18,178
2,499(6) N/A $1.0313 7/01/05 1,072 2,507
8,000(6) N/A $1.0313 1/15/06 3,745 8,889
Donald W. Petersen 10,000(4) 0.9% $0.6500 12/04/08 1,644 6,469
30,000(5) 2.8% $0.8750 2/05/08 16,508 41,836
40,000(6) N/A $1.0313 3/14/07 22,214 54,453
20,833(6) N/A $1.0313 10/10/04 7,882 18,076
15,000(6) N/A $1.0313 1/15/06 7,022 16,667
<FN>
- ------------------
(1) The percentages shown are based upon the options granted in calendar year 1998, excluding repriced
options.
(2) The exercise price may be paid in cash, in shares of Common Stock valued at fair market value on the
exercise date or through a cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the optionee sufficient funds to
pay the exercise price for the purchased shares and the federal and state income tax liability
incurred by the optionee in connection with such exercise.
(3) Disclosure of the 5% and 10% assumed annual rates of compounded stock price appreciation is mandated
by the Securities and Exchange Commission. There is no assurance provided to any executive officer or
any other holder of the Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any other defined level. Unless
the market price of the Common Stock appreciates over the option term, no value will be realized from
the option grants made to the executive officers.
(4) 25% of these options vest on December 4, 1999, and thereafter one 1/36th of the remaining unvested
options vest each month. The Board of Directors also has the authority to provide for the automatic
vesting of shares subject to the outstanding option upon the occurrence of certain hostile takeovers.
Each option has a maximum term of 10 years, subject to earlier termination in the event of the
optionee's cessation of employment with the Company.
(5) 25% of these options vest on February 5, 1999, and thereafter one 1/36th of the remaining unvested
options vest each month. The Board of Directors also has the authority to provide for the automatic
vesting of shares subject to the outstanding option upon the occurrence of certain hostile takeovers.
Each option has a maximum term of 10 years, subject to earlier termination in the event of the
optionee's cessation of employment with the Company.
(6) Represents option granted on May 15, 1998 in connection with the cancellation of an existing
outstanding option with an exercise price in excess of $1.0313 per share. Concomitant with the
repricing on May 15, 1998, the vesting schedule for these options changed. Under the previous method,
options vested in five equal annual installments with 20% of the option shares vesting on a cliff
basis after each year of service. Under the new method, options will vest and be exercisable with
respect to 25% of the option shares after one year of service, and 1/36th per month for each month of
service thereafter. See "Ten-Year Option/SAR Repricings" below.
</FN>
</TABLE>
10
<PAGE>
Option Exercises and Holdings
<TABLE>
The table below sets forth information concerning the exercise of
options during the calendar year ended December 31, 1998 and unexercised options
held as of the end of such year by the Named Officers. No stock appreciation
rights were exercised during such calendar year or outstanding as of the end of
that calendar year.
AGGREGATED OPTION EXERCISES IN LAST CALENDAR YEAR
AND CALENDAR YEAR-END OPTION VALUES
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Shares Aggregate Unexercised Options at In-the-Money Options at
Acquired On Value Realized Calendar Year End Calendar Year End (1)
Name Exercise ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------------- ---------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Junaid Sheikh 0 $0 73,657 / 323,629 $0 / $0
Ian Craven 0 $0 31,496 / 66,629 $0 / $0
Harris Rogers 0 $0 24,994 / 40,505 $0 / $0
Donald W. Petersen 0 $0 51,353 / 66,563 $302 / $0
<FN>
- ---------------
(1) Market price at calendar year end ($0.625) less exercise price. For purposes of this calculation, the
calendar year end market price of the shares is deemed to be the closing sale price of the Company's
Common Stock as reported on the Over-the-Counter Bulletin Board on December 31, 1998.
</FN>
</TABLE>
Ten-Year Option/SAR Repricings
<TABLE>
The following table sets forth certain information as of December 31,
1998 with respect to the repricing of certain stock options held by the
Company's executive officers.
<CAPTION>
Market
Number Of Price Of Exercise Length Of
Securities Stock At Price At Original
Underlying Time Of Time Of Option Term
Options Repricing Repricing Remaining
Repriced Or Or New At Date Of
Or Amended Amendment Amendment Exercise Repricing
Name Date (#) ($) ($) Price ($) Or Amendment
- ------------------------------------- ---------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Junaid Sheikh (1)................ 5/15/98 4,166 $1.03125 $1.3125 $1.03125 6.7 years
5/15/98 50,000 $1.03125 $1.3125 $1.03125 7.7 years
President, Chief Executive 5/15/98 33,120 $1.03125 $1.3125 $1.03125 8.3 years
Officer and Chairman of the Board 2/18/97 4,166 $1.3125 $3.25 $1.3125 7.9 years
2/18/97 50,000 $1.3125 $3.25 $1.3125 8.9 years
2/18/97 33,120 $1.3125 $1.88 $1.3125 9.5 years
4/23/96 4,166 $3.25 $4.80 $3.25 8.7 years
4/23/96 50,000 $3.25 $5.75 $3.25 9.7 years
Ian Craven (1)................... 5/15/98 3,125 $1.03125 $1.3125 $1.03125 6.7 years
5/15/98 15,000 $1.03125 $1.3125 $1.03125 7.7 years
Senior Vice President, 5/15/98 40,000 $1.03125 $1.3125 $1.03125 8.8 years
Engineering 2/18/97 3,125 $1.3125 $3.25 $1.3125 7.9 years
2/18/97 15,000 $1.3125 $3.25 $1.3125 8.9 years
4/23/96 3,125 $3.25 $4.80 $3.25 8.7 years
4/23/96 15,000 $3.25 $5.75 $3.25 9.7 years
11
<PAGE>
Harris Rogers (1)................ 5/15/98 15,000 $1.03125 $1.3125 $1.03125 8.2 years
5/15/98 2,499 $1.03125 $1.3125 $1.03125 7.1 years
Vice President, Marketing 5/15/98 8,000 $1.03125 $1.3125 $1.03125 7.7 years
5/15/98 20,000 $1.03125 $1.25 $1.03125 8.8 years
2/18/97 15,000 $1.3125 $3.25 $1.3125 9.4 years
2/18/97 4,166 $1.3125 $3.25 $1.3125 8.4 years
2/18/97 10,000 $1.3125 $3.25 $1.3125 8.9 years
2/18/97 5,000 $1.3125 $3.25 $1.3125 9.4 years
4/23/96 4,166 $3.25 $6.00 $3.25 9.2 years
4/23/96 10,000 $3.25 $5.75 $3.25 9.7 years
Donald W. Petersen (1)........... 5/15/98 20,833 $1.03125 $1.31 $1.03125 6.4 years
5/15/98 15,000 $1.03125 $1.31 $1.03125 7.7 years
Vice President, Manufacturing 5/15/98 40,000 $1.03125 $1.31 $1.03125 8.8 years
2/18/97 20,833 $1.3125 $3.25 $1.3125 7.9 years
2/18/97 15,000 $1.3125 $3.25 $1.3125 8.9 years
4/23/96 20,833 $3.25 $4.80 $3.25 8.7 years
4/23/96 15,000 $3.25 $5.75 $3.25 9.7 years
<FN>
- ---------------
(1) The Company repriced certain options in April 1996, February 1997 and May 1998. In each instance, in order
to reincentivize certain of its employees, the Compensation Committee of the Board of Directors or the Board
of Directors itself approved an option exchange for all employees holding options with an exercise price in
excess of the then current fair market value (which is the price set forth in the column entitled "Market
Price Of Stock At Time Of Repricing Or Amendment" above); such repricings entitled each such employee to
cancel their outstanding options in exchange for new options with an exercise price equal to the then
current fair market value of the Company's Common Stock on the date of the approval by the Board of
Directors or Compensation Committee. In the April 1996 and February 1997 repricings, the new options were
subject to the same vesting schedule as the canceled options, including the same original vesting
commencement date. In the May 1998 repricing, the new options were amended to vest as follows: 25% of each
grant vests on the original vesting commencement date, and thereafter, one 1/36th of the remaining unvested
options of each grant vest each month for the next three years.
</FN>
</TABLE>
12
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than ten percent (10%) of the Company's
outstanding Common Stock are subject to the reporting requirements of Section
16(a) of the Securities Exchange Act of 1934, which requires such individuals to
file reports with respect to their ownership of and transactions in the
Company's securities. Officers, directors and greater than ten percent (10%)
stockholders are required to furnish the Company with copies of all such reports
they file. Based solely on its review of the copies of such forms received by
it, or written representations from certain reporting persons that no Forms 5
were required for those persons, the Company believes that, during the fiscal
year ended September 30, 1998 and the Transition Period ended December 31, 1998
all filing requirements applicable to its officers, directors, and greater than
ten-percent beneficial owners were complied with except that (i) each of Messrs.
Junaid Sheikh, Ian Craven, Harris Rogers, Donald Petersen, Paul Hansil and
Lionel Allan failed to timely file a year-end report of Form 5 to reflect the
repricing of outstanding options in May 1998, but have subsequently reported
such repricing transactions on a Form 5 and (ii) a Form 3 for Mr. Donald
McCauley was filed late.
COMMON STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of May
31, 1999 by (i) all persons who are beneficial owners of five percent or more of
the Company's Common Stock, (ii) each director, (iii) each executive officer of
the Company, and (iv) all current directors and executive officers as a group.
<CAPTION>
Name and Address,
if Required, of Shares Percent of Shares
Beneficial Owner Beneficially Owned (1)(2) Beneficially Owned (1)(2)
---------------- ------------------------- -------------------------
<S> <C> <C>
Michael Luckwell (3)............................... 3,428,750 33.8%
26 Catherine Place
London SW1E 6HF
American Bankers Insurance Group, Inc. (4)......... 2,307,692 18.6%
11222 Quail Roost Drive
Miami, FL 33157
El Dorado Ventures and affiliated entities (5)..... 988,782 9.8%
20300 Stevens Creek Boulevard
Suite 395
Cupertino, CA 95014
Scitex Digital Video, Inc. (6)..................... 1,000,000 9.0%
c/o Scitex Corporation Ltd.
P.O. Box 330
Herzilya B 46103 Israel
AWM Investment Company and affiliates (7).......... 534,400 5.3%
153 East 53 rd Street, 51st Floor
New York, NY 10022
Junaid Sheikh (8).................................. 1,014,960 9.9%
Phillip Bennett (9)................................ 750,000 7.4%
Ian Craven (10).................................... 125,864 1.2%
Donald W. Petersen (11)............................ 69,999 *
Harris Rogers (12)................................. 39,248 *
Donald K. McCauley (13)............................ 0 *
13
<PAGE>
Name and Address,
if Required, of Shares Percent of Shares
Beneficial Owner Beneficially Owned (1)(2) Beneficially Owned (1)(2)
---------------- ------------------------- -------------------------
William Ludwig (13)................................ 0 *
Lionel M. Allan (14)............................... 167,784 1.6%
Thomas E. Fanella (15)............................. 12,500 *
David A. Lahar (16)................................ 110,000 1.1%
Eugene M. Matalene, Jr.(17)........................ 86,923 *
All executive officers and directors as
a group (12 persons) (18)...................... 5,806,028 55.0%
<FN>
- ----------
* Less than one percent (1%).
(1) Except as indicated in the footnotes to this table and pursuant to applicable community property laws,
the Company believes that persons named in the table have sole voting and investment power with
respect to all shares of Common Stock held by such person.
(2) The number of shares of Common Stock beneficially owned includes the shares issuable pursuant to stock
options which may be exercised within 60 days after May 31, 1999. Shares issuable pursuant to such
options are deemed outstanding for computing the percentage of the person holding such options but are
not outstanding for computing the percentage of any other person.
