UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from ________ to_________.
Commission file number: 0-26620
ACCOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3055907
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1490 O'Brien Drive
Menlo Park, California 94025
(Address of principal executive offices)
Registrant's telephone number, including area code:
(650) 328-3818
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes ___ No _X_
As of August 3, 1999, 10,123,247 shares of the Registrant's common stock, $0.001
par value, were outstanding.
<PAGE>
<TABLE>
ACCOM, INC.
FORM 10-Q For the Quarter Ended June 30, 1999
INDEX
<CAPTION>
Page
----
<S> <C> <C>
Facing sheet 1
Index 2
Part I. Financial Information (unaudited)
Item 1. a) Condensed consolidated interim balance sheets at June 30, 1999 and December 31, 1998 3
b) Condensed consolidated interim statements of operations for the three and six month 4
periods ended June 30, 1999 and June 30, 1998
c) Condensed consolidated interim statements of cash flows for the six month periods
ended June 30, 1999 and June 30, 1998 5
d) Notes to condensed consolidated interim financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures About Market Risks 15
Part II. Other Information 16
Item 1 Legal Proceedings 16
Item 2 Changes in Securities and Use of Proceeds 16
Item 3 Defaults Upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
Signature 19
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
ACCOM, INC.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(In thousands, except per share data)
<CAPTION>
As of
----------------------------
June 30, December 31,
1999 1998
---- ----
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 977 $ --
Accounts receivable, net 4,140 3,578
Inventories 3,589 5,345
Other current assets 1,094 535
-------- --------
Total current assets 9,800 9,458
Property and equipment, net 2,660 3,299
Intangibles, net 2,974 3,247
Restricted cash -- 1,132
Other assets 80 77
-------- --------
Total assets $ 15,514 $ 17,213
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Bank borrowings - line of credit $ -- $ 3,916
Current portion of notes payable 1,765 900
Accounts payable 2,405 2,108
Accrued liabilities 3,217 3,823
Customer deposits 969 1,285
Deferred revenue 15 87
-------- --------
Total current liabilities 8,371 12,119
Long-term loans and notes payable, less current portion 3,299 1,165
Stockholders' equity:
Common stock, $0.001 par value; 20,233 shares authorized;
10,123 and 10,121 shares issued and outstanding on
June 30, 1999 and December 31, 1998, respectively 24,197 24,197
Notes receivable from stockholders (630) (630)
Accumulated deficit (19,723) (19,638)
-------- --------
Total stockholders' equity 3,844 3,929
-------- --------
Total liabilities and stockholders' equity $ 15,514 $ 17,213
======== ========
<FN>
Note: The condensed consolidated balance sheet at December 31, 1998, has been derived from the audited annual consolidated
balance sheet at that date but does not include all of the information and footnotes required by generally accepted
accounting principles for a complete consolidated balance sheet.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
ACCOM, INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended, Six Months Ended,
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 8,348 $ 3,028 $ 17,886 $ 6,101
Cost of sales 3,870 1,546 7,929 2,909
-------- -------- -------- --------
Gross profit 4,478 1,482 9,957 3,192
-------- -------- -------- --------
Operating expenses:
Research and development 1,836 773 3,781 1,608
Marketing and sales 2,339 1,362 4,439 2,542
General and administrative 840 340 1,647 646
-------- -------- -------- --------
Total operating expenses 5,015 2,475 9,867 4,796
-------- -------- -------- --------
Operating income (loss) (537) (993) 90 (1,604)
Interest and other income (expenses), net (62) 41 (173) 81
-------- -------- -------- --------
Loss before provision for income taxes (599) (952) (83) (1,523)
Provision for income taxes -- -- 2 5
-------- -------- -------- --------
Net loss $ (599) $ (952) $ (85) $ (1,528)
======== ======== ======== ========
Net loss per share - basic and diluted $ (0.06) $ (0.14) $ (0.01) $ (0.23)
======== ======== ======== ========
Shares used in computation of net
loss per share - basic and diluted 10,123 6,672 10,123 6,671
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
</FN>
</TABLE>
-4-
<PAGE>
<TABLE>
ACCOM, INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
----------------
June 30,
------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (85) $(1,530)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 821 293
Changes in operating assets and liabilities:
Accounts receivable (562) 1,143
Inventories 1,756 (371)
Other current assets (559) 90
Other assets (3) --
Accounts payable 297 (518)
Accrued liabilities (606) (211)
Customer deposits (316) (9)
Deferred revenue (72) (49)
------- -------
Net cash provided by (used in) operating activities 671 (1,162)
------- -------
Cash flows from investing activities:
Expenditures for property and equipment (256) (233)
Proceeds from disposal/reclassification of property and equipment 347 --
------- -------
Net cash provided by (used in) investing activities 91 (233)
Cash flows from financing activities:
Repayment of line of credit (3,916) --
Repayment of notes payable (300) (10)
Proceeds from long-term notes 3,299 --
Issuance of common stock -- 13
Purchase of common stock -- (4)
Restricted cash 1,132 --
------- -------
Net cash provided by (used in) financing activities 215 (1)
------- -------
Net increase (decrease) in cash and cash equivalents 977 (1,396)
Cash and cash equivalents at beginning of period -- 5,640
------- -------
Cash and cash equivalents at end of period $ 977 $ 4,244
======= =======
<FN>
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
</FN>
</TABLE>
-5-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Preparation
The condensed consolidated interim balance sheet as of June 30, 1999,
the condensed consolidated interim statements of operations for the three and
six month periods ended June 30, 1999 and 1998, and the condensed consolidated
interim statements of cash flows for the six month periods ended June 30, 1999
and 1998 have been prepared by the Company and are unaudited. In the opinion of
management, all adjustments (consisting of normal accruals) necessary to present
fairly the financial position as of June 30, 1999 and the results of operations
and cash flows for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations.