(3) Includes 10,000 shares issuable upon currently exercisable options held by Mr. Luckwell, all of which
shares are currently subject to a repurchase right of the Company.
(4) Includes the shares issuable upon conversion of the 6% Senior Subordinated Convertible Note due March
12, 2004 (the "Convertible Notes") in the aggregate principal amount of $3,000,000 held by American
Bankers Insurance Group, Inc. The Convertible Notes convert into that number of shares as calculated
by dividing the outstanding principal amount of such Convertible Notes by a conversion price of $1.30,
subject to adjustment. As of May 31, 1999, the $3,000,000 Convertible Note held by American Bankers
Insurance Group, Inc. converts into 2,307,692 shares.
(5) Reflects share ownership as of December 31, 1998, based on the Company's records. Includes 10,334
shares of Common Stock owned by El Dorado C&L Fund, L.P.; 5,765 shares of Common Stock owned by El
Dorado Technology IV, L.P.; 452,326 shares of Common Stock owned by El Dorado Ventures; and 520,357
shares of Common Stock owned by El Dorado Ventures III, L.P. Such information is based upon the
Company's knowledge after investigation, but without independent confirmation from such entities.
(6) Includes a currently exercisable warrant to purchase 250,000 shares of the Company's Common Stock at
$1.00 per share and a currently exercisable warrant to purchase 750,000 shares of the Company's Common
Stock at $3.00 per share. Both warrants terminate upon the earlier to occur of (a) December 10, 2008
or (b) an acquisition or change in control of the Company.
(7) Reflects share ownership as of December 31, 1998, based on the Company's records. Such shares are
beneficially owned by (i) Special Situations Fund III, L.P., a Delaware limited partnership (the
"Fund"), (ii) MGP Advisers Limited Partnership, a Delaware Limited Partnership ("MGP"), (iii) AWM
Investment Company, Inc., a Delaware corporation ("AWM") and (iv) Austin W. Marxe. MGP is a general
partner of and investment adviser to the Fund. MGP is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. AWM, a Delaware corporation primarily owned by Austin
Marxe, serves as the sole general partner of MGP. AWM is a registered investment adviser under the
Investment Advisers Act of 1940. Austin W. Marxe is also the principal limited partner of MGP and is
the President and Chief Executive Officer of AWM. Mr. Marxe is principally responsible for the
selection, acquisition and disposition of the portfolio securities by AWM on behalf of MGP and the
Fund. Such information is based upon the Company's knowledge after investigation, but without
independent confirmation from such entities.
(8) Includes 102,286 shares issuable upon currently exercisable options held by Mr. Sheikh. Also includes
912,674 shares owned indirectly by Mr. Sheikh and Mr. Sheikh's wife as Trustees of the Sheikh
Revocable Trust.
(9) Includes 650,000 shares subject to a repurchase right of the Company, at the issuance price, which
lapses in equal monthly increments over a period of three years, beginning December 1998.
(10) Includes 50,208 shares issuable upon currently exercisable options held by Mr. Craven.
(11) Represents 69,999 shares issuable upon currently exercisable options held by Mr. Petersen.
(12) Includes 39,248 shares issuable upon currently exercisable options held by Mr. Rogers.
(13) Messrs. McCauley and Ludwig joined the Company in December, 1998.
14
<PAGE>
(14) Includes 54,912 shares issuable upon currently exercisable options held by Mr. Allan. Also includes
12,456 shares owned indirectly by Mr. Allan as the beneficiary of the Allan Advisors, Inc. Profit
Sharing Plan FBO Lionel M. Allan. Also includes 100,000 shares which are subject to a repurchase right
of the Company, at the issuance price, which lapses with respect to one-third of the shares after one
year and then with respect to the remaining shares in equal monthly increments over the two years
thereafter, beginning in December 1998.
(15) Represents shares issuable upon currently exercisable options held by Mr. Fanella, 5,000 of which
shares are currently subject to a repurchase right of the Company.
(16) Includes 10,000 shares issuable upon currently exercisable options held by Mr. Lahar, 7,500 of which
shares are currently subject to a repurchase right of the Company. Also includes 100,000 shares which
are subject to a repurchase right of the Company, at the issuance price, which lapses with respect to
one-third of the shares after one year and then with respect to the remaining shares in equal monthly
increments over the two years thereafter, beginning in December, 1998.
(17) Includes 10,000 shares issuable upon currently exercisable options held by Mr. Matalene, all of which
shares are currently subject to a repurchase right of the Company. Also includes the shares issuable
upon conversion of the Convertible Notes in the aggregate principal amount of $100,000 held by Mr.
Matalene. The Convertible Notes convert into that number of shares as calculated by dividing the
outstanding principal amount of such Convertible Notes by a conversion price of $1.30, subject to
adjustment. As of May 31, 1999, the $100,000 Convertible Note held by Mr. Matalene converts into
76,923 shares.
(18) Includes 359,153 shares issuable upon currently exercisable options. See Footnotes above.
</FN>
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 4, 1998, the Company entered into an agreement with Phillip
Bennett, as an inducement to Mr. Bennett to join the Company as Executive Vice
President, Technology and Engineering, which provided for the sale by the
Company to Mr. Bennett of 750,000 shares of Common Stock. Of such shares,
100,000 shares were sold at $0.50 per share for cash, 300,000 shares were sold
at $0.50 per share in consideration of the delivery by Mr. Bennett of a
non-recourse promissory note, and 350,000 shares were sold at $1.00 per share in
consideration of the delivery by Mr. Bennett of a non-recourse promissory note.
The 650,000 shares issued in consideration of the delivery of the promissory
note are subject to a repurchase right of the Company, at the issuance price,
which lapses in equal monthly increments over a period of three years.
On December 7, 1998, the Company entered into agreements with each of
Messrs. Allan and Lahar, directors of the Company, pursuant to which the Company
issued 100,000 shares of Common Stock to each of them. The shares were issued at
a price of $0.65 per share. In consideration of his shares, Mr. Allan delivered
a non-recourse promissory note in the amount of $65,000. In exchange for his
shares, Mr. Lahar has delivered a recourse promissory note, as amended, due
September 1, 1999 in the amount of $65,000. The shares issued are subject to a
repurchase right of the Company, at the issuance price, which lapses with
respect to one-third of the shares after one year and then with respect to the
remaining shares in equal monthly increments over the two years thereafter. The
Company approved the sale of such shares to Messrs. Allan and Lahar primarily in
recognition of their significant efforts related to the acquisition by the
Company of substantially all of the assets of Scitex Digital Video, Inc.
("Scitex") which was consummated on December 10, 1998.
On December 10, 1998, the Company sold and issued 2,500,000 shares of
unregistered Common Stock, at a price of $0.60 per share, to Michael Luckwell, a
major stockholder of the Company, in a private placement. The purpose of the
sale of shares to Mr. Luckwell was to provide the Company with additional
capital in connection with the purchase by the Company of substantially all of
the assets of Scitex. The Company purchased the assets of Scitex concurrently
with the sale of the shares to Mr. Luckwell. In connection with such
transaction, the Company granted Mr. Luckwell the right to be nominated to the
Board of Directors of the Company so long as he holds more than 15% of the
outstanding shares of Common Stock of the Company, and the Company agreed to use
its best efforts to take all required steps to effect the nomination, including
any required amendment of the Company's charter documents. The Company also
granted to Mr. Luckwell certain demand and piggyback registration rights with
respect to all of the shares of Common Stock held by Mr. Luckwell. In addition,
Mr. Luckwell agreed that, for so long as Junaid Sheikh is the Chief Executive
Officer of the Company, he would not, directly or indirectly, acquire beneficial
ownership of any additional stock of the Company. Mr. Luckwell also agreed that
he would not initiate, commence or propose any proxy contest or other
solicitation to vote or seek to influence any other person with respect to the
voting of any stock
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of the Company with respect to the election or removal of the Board of
Directors, nor become a member of a "group" within the meaning of Section 13 of
the Securities Exchange Act of 1934, as amended. The Company and Mr. Luckwell
additionally agreed upon certain restrictions on transfers of the Company's
stock held by Mr. Luckwell. Prior to the sale of shares to Mr. Luckwell, the
Company amended its Preferred Shares Rights Agreement, dated as of September 13,
1996, to permit Mr. Luckwell to acquire up to 3,425,000 shares of Common Stock
(as adjusted for any stock splits, stock dividends, recapitalizations or the
like). Subsequently, on May 4, 1999, the Company again amended its Preferred
Shares Rights Agreement to permit Mr. Luckwell to acquire up to 3,437,000 shares
of Common Stock (as adjusted for any stock splits, stock dividends,
recapitalizations or the like), in order to allow for Mr. Luckwell to be granted
and to exercise options for non-employee directors.
In connection with the acquisition of substantially all of the assets
of Scitex, the Company retained EOS Capital, Inc. to provide investment banking,
capital raising and financial consulting services, including seeking necessary
debt financing, obtaining a commitment from a lender and negotiating the
financial and other terms of the financing, as well as financial analysis
concerning the acquisition. Mr. Lahar, a director of the Company, is a managing
director and the sole equity owner of EOS Capital. Upon consummation of the
acquisition of the assets of Scitex, EOS Capital earned a $300,000 payment from
the Company for its services. Such amount was negotiated on an arm's length
basis and the Company believes that such amount and the terms of the agreement
with EOS Capital are at least as favorable as the Company could have obtained
from third parties.
In connection with the issuance of the Convertible Notes in the
aggregate principal amount of $3,500,000, the Company retained EOS Capital, Inc.
to provide further financial consulting services. Upon consummation of the
issuance of the Notes, EOS Capital earned a $87,500 consulting fee to be paid by
the Company for its services. Upon the consummation of the issuance, Mr.
Matalene also earned a $87,500 consulting fee to be paid by the Company for his
financial consulting services. Mr. Matalene, who became a director of the
Company upon the issuance of the Notes, is a director and stockholder of
American Bankers. Both such financial consulting fees were negotiated on an
arm's length basis, and the Company believes that such amount and the terms of
the agreement with EOS Capital and Mr. Matalene are at least as favorable as the
Company could have obtained from third parties.
Each of El Dorado Ventures, Michael Luckwell and American Bankers are
entitled to certain registration rights with respect to the Company's Common
Stock owned by such stockholder. See "Common Stock Ownership of Certain
Beneficial Owners and Management." The Company's Certificate of Incorporation
limits the liability of directors to the maximum extent permitted by the
Delaware General Corporation Law. The Company's Bylaws also provide that the
Company shall indemnify its directors, officers, employees and agents in such
circumstances. In addition, the Company has entered into indemnification
agreements with its officers and directors.
The Company has retained Lionel Allan, a director of the Company, as a
consultant for legal and other business related matters. These services are in
addition to his services as a director of the Company. The Company pays Mr.
Allan $4,000 per month for such consulting services. Such amount was negotiated
on an arm's length basis and the Company believes that such amount and the terms
of the agreement with Mr. Allan are at least as favorable as the Company could
have obtained from third parties.
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PROPOSAL NO. 2
PROPOSED AMENDMENT TO RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED CAPITAL
------------------------------------------------------------
The Board of Directors has unanimously approved, and recommends to the
stockholders that they adopt, an amendment to Article IV of the Amended and
Restated Certificate of Incorporation that would increase the number of
authorized shares of Common Stock from 20,233,497 shares to 40,000,000 and the
number of total authorized shares of capital stock from 22,233,497 to
42,000,000.
Of the 20,233,497 currently authorized shares of Common Stock, an
aggregate of approximately 16,482,271 are issued and outstanding, held in
treasury or reserved for issuance. As of May 20, 1999, 10,123,247 shares were
issued and outstanding; 4,000 shares were held in treasury and 6,355,024 shares
were reserved for issuance under the Company's stock option, stock issuance and
stock purchase plans, upon the conversion of issued and outstanding convertible
securities or upon the exercise of issued and outstanding warrants.
The additional shares of Common Stock for which authorization is sought
would be a part of the existing class of Common Stock and, if and when issued,
would have the same rights and privileges as the shares of Common Stock
currently outstanding. No holder of Common Stock has any preemptive rights. The
Company has no plans for the issuance of any shares of Common Stock at the
present time.
The full text of the proposed amendment to the Certificate of
Incorporation to increase the number of authorized shares is set forth below,
and stockholders are urged to read it.
Purposes and Effects of the Proposed Increase in the
Number of Authorized Shares of Common Stock
The Board of Directors believes that the proposed increase in the
number of authorized shares of Common Stock would benefit the Company and its
stockholders by giving the Company needed flexibility in its corporate planning
and in responding to developments in the Company's business, including possible
acquisition transactions, stock splits, stock dividends and other general
corporate purposes. Having such authorized shares available for issuance in the
future would give the Company greater flexibility and allow shares of its Common
Stock to be issued without the expense of a special stockholders' meeting or
waiting until the next annual meeting.
In December 1998, the Company acquired the assets of another company as
part of its strategy to broaden and strengthen its product lines, geographic
markets and distribution channels. As part of the consideration for such
acquisition, the Company issued warrants to acquire 1,000,000 shares of Common
Stock. The Company also raised $1,500,000 in cash for the transaction through a
private placement of its Common Stock. Subsequently, in March 1999, the Company
raised approximately $3,500,000 through the issuance of convertible subordinated
notes that may be converted into Common Stock. Future acquisitions and
financings may involve the payment and issuance of Common Stock or securities
convertible or exchangeable into Common Stock. The Board of Directors believes
that the proposed increase in the number of authorized shares of Common Stock is
desirable to maintain the Company's flexibility in choosing how to pay
consideration in acquisitions, raise capital and create benefit plans.
Unless otherwise required by applicable law or regulation, the shares
of Common Stock proposed to be authorized will be issuable without further
stockholder action and on such terms and for such consideration as may be
determined by the Board of Directors.
The Board of Directors could use the additional shares of Common Stock
to discourage an attempt to change control of the Company, even though a change
in control might be perceived as desirable by some stockholders, by
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selling a substantial number of shares of Common Stock to persons who have an
arrangement with the Company concerning the voting of such shares, or by
distributing Common Stock or rights to receive such stock to the stockholders.
The Board of Directors, however, has no present intention of issuing any shares
of Common Stock or rights to acquire Common Stock for such purposes, and there
are no arrangements with any person for the purchase of shares of Common Stock
in the event of an attempted change of control.
Text of Proposed Amendments to Certificate of Incorporation
"ARTICLE IV
This Corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock
("Preferred Stock"). The total number of shares which the Corporation
is authorized to issue is Forty Two Million (42,000,000) shares. The
number of shares of Common Stock authorized to be issued is Forty
Million (40,000,000), par value $0.001 per share, and the number of
shares of Preferred Stock authorized to be issued is Two Million
(2,000,000), par value $0.001 per share.
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors is
hereby authorized, the resolution or resolutions adopted by the Board
of Directors providing for the issuance of any wholly unissued series
of Preferred Stock, within the limitations and restrictions stated in
this Amended and Restated Certificate of Incorporation to fix or alter
the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any
wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of
them, and to increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below the
number of shares of such series then constituting such decrease shall
resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series."
Vote Required and Board of Directors' Recommendation
The affirmative vote of the majority of the shares of Common Stock
outstanding and entitled to vote at the Annual Meeting will be required to adopt
the proposed amendment of Article IV of the Certificate of Incorporation. The
Board of Directors unanimously recommends a vote IN FAVOR OF the adoption of the
proposed amendment of Article IV of the Certificate of Incorporation. The Board
of Directors believes that the Company and its stockholders will benefit from
the increase in the number of authorized shares of Common Stock.
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ANTI-TAKEOVER PROPOSALS
Proposals No. 3 and 4 in this Proxy Statement are proposals to amend
the Company's Certificate of Incorporation and Bylaws, which amendments, as
discussed below, may have certain anti-takeover effects. The following section
discusses the general consequences of these proposals to stockholders of the
Company and the existing anti-takeover devices that have already been
implemented by the Board of Directors, and should be read in conjunction with
the individual discussions with respect to Proposals 3 and 4.
The Anti-Takeover Proposals
The Board of Directors has evaluated the potential vulnerability of the
Company and its stockholders to the threat of unfair or coercive takeover
tactics and has considered the range of possible responses to any such threat.
Although the Board of Directors is not currently aware of any such threat, it
has unanimously approved the amendments to the Certificate of Incorporation and
Bylaws described in Proposal No. 3 (Classified Board Provisions) and Proposal
No. 4 (election to be covered by business combination statute). Proposals No. 3
and 4 are intended to reduce the Company's vulnerability to unsolicited or
hostile attempts to obtain control of the Company and to increase the likelihood
that stockholders will receive a fair price for their shares in transactions
relating to such attempts. Proposals No. 3 and 4 are not being proposed in
response to any present attempt, known to the Board of Directors, to acquire
control of the Company, to obtain representation on the Company's Board of
Directors, or to take significant corporate action. The Company has no current
intentions to adopt or propose anti-takeover measures other than Proposals No. 3
and 4.
Third parties frequently accumulate stock positions in public
corporations in order to force a merger or other business combination or to
commence a tender or exchange offer or other hostile attempt to acquire control
of a company. The Board of Directors believes that unsolicited takeover attempts
may be unfair or disadvantageous to the Company and its stockholders because,
among other reasons: (a) a non-negotiated takeover bid may be timed to take
advantage of temporarily depressed stock prices; (b) a non-negotiated takeover
bid may be designed to foreclose or minimize the possibility of more favorable
competing bids or alternative transactions; (c) a non-negotiated takeover bid
may involve the acquisition of only a controlling interest in the company's
stock, without affording all stockholders the opportunity to receive the same
economic benefits; and (d) a non-negotiated takeover bid may often deprive the
stockholders of an adequate opportunity to evaluate the merits of the proposed
transaction.
By contrast, in a transaction in which a potential acquiror must
negotiate with an independent board of directors, the board can and should take
account of the underlying and long-term values of the Company's business,
technology and other assets, the possibilities for alternative transactions on
more favorable terms, anticipated favorable developments in the Company's
business not yet reflected in the stock price, and equality of treatment of all
stockholders.
Proposals No. 3 and 4 are designed to encourage any person who might
seek to acquire control of the Company to first consult with the Company's Board
of Directors and to negotiate the terms of any tender offer or proposed business
combination. The Board of Directors believes that, for the protection of the
Company's stockholders, any proposed acquisition of control of the Company, and
any proposed business combination in which the Company might be involved, should
be thoroughly studied by the Company's Board of Directors to ensure that such
transaction would be in the best interests of the Company and its stockholders
and that all of the Company's stockholders be treated fairly. In sum, the Board
of Directors believes that Proposals No. 3 and 4 are prudent and in the best
interests of the Company and its stockholders and should be adopted for their
protection.
Despite the belief of the Board of Directors as to the benefits to
stockholders of Proposals No. 3 and 4, the proposals, if adopted, may be
disadvantageous to the extent that they have the effect of discouraging a future
takeover attempt that is not approved by the Board of Directors, but which a
majority of the stockholders may deem to be in their best interests or in which
stockholders may receive a substantial premium for their shares over the then
current market value or over their cost basis in such shares. As a result of
such effects of Proposals No. 3 and 4, stockholders who might wish to
participate in an unsolicited tender offer may not have an opportunity to do so.
Proposals No. 3 and 4, if adopted, could also delay or frustrate the assumption
of control by a holder of a large block of the Company's shares or a change in
the composition of the incumbent Board of Directors, even if many stockholders
considered such actions to be beneficial. Furthermore, the adoption of Proposals
No. 3 and 4 will not ensure or guarantee that stockholders will receive a price
for their shares in connection with an acquisition of control of the Company
that
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<PAGE>
reflects the value of such shares, or that the price received will be fair or
equitable, although in the opinion of the Board of Directors the likelihood that
the price will reflect such value and be fair and equitable will be increased by
the adoption of Proposals No. 3 and 4.
Existing Anti-Takeover Devices
In addition to Proposals No. 3 and 4, the Certificate of Incorporation
and the Bylaws currently have provisions that could have the effect of making it
more difficult for a third party to acquire, or discouraging a third party from
attempting to acquire, control of the Company, even if such transaction or
occurrence may be favorable to the interests of some or all of the Company's
stockholders.
The Certificate of Incorporation currently authorizes the Board of
Directors to issue 2,000,000 shares of Preferred Stock having such rights,
preferences and privileges as designated from time to time by the Board of
Directors without stockholder approval. Under certain circumstances, the Company
could use the Preferred Stock or currently authorized but unissued shares of
Common Stock to create voting impediments or to frustrate persons seeking to
affect a takeover or otherwise gain control of the Company or to dilute the
public ownership of the Company, and thereby protect the continuity of the
Company's management. Currently, there are no shares of Preferred Stock issued
and outstanding. In September 1996, the Company designated 60,000 shares of
Preferred Stock as Series A Participating Preferred Stock relating to the
Preferred Shares Rights Agreement, dated as of September 13, 1996, by and
between the Company and U.S. Stock Transfer Corporation (the "Rights
Agreement").
The Rights Agreement involves distributions of one "Right" for each
share of Common Stock outstanding as of the close of business on September 24,
1996, and for each share of Common Stock issued thereafter. Under the Rights
Agreement, among other provisions, if a person or group (other than as discussed
below) acquires 15% or more of the Company's outstanding Common Stock or
commences a tender offer or exchange offer for 15% or more of the outstanding
Common Stock, each Right not owned by the acquiror or its affiliates will
entitle its holder to pay the Company $20 and receive newly issued shares of
Common Stock worth $40. This ability of stockholders other than the acquiror to
purchase additional shares at a 50% discount from market, among other provisions
in the Rights Agreement, would cause an unapproved takeover to be much more
expensive to an acquiror, resulting in a strong incentive to negotiate with the
Board of Directors to redeem the Rights or approve the transaction instead of
pursuing a hostile strategy. The Rights are not exercisable in the event of a
permitted offer that means certain defined criteria and may be redeemed by the
Company at $0.01 per Right within 10 days (or such later date as may be
determined by a majority of continuing directors) after the accumulation of 15%
or more of the Company's outstanding Common Stock by a single acquiror or group.
In connection with certain acquisitions of Common Stock by Michael Luckwell in
private placements, the Company has amended the Rights Agreement to exempt from
the provisions of the Rights Plan acquisitions by Mr. Luckwell and his
affiliates of up to 3,437,000 shares of Common Stock, and in connection with
certain acquisitions of convertible promissory notes by American Bankers
Insurance Group, Inc. in a private placement, the Company has amended the Rights
Agreement to exempt from the provisions of the Rights Plan acquisitions by
American Bankers Insurance Group, Inc. and its affiliates of up to 2,307,692
shares of Common Stock.
In addition, in May 1999, the Board of Directors unanimously voted to
adopt two anti-takeover provisions in the Company's Bylaws. Consequently, the
Company's Bylaws were amended to (a) eliminate the ability of stockholders to
call a special meeting of stockholders; and (b) require stockholders to give
written notice of any proposal or the nomination of a director to the Secretary
of the Company not less than 90 days nor more than 120 days prior to the prior
year's Annual Meeting of Stockholders; provided, however, that in the event that
the date of the Annual Meeting of Stockholders is more than 30 days before or
more than 60 days after such anniversary date, notice by the stockholder must be
received not less than 90 days nor more than 120 days prior to the Annual
Meeting of Stockholders (or not less than ten days after the first public
announcement of the date of the meeting, if later). These provisions may have
the effect of delaying or precluding a nomination for the election of directors
or of delaying or precluding any other business of a particular meeting if the
proper procedures are not met. The provisions may also discourage or deter a
third party from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempt to obtain control of the Company.
In addition, the Company's Certificate of Incorporation and Bylaws both
prohibit the stockholders of the Company from taking action by written consent.
These provisions may also discourage or deter a third party from attempting to
obtain control of the Company because they would delay the third party from
taking any actions with respect to a stockholder vote until a duly called and
noticed meeting is held.
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PROPOSAL NO. 3
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION AND AMENDED AND RESTATED BYLAWS -
CLASSIFIED BOARD PROVISIONS
------------------------------------------------------------
The Board of Directors has voted unanimously (a) to authorize the
adoption of the Classified Board Provisions in the Company's Certificate of
Incorporation to (i) implement a classified board of directors divided into
three classes of directors, with the term of office of one of the three classes
of directors expiring each year and with each class being elected for a
three-year term, (ii) provide that only the Board of Directors, and not the
stockholders, may set by resolution the number of directors within the specified
range of five (5) to nine (9), (iii) provide that only the Board of Directors
may fill vacancies on the Board (unless no Board members remain) and that any
director appointed to fill a vacancy on the Board of Directors will serve for
the remainder of the full term of the class in which the vacancy occurred, and
(iv) require a vote of 66 2/3% of the Company's stockholders to amend or repeal
the foregoing Classified Board Provisions; (b) to amend the Company's Amended
and Restated Bylaws to conform with the Classified Board Provisions in the
Company's Certificate of Incorporation; and (c) to recommend such proposed
amendments to the stockholders for adoption. The text of these proposed
amendments is set forth below.
The Bylaws and the Certificate of Incorporation currently provide that
the Board of Directors or the stockholders may set the exact number of directors
from time to time by bylaw amendment or resolution. Currently, the Board of
Directors has set the number of directors at six (6), and all directors are
elected to the Company's Board of Directors for a term of one year and vacancies
on the Board may be filled by the Board or the stockholders.
The proposed amendment, which would replace the existing Article VI of
the Company's Certificate of Incorporation, would add a provision that divides
the Board of Directors into three classes: Class 1, Class 2 and Class 3.
Initially, members of all three classes will be elected at the Annual Meeting.
Directors then elected to Class 1 would serve until the Annual Meeting of
Stockholders to be held in 2000, and until their respective successors are
elected and qualified. Directors initially elected to Class 2 and Class 3 would
serve until the Annual Meeting of Stockholders to be held in 2001 and 2002,
respectively, and until their respective successors are elected and qualified.
Commencing with the election of directors to Class 1 in 2000, each class of
directors elected at an Annual Meeting of Stockholders would be elected to
three-year terms. Under Delaware law, where a company's certificate of
incorporation calls for a classified board of directors, the stockholders of the
company may only remove a director from the board for cause unless the company's
certificate of incorporation provides otherwise. The Company's Certificate of
Incorporation does not specifically provide for removal of a director without
cause, and thus, an effect of the proposed amendment would be to eliminate the
stockholders' ability to remove a director without cause.
The proposed amendment to the Certificate of Incorporation would also
eliminate the stockholders' ability to fix the number of directors from time to
time by resolution, leaving the Board of Directors with sole authority to fix
the number of directors from time to time within the specified range of five (5)
to nine (9).
The proposed amendment would also provide that vacancies due to
resignation, death, increases in the number of directors, or any other cause
would be filled only by the Board of Directors (unless there are no directors,
in which case vacancies would be filled by the stockholders), keeping each class
of directors as nearly equal in number as possible. In addition, any new
director appointed to fill a vacancy on the Board of Directors will serve for
the remainder of the full term of the class in which the vacancy occurred,
rather than until the next annual meeting. These provisions relating to the
removal of directors and the filling of vacancies will preclude a third party
from removing incumbent directors without cause, and simultaneously gaining
control of the Board of Directors by filling the vacancies created by removal
with its own nominees.
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The Classified Board Provisions include an amendment to current Article
XII to the Certificate of Incorporation, to add a provision that requires the
vote of holders of 66 2/3% or more of the Company's Common Stock to amend,
repeal or modify the foregoing amendments or the Corporate Power Article of the
Restated Certificate of Incorporation. Delaware law provides that the
certificate of incorporation of a Company may be amended by the vote of a
majority of the shares of common stock then outstanding and entitled to vote,
unless the relevant provision of the company's certificate of incorporation
requires the vote of a greater number or proportion than a majority, in which
case any such provision many not be amended, modified or repealed except by such
greater vote. The supermajority vote provision in Proposal No. 3 will make it
more difficult for the stockholders, following the Annual Meeting, to modify or
eliminate the new Article VI, including without limitation the provisions
therein that classify the Board, that govern the filling of vacancies on the
Board, and that specify that the number of directors of the Company may be
determined by the Board within the specified range of five (5) to nine (9). This
will enhance the Company's ability to maintain the stability of the Board of
Directors, but may have the effect of further discouraging potentially
unfriendly bids for the shares of the Company.
Proposal No. 3 also calls for stockholder approval of conforming
amendments to be made to the Company's Bylaws to eliminate the stockholders'
ability, currently set forth therein, to fix the number of directors by
resolution and to set forth the contents of new Article VI in the Bylaws.
The Board of Directors believes that the adoption of the Classified
Board Provisions is in the best interests of the Company and its stockholders.
The Classified Board Provisions will help lend continuity and stability to the
management of the Company and will assure continuity and stability in the
Board's leadership and policies. At any given time, approximately two-thirds of
the members of the Board of Directors will have had prior experience as
directors of the Company. The Board believes that this will facilitate
long-range planning, strategy and policy because it will enhance the likelihood
of continuity and stability in the composition of the Board of Directors and its
policies. The Board of Directors believes that this will permit the Board of
Directors to more effectively represent the interests of all stockholders. The
Company is not aware of any prior problems with respect to director continuity.
A classified Board of Directors will serve as an obstacle to any
attempts to obtain control of the Company through the acquisition of a
significant minority position and the election of a new slate of directors. At a
minimum, two successive annual meetings of stockholders, as opposed to one, will
normally be required in order to elect a majority of the Board, unless there is
cause and sufficient voting strength to remove a particular director or
directors. As a result, instituting a classified Board of Directors may deter
certain mergers, tender offers, proxy contests or other future attempts to
acquire control of the Company that some or a majority of stockholders may deem
to be in their best interests or the Company's best interests. As a result of
the classification's possible effect of discouraging some takeover bids or block
purchases of stock by potential acquirors, stockholders may be deprived of
opportunities to sell some or all of their shares in a tender offer which might
involve a purchase price higher than the then-current market price or a bidding
contest between competing bidders. Moreover, to the extent classification
discourages open market purchases of the Company's stock, stockholders may be
deprived of temporary increases in the market price of the Company's stock.
Classification will also make it more difficult for stockholders to change the
Company's Board of Directors at a time when the stockholders consider it
desirable to do so. Consequently, the proposed amendment will tend to perpetuate
current management. See "The Anti-Takeover Proposals."
The Board of Directors believes that the Classified Board Provisions
will provide the Board of Directors with the opportunity to negotiate with
potential acquirors to obtain a fair price for stockholders in any
change-of-control transaction, and more time to evaluate any takeover or control
proposal and thus enable it to better protect the interests of the Company and
the remaining stockholders in the event someone obtains voting control of a
majority of the Company's stock. Classification is recommended for this reason
and because the Board believes that it will enhance the quality and stability of
the Board of Directors. The Classified Board Provisions are not being proposed
in order to prevent an unsolicited takeover attempt, and the Board of Directors
is not aware of any present attempt by any person to acquire control of the
Company, obtain representation on the Board of Directors or take any significant
action that would affect the governance of the Company. The Classified Board
Provisions are permitted under Delaware law.
The Board of Directors has considered the advantages and possible
disadvantages of this proposal and has unanimously determined that the adoption
of this proposal is in the best interests of the Company and its stockholders.
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The information concerning the current nominees for election as
directors at the Annual Meeting and the classes to which they would be elected
if this Proposal No. 3 is approved is set forth above under the caption
"Proposal No. 1 - Election of Directors." If the proposal to adopt a classified
board is not approved and implemented, all directors elected at the Annual
Meeting will serve for a one-year term and until their successors are duly
elected and qualified.
Text of Proposed Amendments to Certificate of Incorporation
"ARTICLE VI
The total number of directors of the Corporation shall be not less than
five (5) nor more than nine (9), with the actual total number of
directors set from time to time exclusively by resolution of the Board
of Directors. The Board of Directors shall initially consist of six
members until changed by such a resolution. There shall be three
classes of directors (each, a "Class"), known as Class 1, Class 2 and
Class 3. The initial Class 1, Class 2 and Class 3 directors shall serve
in office as follows: Class 1 shall retire at the first annual meeting
of stockholders following the filing of the Corporation's Amended and
Restated Certificate of Incorporation (the "Effective Date"), Class 2
shall retire at the second annual meeting of stockholders following the
Effective Date, and Class 3 shall retire at the third annual meeting of
stockholders following the Effective Date. This annual sequence shall
be repeated thereafter. Each director in a Class shall be eligible for
re-election if nominated, and such director's seat shall be open for
election of a director, at the annual meeting of stockholders of the
Corporation at which such Class shall retire, to hold office for three
years or until his successor is elected or appointed.
Any additional directors elected or appointed shall be elected
or appointed to such Class as will ensure that the number of directors
in each Class remains as nearly equal as possible, and if all Classes
have an equal number of directors or if one Class has one director more
than the other two Classes, then any additional directors elected or
appointed shall be elected or appointed to the Class that does not have
more directors than any other Class and is subject to election at an
ensuing annual meeting before any other such Class.
Vacancies due to resignation, death, increases in the number of
directors, or any other cause shall be filled only by the Board of
Directors (unless there are no directors, in which case vacancies will
be filled by the stockholders) in accordance with the rule that each
Class of directors shall be as nearly equal in number of directors as
possible. Notwithstanding such rule, in the event of any change in the
authorized number of directors each director then continuing to serve
as such will nevertheless continue as a director of the Class of which
he or she is a member, until the expiration of his or her current term
or his earlier death, resignation or removal. If any newly created
directorship or vacancy on the Board of Directors, consistent with the
rule that the three Classes shall be as nearly equal in number of
directors as possible, may be allocated to one or two or more Classes,
then the Board of Directors shall allocate it to that of the available
Classes whose term of office is due to expire at the earliest date
following such allocation. When the Board of Directors fills a vacancy,
the director chosen to fill that vacancy shall be of the same Class as
the director he or she succeeds and shall hold office until such
director's successor shall have been elected and qualified or until
such director shall resign or shall have been removed. No reduction of
the authorized number of directors shall have the effect of removing
any director prior to the expiration of such director's term of
office."
"ARTICLE XII
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred on stockholders herein are granted subject to
this reservation; provided, however, that any amendment of Article VI
or of this Article XII will require an
23
<PAGE>
affirmative vote of the holders of sixty-six and two-thirds percent (66
2/3%) or more of the total voting power of all outstanding shares of
voting stock of the Corporation."
Text of Proposed Conforming Amendment to Amended and Restated Bylaws
"ARTICLE III
DIRECTORS
Section 1. Unless otherwise provided in the corporation's
certificate of incorporation, the total number of directors of the
corporation shall be not less than five (5) nor more than nine (9),
with the actual total number of directors set from time to time
exclusively by resolution of the board of directors. The board of
directors shall consist of six members until changed by such a
resolution. There shall be three classes of directors (each, a
"Class"), known as Class 1, Class 2 and Class 3. The initial Class 1,
Class 2 and Class 3 directors shall serve in office as follows: Class 1
shall retire at the first annual meeting of stockholders following the
filing of the Amendment to the corporation's Amended and Restated
Certificate of Incorporation (the "Effective Date"), Class 2 shall
retire at the second annual meeting of stockholders following the
Effective Date, and Class 3 shall retire at the third annual meeting of
stockholders following the Effective Date. This annual sequence shall
be repeated thereafter. Each director in a Class shall be eligible for
re-election if nominated, and such director's seat shall be open for
election of a director, at the annual meeting of stockholders of the
corporation at which such Class shall retire, to hold office for three
years or until his successor is elected or appointed.
Any additional directors elected or appointed shall be elected or
appointed to such Class as will ensure that the number of directors in
each Class remains as nearly equal as possible, and if all Classes have
an equal number of directors or if one Class has one director more than
the other two Classes, then any additional directors elected or
appointed shall be elected or appointed to the Class that does not have
more directors than any other Class and is subject to election at an
ensuing annual meeting before any other such Class.
Section 2. Vacancies due to resignation, death, increases in
the number of directors, or any other cause shall be filled only by the
board of directors (unless there are no directors, in which case
vacancies will be filled by the stockholders) in accordance with the
rule that each Class of directors shall be as nearly equal in number of
directors as possible. Notwithstanding such rule, in the event of any
change in the authorized number of directors each director then
continuing to serve as such will nevertheless continue as a director of
the Class of which he or she is a member, until the expiration of his
or her current term or his earlier death, resignation or removal. If
any newly created directorship or vacancy on the board of directors,
consistent with the rule that the three Classes shall be as nearly
equal in number of directors as possible, may be allocated to one or
two or more Classes, then the board of directors shall allocate it to
that of the available Classes whose term of office is due to expire at
the earliest date following such allocation. When the board of
directors fills a vacancy, the director chosen to fill that vacancy
shall be of the same Class as the director he or she succeeds and shall
hold office until such director's successor shall have been elected and
qualified or until such director shall resign or shall have been
removed. No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of such
director's term of office.
Section 3. The business of the corporation shall be managed by
or under the direction of its board of directors which may exercise all
such powers of the corporation and do all such lawful acts and things
as are not by statute or by the certificate of incorporation or by
these bylaws directed or required to be exercised or done by the
stockholders."
<PAGE>
Vote Required and Board of Directors' Recommendation
The affirmative vote of a majority of the shares outstanding and
entitled to vote at the Annual Meeting, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
entitled to vote, is required to approve Proposal 3. The Board of Directors
unanimously recommends that stockholders vote FOR Proposal 3.
24
<PAGE>
------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPOSAL NO. 4
AMENDMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION TO ELECT TO BE GOVERNED BY
THE DELAWARE BUSINESS COMBINATION STATUTE
------------------------------------------------------------
The Board of Directors has voted unanimously to amend the Company's
Certificate of Incorporation to provide specifically that the Company elects to
be governed by the provisions of the Delaware business combination statute
provisions set forth in Section 203 of the Delaware General Corporation Law (the
"DGCL"). The text of Section 203 of the DGCL is set forth in Appendix A hereto.
The provisions of Section 203 of the DGCL are applicable generally to
public companies incorporated in Delaware which are listed on a national
securities exchange, authorized for quotation on The Nasdaq Stock Market or held
of record by more than 2,000 stockholders, unless a Company elects specifically
in its certificate of incorporation not to be subject to Section 203. However,
Section 203 is not automatically applicable to other companies, including public
companies traded on the Over-The-Counter market with less then 2,000
stockholders, like the Company. Any company that is not automatically covered by
the terms of Section 203 may elect, by including a provision in its certificate
of incorporation, to be governed by Section 203. Accordingly, the Company is
proposing the amendment to its Certificate of Incorporation described in this
proposal to add a new Article XIII specifically electing to be governed by
Section 203.
Summary of Section 203 of the Delaware General Corporation Law
Under Section 203 of the DGCL, a Delaware corporation is prohibited
from engaging in a "business combination" with an "interested shareholder" for
three years following the time that such person or entity becomes an interested
shareholder. With certain exceptions, an "interested shareholder" is a person or
entity who or which owns, individually or with other persons or entities,
fifteen percent (15%) or more of the corporation's outstanding Voting Stock
(including any rights to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the person has voting rights
only) (for purposes hereof, "Voting Stock" means all outstanding shares of
capital stock of a corporation entitled to vote in the election of the board of
directors of the corporation, and each reference to a percentage or portion of
shares of Voting Stock shall refer to such percentage or portion of the votes
entitled to be cast by such shares). Section 203 defines "business combination"
to include: (i) any merger or consolidation involving the corporation and the
interested stockholder; (ii) any sale, transfer, pledge or other disposition
involving the interested stockholder or 10% or more of the assets of the
corporation; (iii) subject to certain exceptions, any transaction which results
in the issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder; (iv) any transaction involving the corporation
which has the effect of increasing the proportionate share of stock of any class
or series of the corporation beneficially owned by the interested stockholder;
or (v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation.
The three-year moratorium imposed on business combinations by Section
203 does not apply if (i) prior to the time on which such shareholder becomes an
interested shareholder the board of directors of the subject corporation
approves either the business combination or the transaction that resulted in the
person or entity becoming an interested shareholder; (ii) upon consummation of
the transaction that made him or her an interested shareholder, the interested
shareholder owns at least eighty-five percent (85%) of the corporation's Voting
Stock outstanding at the time the transaction commenced (excluding for purposes
of determining the number of shares outstanding, shares owned by directors who
are also officers of the subject corporation and shares held by employee stock
plans in which employee participants do not have the right to decide
confidentially whether to accept a tender or exchange offer); or (iii) on or
after the time such person or entity becomes an interested shareholder, the
board of directors approves the business
25
<PAGE>
combination and it is also approved at a shareholder meeting by sixty-six and
two-thirds percent (66 2/3%) of the outstanding Voting Stock not owned by the
interested shareholder.
Advantages and Disadvantages of Proposal No. 4
The Board of Directors believes that the amendment of the Certificate
of Incorporation to elect to be governed by the provisions of Section 203 is in
the best interests of the Company and its stockholders. The proposal is designed
to encourage any person who might seek to acquire control of the Company to
first consult with the Company's Board of Directors and to negotiate the terms
of any tender offer or proposed business combination. The Board of Directors
believes that, for the protection of the Company's stockholders, any proposed
acquisition of control of the Company, and any proposed business combination in
which the Company might be involved, should be thoroughly studied by the
Company's Board of Directors to ensure that such transaction would be in the
best interests of the Company and its stockholders and that all of the Company's
stockholders be treated fairly. Section 203 also might have the effect of
limiting the ability of a potential acquiror to make a two-tiered bid for the
Company in which all shareholders would not be treated equally. In sum, the
Board of Directors believes that this Proposal No. 4 is prudent and in the best
interests of the Company and its stockholders and should be adopted for their
protection.
Despite the belief of the Board of Directors as to the benefits to
stockholders of this proposal, if adopted, if may be disadvantageous to the
extent that they have the effect of discouraging a future takeover attempt that
is not approved by the Board of Directors, but which a majority of the
stockholders may deem to be in their best interests or in which stockholders may
receive a substantial premium for their shares over the then current market
value or over their cost basis in such shares. As a result of such effects of
this Proposal No. 4, stockholders who might wish to participate in an
unsolicited tender offer may not have an opportunity to do so. Proposal No. 4,
if adopted, could also delay or frustrate the assumption of control by a holder
of a large block of the Company's shares, even if many stockholders considered
such action to be beneficial. Furthermore, the adoption of Proposal No. 4 will
not ensure or guarantee that stockholders will receive a price for their shares
in connection with an acquisition of control of the Company that reflects the
value of such shares, or that the price received will be fair or equitable.
Section 203 would also discourage certain potential acquirors unwilling to
comply with its provisions.
The Rights Agreement that the Company currently has in place contains
provisions that are similar to the provisions of Section 203. Therefore, most of
the various advantages and disadvantages of this proposal described above will
still be in place because of the Rights Plan whether or not this Proposal No. 4
is approved.
See, also, the section entitled "The Anti-Takeover Proposals," above
This Proposal No. 4 is not being proposed in order to prevent an
unsolicited takeover attempt, and the Board of Directors is not aware of any
present attempt by any person to acquire control of the Company, obtain
representation on the Board of Directors or take any significant action that
would affect the governance of the Company.
The Board of Directors has considered the advantages and possible
disadvantages of this proposal and has unanimously determined that the adoption
of this proposal is in the best interests of the Company and its stockholders.
Text of Proposed Amendments to Certificate of Incorporation
"ARTICLE XIII
This corporation elects to be governed by Section 203 of the Delaware
General Corporation Law."
Vote Required and Board of Directors' Recommendation
The affirmative vote of a majority of the shares outstanding and
entitled to vote at the Annual Meeting, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
entitled to vote, is required to approve Proposal 4. The Board of Directors
unanimously recommends that stockholders vote FOR Proposal 4.
26
<PAGE>
------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPOSAL NO. 5
AMENDMENT TO THE 1995 STOCK OPTION/
STOCK ISSUANCE PLAN
------------------------------------------------------------
The Board of Directors has unanimously approved and adopted certain
amendments to the Company's 1995 Stock Option/Stock Issuance Plan (the "1995
Plan"), subject to stockholder approval. The Board unanimously recommends to the
stockholders of the Company that they approve and adopt such amendments. The
amendments affect only the Automatic Option Grant Program under the 1995 Plan,
pursuant to which non-employee directors are granted options to acquire shares
of the Company's common stock. A copy of the proposed Amendment to the 1995 Plan
is attached to this Proxy Statement as Appendix B. The proposed amendments are
summarized as follows:
1. Each option granted under the Automatic Option Grant Program
on or after July 20, 1999 will be immediately vested and exercisable and not
subject to any repurchase right of the Company. Prior to the amendment, each
share issued pursuant to an option granted to non-employee directors when they
first become a director has been subject to a repurchase right of the Company,
at the exercise price, which repurchase right lapses with respect to 25% of the
shares issuable pursuant to such option each year beginning one year after the
date of grant of the option. The shares granted under options granted to the
non-employee directors on an annual basis pursuant to the Automatic Option Grant
Program were subject to a repurchase right which lapsed one year after the date
of grant.
2. The provisions of each outstanding option granted before July
20, 1999 will be automatically amended to accelerate such option effective July
20, 1999 so that such option becomes fully vested and exercisable and no longer
subject to any repurchase right of the Company.
3. The number of shares of Common Stock issuable upon exercise of
the options to be granted to non-employee directors on an annual basis will be
increased from 2,500 shares to 5,000 shares, beginning with the grants to be
made at the annual meeting of stockholders described in this Proxy Statement.
Reasons for the Amendment
There are two primary reasons that the Board of Directors adopted these
amendments and are recommending that the stockholders approve them. First, the
Board believes that by making the options granted to non-employee directors
fully vested and immediately exercisable, without any repurchase right of the
Company, and by increasing the number of shares covered by the options granted
to non-employee directors, it will enhance the ability of the Company to attract
and retain qualified directors. Second, the proposed amendments will reduce the
potential impact of the expense charge that the Company will be obligated to
incur as a result of expected changes in the accounting treatment for options
granted to outside directors. Under the expected changes, which are more fully
described under the heading "Accounting Treatment and Expected Accounting
Changes" below, the vesting schedule of such options would affect the amount of
any expense attributable to the grant of such options. The immediate vesting of
such options and the accelerated vesting of previously granted automatic options
is intended to address the potential impact of such grants on earnings in the
event that the expected accounting changes are put into effect. Although the
proposed accounting changes only would apply to options granted after December
15, 1998, by accelerating the vesting of all outstanding options held by
non-employee directors, the Company is treating each of such directors equally,
regardless of when the options were granted.
The proposed amendments affect only the Automatic Option Grant Program
under the 1995 Plan and do not apply to any other portion of the 1995 Plan.
Summary of 1995 Stock Option/Stock Issuance Plan, as Amended
The 1995 Plan is the successor equity incentive program to the
Company's Restated 1990 Stock Option Plan (the "1990 Plan"). The 1995 Plan was
adopted by the Board of Directors on July 25, 1995 and approved by the
27
<PAGE>
stockholders on September 14, 1995. The Company initially authorized 2,000,000
shares of Common Stock for issuance under the 1995 Plan, plus an additional
number of shares equal to one percent (1%) of the number of shares of Common
Stock and Common Stock equivalents outstanding on the first day of 1996, 1997
and 1998. The initial 2,000,000 share reserve was comprised of (i) the shares
which remained available for issuance under the 1990 Plan, including the shares
subject to outstanding options thereunder, plus (ii) an additional increase of
1,258,036 shares. As of May 20, 1999, there were 185,869 outstanding shares of
Common Stock issued pursuant to the 1995 Plan, outstanding options under the
1995 Plan options to purchase 1,515,652 shares of Common Stock, and 494,946
shares available for issuance under the 1995 Plan.
The objective of the 1995 Plan is to provide an incentive for key
employees, including officers and directors who are employees, and
non-employees, including non-employee directors, of the Company or its
subsidiaries to remain in the service of the Company by providing them with
opportunities to acquire an economic interest in the future success and
prosperity of the Company and its subsidiaries.
The 1995 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which employees and consultants may, at
the discretion of the Plan Administrator, be granted options to purchase shares
of Common Stock at an exercise price not less than eighty-five percent (85%) of
their fair market value on the grant date, (ii) the Stock Issuance Program under
which such persons may, in the Plan Administrator's discretion, be issued shares
of Common Stock directly, through the purchase of such shares at a price not
less than eighty-five percent (85%) of their fair market value at the time of
issuance or as a bonus tied to the performance of services and (iii) the
Automatic Option Grant Program under which automatic grants will be made at
periodic intervals to eligible non-employee Board members to purchase shares of
Common Stock at an exercise price equal to one-hundred percent (100%) of their
fair market value on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program
are administered by the Board of Directors or the Compensation Committee (the
appropriate administering party is referred to herein as the "Plan
Administrator"). Under those programs, the Plan Administrator has complete
discretion to determine which eligible individuals are to receive option grants
or stock issuances, the time or times when such option grants or stock issuances
are to be made, the number of shares subject to each such grant or issuance, the
status of any granted option as either an incentive stock option or a
non-statutory stock option under the Federal tax laws, the vesting schedule to
be in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding.
Each of those programs provides that, in the event the Company is
acquired by merger, consolidation or asset sale, the shares of Common Stock
purchased subject to a right of repurchase under the 1995 Plan will immediately
vest in full, except to the extent the Company's repurchase rights with respect
to those shares are to be assigned to the acquiring entity, and options will
accelerate to the extent not assumed by the acquiring entity. They also allow
the Plan Administrator discretion to provide for the acceleration of one or more
outstanding options under the 1995 Plan (including options incorporated from the
1990 Plan) and the vesting of shares subject to outstanding options upon the
occurrence of certain hostile takeovers. Such accelerated vesting may be
conditioned upon the subsequent termination of the affected optionee's service.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation rights distribution may be made
in cash or in shares of Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the 1990 Plan) in return for the grant of new options
for the same or different number of option shares with an exercise price per
share based upon the fair market value of the Common Stock on the new grant
date.
Under the Automatic Option Grant Program, when an individual first
becomes a non-employee Board member, he or she receives a 10,000-share option
grant on the date such individual joins the Board provided such
28
<PAGE>
individual has not been in the prior employ of the Company. In addition, at each
Annual Stockholders Meeting, each individual who is to continue to serve as a
non-employee Board member after the Meeting currently receives an additional
option grant to purchase 2,500 shares of Common Stock, whether or not such
individual has been in the prior employ of the Company, so long as such
individual has served on the Board for more than six months. If Proposal No. 5
is approved, the annual option grant will be increased to an option to purchase
5,000 shares of Common Stock. Currently, each share issued pursuant to an option
granted to non-employee directors when they first become a director has been
subject to a repurchase right of the Company, at the exercise price, which
repurchase right lapses with respect to 25% of the shares issuable pursuant to
such option each year beginning one year after the date of grant of the option.
The shares granted under options granted to the non-employee directors on an
annual basis pursuant to the Automatic Option Grant Program currently are
subject to a repurchase right which lapses one year after the date of grant. If
Proposal No. 5 is approved, all currently outstanding options granted under the
Automatic Option Grant Program and all options to be granted in the future under
the Automatic Option Grant Program will be immediately vested and exercisable
and not subject to any repurchase right of the Company.
The Board may amend or modify the 1995 Plan at any time, provided that
the terms of the Automatic Option Grant Program may not be amended more than
once every six months, other than to the extent necessary to comply with
applicable federal tax rules and regulations. Notwithstanding the foregoing, the
Board cannot, without the approval of the stockholders, (i) materially increase
the maximum number of shares issuable under the 1995 Plan, the number of shares
for which options may be granted under the Automatic Option Grant Program or the
maximum number of shares for which any one person may be granted options,
separately exercisable stock appreciation rights and direct stock issuances per
calendar year, except for permissible adjustment in the event of certain changes
in the Company's capitalization, (ii) materially modify the eligibility
requirements for 1995 Plan participation or (iii) materially increase the
benefits accruing to 1995 Plan participants. The 1995 Plan will terminate on
July 24, 2005, unless sooner terminated by the Board.
<TABLE>
The following table summarizes options granted under the 1995 Plan to
the individuals specified below in calendar year 1998 and to date in 1999, and
options held by the individuals specified below as of May 20, 1999, in each case
with the options issued pursuant to the Automatic Option Grant Program listed
separately:
<CAPTION>
Options Granted Under the
Options Granted Under 1995 Plan Other than
Automatic Option Grant Automatic Option Grant Number of
Program Program Options
---------------------- ----------------------- Currently
Name and Position 1998 1999 1998 1999 Outstanding(1)
- ---------------------------------- ------ ------- --------- ------- --------------
<S> <C> <C> <C> <C> <C>
Junaid Sheikh, President, Chief 0 0 397,286(2) (3) 397,286
Executive Officer and Chairman
of the Board
Ian Craven, Senior Vice 0 0 98,125(4) (3) 98,125
President, Engineering
Harris Rogers, Vice President, 0 0 65,499(5) (3) 65,499
Marketing
Donald Petersen, Vice President, 0 0 115,833(6) (3) 117,916
Manufacturing
Lionel M. Allan, Director 2,500 5,000(7) 41,250(8) 0 55,850
Thomas E. Fanella, Director 10,000 5,000(7) 0 0 12,500
David A. Lahar, Director 10,000 5,000(7) 0 0 10,000
Eugene M. Matalene, Jr., Director 0 10,000(9) 0 0 10,000
Michael Luckwell, Director 0 10,000(9) 0 0 10,000
All Executive Officers as a Group 0 0 876,743(10) 0 878,826
All Non-Executive Directors as a 22,500 35,000(11) 41,250(8) 0 98,350
Group
All Non-Executive Officer 0 0 483,429(12) (3) 469,600
Employees as a Group
<FN>
29
<PAGE>
- ---------------
(1) Does not include options to be issued to non-employee directors pursuant to the Automatic Option
Grant Program of the 1995 Plan.
(2) Includes 87,286 shares subject to options that were repriced in May 1998. See "Executive Compensation
and Related Information -- Option Grants" and "-- Ten Year Option/SAR Repricings," above.
(3) Not determined yet. No options granted to date in 1999.
(4) Includes 58,125 shares subject to options that were repriced in May 1998. See "Executive Compensation
and Related Information -- Option Grants" and "-- Ten Year Option/SAR Repricings," above.
(5) Includes 25,499 shares subject to options that were repriced in May 1998. See "Executive Compensation
and Related Information -- Option Grants" and "-- Ten Year Option/SAR Repricings," above.
(6) Includes 75,833 shares subject to options that were repriced in May 1998. See "Executive Compensation
and Related Information -- Option Grants" and "-- Ten Year Option/SAR Repricings," above.
(7) Number of options to be granted if Proposal No. 5 is approved. Otherwise, the number of options
granted will be 2,500.
(8) Represents 41,250 shares subject to options that were repriced in May 1998. See "Executive
Compensation and Related Information -- Option Grants" and "-- Ten Year Option/SAR Repricings,"
above.
(9) Options granted upon becoming a member of the Board of Directors.
(10) Includes 246,743 shares subject to options that were repriced in May 1998. See "Executive
Compensation and Related Information -- Option Grants" and "-- Ten Year Option/SAR Repricings,"
above.
(11) Number of options to be granted if Proposal No. 5 is approved. Otherwise, the number of options
granted will be 27,500.
(12) Includes 222,929 shares subject to options that were repriced in May 1998. See "Executive
Compensation and Related Information -- Option Grants" and "-- Ten Year Option/SAR Repricings,"
above.
</FN>
</TABLE>
On May 20, 1999, the closing sale price of the Company's Common Stock
as reported on the Over-the-Counter Bulletin Board was $1.03.
Tax Treatment
The options granted under the Automatic Option Grant Program are
nonstatutory stock options. Under current federal tax law, upon a grant of a
nonstatutory stock option under the 1995 Plan, no taxable income is realized by
a participant and the Company will not be entitled to any deduction. Upon
exercise of a nonstatutory stock option, a participant will realize ordinary
taxable income on the date of exercise. Such taxable income will equal the
difference between the option exercise price and the fair market value of the
Common Stock on the date of exercise. The Company will be entitled to a
corresponding deduction for income subject to federal income tax.
THE FOREGOING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH
ABOVE IS FOR GENERAL INFORMATIONAL PURPOSES AND MAY NOT BE APPLICABLE TO ALL
INDIVIDUALS. PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR A
DETERMINATION AS TO THE SPECIFIC TAX CONSEQUENCES APPLICABLE TO THEM.
Accounting Treatment and Expected Accounting Changes
The Company applies Accounting Principles Board Opinion No. 25 --
"Accounting for Stock Issued to Employees" ("APB Opinion 25") and related
interpretations in accounting for stock options. Statement of Financial
Accounting Standards No. 123 requires companies which use APB Opinion 25
accounting to disclose the impact, if any, that use of a fair value option
valuation model would have on net income. If an option is issued to an employee
for an exercise price that is less than fair market value of the Company's
Common Stock on the date of grant, charges to earnings will be made at the time
of the grant of any options to the extent, if any, that the aggregate fair
market value of the Common Stock on the date of grant exceeds the exercise
price.
Any expense will be accruable by the Company over the period that the
option shares or issued shares are to vest. Option grants or stock issuances to
employees with exercise or issue prices not less than the fair market value of
the shares on the grant or issue date will not result in any direct charge to
the Company's earnings. However, as
30
<PAGE>
discussed above, the fair value of those options is required to be disclosed in
the notes to the Company's financial statements, and the Company must also
disclose, in pro-forma statements to the Company's financial statements, the
impact those options would have upon the Company's reported earnings were the
fair value of those options at the time of grant treated as compensation
expense. Whether or not granted at a discount, the number of outstanding options
may be a factor in determining the Company's earnings per share on a
fully-diluted basis.
The Financial Accounting Standards Board recently issued an Exposure
Draft of a proposed interpretation of APB Opinion 25. Under the proposed
interpretation, option grants made to non-employee Board members after December
15, 1998 may result in a direct charge to the Company's reported earnings based
upon the fair value of the option. The charge to earnings would be equal to the
difference between the exercise or issue price and the fair market value of the
shares on the grant or issue date.
Such charge is likely to include the appreciation in the fair value of
the option shares over the period between the grant date of the option (or, if
later, the effective date of the final amendment) and the vesting date of each
installment of the option shares. In addition, if the proposed interpretation is
adopted, any options which are repriced after December 15, 1998 may also trigger
a direct charge to the Company's reported earnings measured by the appreciation
in the value of the underlying shares over the period between the grant date of
the option (or, if later, the effective date of the final amendment) and the
date the option is exercised for those shares.
If Proposal No. 5 is approved, then all options granted to non-employee
directors under the Automatic Option Grant Program will be immediately vested,
thereby allowing for an immediate charge to earnings for the fair value of the
option shares on the date of grant. This should reduce the uncertainty for the
Company of having to take periodic charges to earnings for the appreciation in
the fair value of the option shares vesting over time.
Vote Required and Board of Directors' Recommendation
The affirmative vote of a majority of the shares outstanding and
entitled to vote at the Annual Meeting, at which a quorum representing a
majority of all outstanding shares of Common Stock of the Company is present and
entitled to vote, is required to approve Proposal No. 5. The Board of Directors
unanimously recommends that stockholders vote FOR Proposal No. 5.
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PROPOSAL NO. 6
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
------------------------------------------------------------
The firm of Ernst & Young LLP served as independent auditors for the
Company for the Company's 1998 fiscal year ended September 30, 1998 and the
Transition Period ended December 31, 1998. The Board of Directors has selected
that firm to continue in this capacity for the Company's 1999 calendar year. The
Company is asking the stockholders to ratify the appointment by the Board of
Directors of Ernst & Young LLP, as independent auditors, to audit the
consolidated financial statements the Company for the year ending December 31,
1999, and to perform other appropriate services.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting to respond to stockholders' questions, and if he or she so
desires, will be given an opportunity to make a brief statement.
The Board of Directors unanimously recommends a vote IN FAVOR OF the
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999. In the event
that a majority of the shares voted at the Annual Meeting do not vote for the
ratification, the Audit Committee and the Board of Directors will reconsider
whether or not to retain that firm. Under all circumstances, the Audit Committee
and the Board of Directors retain the corporate authority to change the auditors
at a later date.
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OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting other than the matter set forth in
this Proxy Statement. Should any other matter requiring a vote of the
stockholders arise, it is intended that the persons named as proxy holders on
the enclosed proxy card will vote the shares represented thereby in accordance
with their best judgment in the interest of the Company. Discretionary authority
with respect to such other matters is granted by the execution of the enclosed
proxy.
STOCKHOLDER PROPOSALS
Under the present rules of the Securities and Exchange Commission, the
deadline for stockholders to submit proposals to be considered for inclusion in
the Company's Proxy Statement for the next year's Annual Meeting of Stockholders
is expected to be December 20, 1999. Such proposals may be included in next
year's Proxy Statement if they comply with certain rules and regulations
promulgated by the Commission.
INCORPORATION BY REFERENCE
According to the provisions of Schedule 14A under the Securities
Exchange Act of 1934, the following document or portion thereof is incorporated
by reference:
"Executive Officers of the Company" from Part I of the Company's Annual
Report on Form 10-K for the transition period ended December 31, 1998.
ADDITIONAL INFORMATION AVAILABLE
THE COMPANY WILL PROVIDE WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY
OF THE COMPANY'S TRANSITION REPORT ON FORM 10-K FOR THE TRANSITION PERIOD ENDED
DECEMBER 31, 1998 AND QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH
31, 1999, IN EACH CASE INCLUDING FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF
EXHIBITS. REQUEST SHOULD BE SENT TO THE ATTENTION OF THE CHIEF FINANCIAL OFFICER
ATACCOM, INC., 1490 O'BRIEN DRIVE, MENLO PARK, CALIFORNIA 94025, OR TELEPHONED
TO (650) 328-3818.
By Order of the Board of Directors,
Donald K. McCauley
Secretary
Dated: June 17, 1999
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APPENDIX A
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
ss. 203. Business combinations with interested stockholders.
(a) Notwithstanding any other provisions of this chapter, a corporation
shall not engage in any business combination with any interested stockholder for
a period of 3 years following the time that such stockholder became an
interested stockholder, unless:
(1) Prior to such time the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder;
(2) Upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (i) by persons who are directors and also
officers and (ii) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or
(3) At or subsequent to such time the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 662/3% of the outstanding voting stock which is not owned by the
interested stockholder.
(b) The restrictions contained in this section shall not apply if:
(1) The corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by this section;
(2) The corporation, by action of its board of directors, adopts
an amendment to its bylaws within 90 days of February 2, 1988, expressly
electing not to be governed by this section, which amendment shall not be
further amended by the board of directors;
(3) The corporation, by action of its stockholders, adopts an
amendment to its certificate of incorporation or bylaws expressly electing not
to be governed by this section; provided that, in addition to any other vote
required by law, such amendment to the certificate of incorporation or bylaws
must be approved by the affirmative vote of a majority of the shares entitled to
vote. An amendment adopted pursuant to this paragraph shall be effective
immediately in the case of a corporation that both (i) has never had a class of
voting stock that falls within any of the 3 categories set out in subsection
(b)(4) hereof, and (ii) has not elected by a provision in its original
certificate of incorporation or any amendment thereto to be governed by this
section. In all other cases, an amendment adopted pursuant to this paragraph
shall not be effective until 12 months after the adoption of such amendment and
shall not apply to any business combination between such corporation and any
person who became an interested stockholder of such corporation on or prior to
such adoption. A bylaw amendment adopted pursuant to this paragraph shall not be
further amended by the board of directors;
(4) The corporation does not have a class of voting stock that is:
(i) Listed on a national securities exchange; (ii) authorized for quotation on
The NASDAQ Stock Market; or (iii) held of record by more than 2,000
stockholders, unless any of the foregoing results from action taken, directly or
indirectly, by an interested stockholder or from a transaction in which a person
becomes an interested stockholder;
(5) A stockholder becomes an interested stockholder inadvertently
and (i) as soon as practicable divests itself of ownership of sufficient shares
so that the stockholder ceases to be an interested stockholder; and (ii) would
not, at any time within the 3-year period immediately prior to a business
combination between the corporation and such stockholder, have been an
interested stockholder but for the inadvertent acquisition of ownership;
(6) The business combination is proposed prior to the consummation
or abandonment of and subsequent to the earlier of the public announcement or
the notice required hereunder of a proposed transaction which (i) constitutes
one of the transactions described in the 2nd sentence of this paragraph; (ii) is
with or by a person who either was not an interested stockholder during the
previous 3 years or who became an interested stockholder with the
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approval of the corporation's board of directors or during the period described
in paragraph (7) of this subsection (b); and (iii) is approved or not opposed by
a majority of the members of the board of directors then in office (but not less
than 1) who were directors prior to any person becoming an interested
stockholder during the previous 3 years or were recommended for election or
elected to succeed such directors by a majority of such directors. The proposed
transactions referred to in the preceding sentence are limited to (x) a merger
or consolidation of the corporation (except for a merger in respect of which,
pursuant to ss 251(f) of this title, no vote of the stockholders of the
corporation is required); (y) a sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in 1 transaction or a series of transactions),
whether as part of a dissolution or otherwise, of assets of the corporation or
of any direct or indirect majority-owned subsidiary of the corporation (other
than to any direct or indirect wholly-owned subsidiary or to the corporation)
having an aggregate market value equal to 50% or more of either that aggregate
market value of all of the assets of the corporation determined on a
consolidated basis or the aggregate market value of all the outstanding stock of
the corporation; or (z) a proposed tender or exchange offer for 50% or more of
the outstanding voting stock of the corporation. The corporation shall give not
less than 20 days' notice to all interested stockholders prior to the
consummation of any of the transactions described in clause (x) or (y) of the
2nd sentence of this paragraph; or
(7) The business combination is with an interested stockholder who
became an interested stockholder at a time when the restrictions contained in
this section did not apply by reason of any of paragraphs (1) through (4) of
this subsection (b), provided, however, that this paragraph (7) shall not apply
if, at the time such interested stockholder became an interested stockholder,
the corporation's certificate of incorporation contained a provision authorized
by the last sentence of this subsection (b).
Notwithstanding paragraphs (1), (2), (3) and (4) of this subsection, a
corporation may elect by a provision of its original certificate of
incorporation or any amendment thereto to be governed by this section; provided
that any such amendment to the certificate of incorporation shall not apply to
restrict a business combination between the corporation and an interested
stockholder of the corporation if the interested stockholder became such prior
to the effective date of the amendment.
(c) As used in this section only, the term:
(1) "Affiliate" means a person that directly, or indirectly
through 1 or more intermediaries, controls, or is controlled by, or is under
common control with, another person.
(2) "Associate," when used to indicate a relationship with any
person, means: (i) Any corporation, partnership, unincorporated association or
other entity of which such person is a director, officer or partner or is,
directly or indirectly, the owner of 20% or more of any class of voting stock;
(ii) any trust or other estate in which such person has at least a 20%
beneficial interest or as to which such person serves as trustee or in a similar
fiduciary capacity; and (iii) any relative or spouse of such person, or any
relative of such spouse, who has the same residence as such person.
(3) "Business combination," when used in reference to any
corporation and any interested stockholder of such corporation, means:
(i) Any merger or consolidation of the corporation or any
direct or indirect majority-owned subsidiary of the corporation with (A) the
interested stockholder, or (B) with any other corporation, partnership,
unincorporated association or other entity if the merger or consolidation is
caused by the interested stockholder and as a result of such merger or
consolidation subsection (a) of this section is not applicable to the surviving
entity;
(ii) Any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in 1 transaction or a series of transactions), except
proportionately as a stockholder of such corporation, to or with the interested
stockholder, whether as part of a dissolution or otherwise, of assets of the
corporation or of any direct or indirect majority-owned subsidiary of the
corporation which assets have an aggregate market value equal to 10% or more of
either the aggregate market value of all the assets of the corporation
determined on a consolidated basis or the aggregate market value of all the
outstanding stock of the corporation;
(iii) Any transaction which results in the issuance or
transfer by the corporation or by any direct or indirect majority-owned
subsidiary of the corporation of any stock of the corporation or of such
subsidiary to the interested stockholder, except: (A) Pursuant to the exercise,
exchange or conversion of securities exercisable for, exchangeable for or
convertible into stock of such corporation or any such subsidiary which
securities were outstanding prior to the time that the interested stockholder
became such; (B) pursuant to a merger under ss 251(g) of
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this title; (C) pursuant to a dividend or distribution paid or made, or the
exercise, exchange or conversion of securities exercisable for, exchangeable for
or convertible into stock of such corporation or any such subsidiary which
security is distributed, pro rata to all holders of a class or series of stock
of such corporation subsequent to the time the interested stockholder became
such; (D) pursuant to an exchange offer by the corporation to purchase stock
made on the same terms to all holders of said stock; or (E) any issuance or
transfer of stock by the corporation; provided however, that in no case under
items (C)-(E) of this subparagraph shall there be an increase in the interested
stockholder's proportionate share of the stock of any class or series of the
corporation or of the voting stock of the corporation;
(iv) Any transaction involving the corporation or any direct
or indirect majority-owned subsidiary of the corporation which has the effect,
directly or indirectly, of increasing the proportionate share of the stock of
any class or series, or securities convertible into the stock of any class or
series, of the corporation or of any such subsidiary which is owned by the
interested stockholder, except as a result of immaterial changes due to
fractional share adjustments or as a result of any purchase or redemption of any
shares of stock not caused, directly or indirectly, by the interested
stockholder; or
(v) Any receipt by the interested stockholder of the
benefit, directly or indirectly (except proportionately as a stockholder of such
corporation), of any loans, advances, guarantees, pledges or other financial
benefits (other than those expressly permitted in subparagraphs (i)-(iv) of this
paragraph) provided by or through the corporation or any direct or indirect
majority-owned subsidiary.
(4) "Control," including the terms "controlling," "controlled by"
and "under common control with," means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting stock, by contract or
otherwise. A person who is the owner of 20% or more of the outstanding voting
stock of any corporation, partnership, unincorporated association or other
entity shall be presumed to have control of such entity, in the absence of proof
by a preponderance of the evidence to the contrary; Notwithstanding the
foregoing, a presumption of control shall not apply where such person holds
voting stock, in good faith and not for the purpose of circumventing this
section, as an agent, bank, broker, nominee, custodian or trustee for 1 or more
owners who do not individually or as a group have control of such entity.
(5) "Interested stockholder" means any person (other than the
corporation and any direct or indirect majority-owned subsidiary of the
corporation) that (i) is the owner of 15% or more of the outstanding voting
stock of the corporation, or (ii) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the 3-year period immediately prior to the
date on which it is sought to be determined whether such person is an interested
stockholder; and the affiliates and associates of such person; provided,
however, that the term "interested stockholder" shall not include (x) any person
who (A) owned shares in excess of the 15% limitation set forth herein as of, or
acquired such shares pursuant to a tender offer commenced prior to, December 23,
1987, or pursuant to an exchange offer announced prior to the aforesaid date and
commenced within 90 days thereafter and either (I) continued to own shares in
excess of such 15% limitation or would have but for action by the corporation or
(II) is an affiliate or associate of the corporation and so continued (or so
would have continued but for action by the corporation) to be the owner of 15%
or more of the outstanding voting stock of the corporation at any time within
the 3-year period immediately prior to the date on which it is sought to be
determined whether such a person is an interested stockholder or (B) acquired
said shares from a person described in item (A) of this paragraph by gift,
inheritance or in a transaction in which no consideration was exchanged; or (y)
any person whose ownership of shares in excess of the 15% limitation set forth
herein is the result of action taken solely by the corporation; provided that
such person shall be an interested stockholder if thereafter such person
acquires additional shares of voting stock of the corporation, except as a
result of further corporate action not caused, directly or indirectly, by such
person. For the purpose of determining whether a person is an interested
stockholder, the voting stock of the corporation deemed to be outstanding shall
include stock deemed to be owned by the person through application of paragraph
(8) of this subsection but shall not include any other unissued stock of such
corporation which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
(6) "Person" means any individual, corporation, partnership,
unincorporated association or other entity.
(7) "Stock" means, with respect to any corporation, capital stock
and, with respect to any other entity, any equity interest.
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(8) "Voting stock" means, with respect to any corporation, stock
of any class or series entitled to vote generally in the election of directors
and, with respect to any entity that is not a corporation, any equity interest
entitled to vote generally in the election of the governing body of such entity.
(9) "Owner," including the terms "own" and "owned," when used with
respect to any stock, means a person that individually or with or through any of
its affiliates or associates:
(i) Beneficially owns such stock, directly or indirectly; or
(ii) Has (A) the right to acquire such stock (whether such
right is exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding, or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise; provided, however,
that a person shall not be deemed the owner of stock tendered pursuant to a
tender or exchange offer made by such person or any of such person's affiliates
or associates until such tendered stock is accepted for purchase or exchange; or
(B) the right to vote such stock pursuant to any agreement, arrangement or
understanding; provided, however, that a person shall not be deemed the owner of
any stock because of such person's right to vote such stock if the agreement,
arrangement or understanding to vote such stock arises solely from a revocable
proxy or consent given in response to a proxy or consent solicitation made to 10
or more persons; or
(iii) Has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting (except voting pursuant to a revocable
proxy or consent as described in item (B) of subparagraph (ii) of this
paragraph), or disposing of such stock with any other person that beneficially
owns, or whose affiliates or associates beneficially own, directly or
indirectly, such stock.
(d) No provision of a certificate of incorporation or bylaw shall
require, for any vote of stockholders required by this section, a greater vote
of stockholders than that specified in this section.
(e) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all matters with respect to this section.
(66 Del. Laws, c. 204, ss 1; 70 Del. Laws, c. 79, ss 8-10.)
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APPENDIX B
AMENDMENT TO
ACCOM, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
Article Four of the 1995 Stock Option/Stock Issuance Plan is hereby
amended and restated as of July 20, 1999 to read in full as follows:
"ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAMS
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
below:
1. Each Eligible Director who is first elected or appointed as
a non-employee Board member after the Section 12(g) Registration Date shall
automatically be granted on the date of such initial election or appointment (as
the case may be) a Non-Statutory Option to purchase 10,000 shares of Common
Stock.
2. On the date of each Annual Stockholders Meeting, each
individual who is to continue to serve as an Eligible Director after such
meeting, shall automatically be granted, whether or not such individual is
standing for re-election as a Board member at that Annual Meeting, a
Non-Statutory Option to purchase an additional 5,000 shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months prior to the date of such Annual Meeting. There shall be no limit
on the number of such 5,000-shares option grants any one Eligible Director may
receive over his or her period of Board service.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Exercise and Term of the Options.
1. Each option granted on or after July 20, 1999 shall be
immediately vested and exercisable and not subject to any repurchase right of
the Corporation. The term of each such option shall be ten (10) years from the
option grant date, subject to the provisions of Section I.D. below.
2. Each option granted before July 20, 1999 shall
automatically accelerate on July 20, 1999 so that at such time each such option
shall become fully vested and exercisable for all of the shares of Common Stock
then subject to such option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock that are not subject to any repurchase
right of the Corporation.
D. Effect of Termination of Board Service. The following provisions
shall govern the exercise of any option held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or
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in accordance with the laws of the descent and distribution) shall have
a twelve (12)-month period following the date of such cessation of
Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number vested
of shares of Common Stock for which the option is exercisable at the
time of the Optionee's cessation of Board service.
(iii) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve
(12)-month) exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Board
service, terminate and cease to be outstanding to the extent it is not
exercisable for vested shares on the date of such cessation of Board
service.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKEOVER
A. Corporate Transactions. Immediately following the consummation of
any Corporate Transaction, each outstanding automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).
B. Changes in Control. In connection with any Change in Control, each
outstanding option shall remain exercisable until the expiration or sooner
termination of the option term or the surrender of the option in connection with
a Hostile Take-Over.
C. Hostile Take-Overs. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each automatic option held by him or her for a period of at least
six (6) months. The Optionee shall in return be entitled to a cash distribution
from the Corporation in an amount equal to the excess of (i) the Take-Over Price
of the shares of Common Stock at the time subject to the surrendered option over
(ii) the aggregate exercise price payable for such shares. Such case
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. No approval or consent of the Board shall be required
in connection with such option surrender and cash distribution.
D. Corporation's Rights. The grant of options under the Automatic
Option Grant Program shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
III. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM
The provisions of this Automatic Option Grant Program, together with
the option grants outstanding thereunder, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary to
comply with applicable Federal income tax laws and regulations.
IV. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program."
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APPENDIX C
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PROXY ACCOM, INC. PROXY
Annual Meeting Of Stockholders, July 20, 1999
This Proxy is solicited on behalf of the Board of Directors of Accom, Inc.
The undersigned revokes all previous proxies, acknowledges receipt of
the Notice of the Annual Meeting of Stockholders to be held on July 20, 1999 and
the Proxy Statement and appoints Junaid Sheikh and Donald K. McCauley, and each
of them, as the Proxy of the undersigned, with full power of substitution, to
vote all shares of Common Stock of Accom, Inc. (the "Company") which the
undersigned is entitled to vote, either on his or her own behalf or on behalf of
any entity or entities, at the Annual Meeting of Stockholders of the Company to
be held at the Company's facilities located at 1490 O'Brien Drive, Menlo Park,
California 94025, on Tuesday, July 20, 1999 at 10:00 a.m. (the "Annual
Meeting"), and at any adjournment or postponement thereof, with the same force
and effect as the undersigned might or could do if personally present thereat.
The shares represented by this Proxy shall be voted in the following matter:
1. To elect a board of six directors as follows: (a) two directors to
serve a three-year term, two directors to serve a two-year term, and
two directors to serve a one-year term; or (b) if Proposal No. 3 is not
approved, six directors to hold office until the expiration of their
respective terms of office and until their respective successors are
duly elected and qualified.
|_| FOR all the nominees listed below (except as indicated).
|_| WITHHOLD authority to vote for all nominees listed below.
If you wish to withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below:
JUNAID SHEIKH LIONEL M. ALLAN THOMAS E. FANELLA
DAVID A. LAHAR EUGENE M. MATALENE, JR. MICHAEL LUCKWELL
2. To approve a proposal to amend the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of the Company's common stock from 20,233,497 to 40,000,000, and
the total number of shares of authorized stock from 22,233,497 to
42,000,000.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To approve a proposal to (a) adopt classified board provisions in the
Company's Certificate of Incorporation to (i) implement a classified
board of directors divided into three classes of directors, with the
term of office of one of the three classes of directors expiring each
year and with each class being elected for a three-year term, (ii)
provide that only the Board of Directors, and not the stockholders, may
set by resolution the number of directors within the specified range of
five (5) to nine (9), (iii) provide that only the Board of Directors
may fill vacancies on the Board (unless no Board members remain) and
that any director appointed to fill a vacancy on the Board of Directors
will serve for the remainder of the full term of the class in which the
vacancy occurred, and (iv) require a vote of 75% of the Company's
stockholders to amend or repeal the foregoing classified board
provisions (the "Classified Board Provisions"); and (b) to amend the
Company's Bylaws to conform with the Classified Board Provisions.
|_| FOR |_| AGAINST |_| ABSTAIN
(Continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
(Continued from other side)
4. To approve a proposal to amend the Company's Certificate of
Incorporation to provide that the Company elects to be governed by the
business combination statute set forth in Section 203 of the Delaware
General Corporation Law.
|_| FOR |_| AGAINST |_| ABSTAIN
5. To approve a proposal to amend the Company' 1995 Stock Incentive/Stock
Issuance Plan to provide that (a) the stock options previously granted
and to be granted to non-employee directors of the Company be
immediately vested and not subject to repurchase by the Company and (b)
each non-employee director be granted each year fully-vested options to
purchase 5,000 shares of Common Stock of the Company.
|_| FOR |_| AGAINST |_| ABSTAIN
6. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the Company's 1999 calendar year; and
|_| FOR |_| AGAINST |_| ABSTAIN
7. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
|_| FOR |_| AGAINST |_| ABSTAIN
The Board of Directors recommends a
vote FOR each of the directors listed
above and a vote FOR the other
proposals. This Proxy, when properly
executed, will be voted as specified
above. THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE DIRECTORS LISTED ABOVE
AND FOR THE OTHER PROPOSALS IF NO
SPECIFICATION IS MADE.
Please print the name(s) appearing on
each share certificate(s) over which
you have voting authority:
_______________________________________
(Print name(s) on certificate)
Please sign your name(s): _____________
_______________________________________
(Authorized Signature(s))
Date: _________________________________
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