These condensed consolidated interim financial statements should be
reviewed in conjunction with the audited consolidated annual financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the three months ended December 31, 1998. The results of operations for
the three and six month periods ended June 30, 1999, are not necessarily
indicative of the operating results for any future period.
Note 2. Comprehensive Income
Comprehensive loss is equal to net loss for the three and six month
periods ended June 30, 1999 and 1998.
Note 3. Inventories
<TABLE>
Inventories consist of the following (in thousands):
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Purchased parts and materials $ 1,044 $ 2,399
Work-in-process 891 394
Finished goods 175 151
Demonstration inventory 1,479 2,401
----------------------------- -----------------------------
$ 3,589 $ 5,345
============================= =============================
</TABLE>
Note 4. Debt
The Company has a revolving line of credit ("line") with LaSalle
Business Credit, Inc. ("LBC"). The line of credit was originally established in
December, 1998. The line provides for borrowings subject to the level of
eligible accounts receivable and inventories. In July, 1999, certain aspects of
the line were modified in an amendment to the agreement between the Company and
LBC. Among the changes were a reduction in the amount of the line from $7.5
million to $4.0 million, a reduction in the borrowing base, an increase in the
interest rate by 50 basis points, and changes in certain financial covenants. As
of June 30, 1999, the Company had availability of $4.5 million under the line,
and there were no borrowings outstanding under the line.
-6-
<PAGE>
Indebtedness under the line of credit accrues interest at LBC's prime
rate plus 175 basis points. The term of the original agreement which established
the line of credit is three years and is renewable on a yearly basis thereafter.
The revolving loans are secured by all assets of the Company.
Borrowings under the line are subject to compliance with certain
financial covenants. The Company is currently in compliance with these covenants
(as amended).
On March 12, 1999, the Company completed a private placement of $3.5
million in senior subordinated convertible notes with a group of investors. The
notes have a coupon rate of 6% per year, mature in the year 2004, and are
convertible, at any time, into shares of Accom common stock at a price of $1.30
per share. The proceeds from these notes were used to pay the balance
outstanding on the LBC line of credit at the time the proceeds were received.
In conjunction with the sale of convertible notes, the Company and the
investors entered into an Investors Rights Agreement. The Investors Right
Agreement grants the investors, among other things, certain rights with respect
to the common stock of the Company issuable upon conversion of the notes.
The Company has two subordinated promissory notes of $750,000 and
$1,315,000 issued to Scitex Digital Video as partial consideration for the
purchase of certain assets and liabilities and the business of Scitex Digital
Video in December, 1998. The first note is due in April, 2000. Principal is to
be paid together with interest in arrears on the unpaid principal balance at a
variable rate equal to the Merrill Lynch Money Market Rate. The second note
consists of $900,000 due in 1999 and $415,000 due in 2000. Payments are to be
made on a quarterly basis starting on March 31, 1999. Principal is to be paid
together with interest in arrears on the unpaid principal balance at an annual
rate of 10%, increasing by 100 basis points at the beginning of every fiscal
quarter, starting July 1, 1999.
Note 5. Segment Information
<TABLE>
Management has organized the business into four market sub-segments
under one industry segment which includes activities relating to development,
manufacturing and marketing of digital video equipment. The chief operating
decision maker relies primarily on revenue to assess market segment performance.
The following table presents revenue by market (in thousands):
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
Market 1999 1998 1999 1998
------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Production $ 744 $ 1,405 $ 1,968 $ 3,243
Post Production 4,265 592 9,644 1,527
Distribution 2,316 899 4,203 967
Other 1,023 132 2,071 364
------------- -------------- ------------- -------------
$ 8,348 $ 3,028 $ 17,886 $ 6,101
============= ============== ============= =============
</TABLE>
Substantially all of the Company's assets are in the United States. All sales to
external customers are accepted and approved in the United States.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Company's Consolidated Financial Statements as of December 31, 1998 and
September 30, 1998 and 1997 and for the three-month periods ended December 31,
1998 and 1997 and the twelve-month periods ended September 30, 1998, 1997, and
1996, included in its Transition Report on Form 10-K for the
Transition Period from October 1, 1998 to December 31, 1998.
Additionally, the following Management's Discussion and Analysis of
Financial Condition and Results of Operations contains certain forward-looking
statements. The Company desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
Specifically, the Company wishes to alert readers that the factors set forth in
the Company's Transition Report on Form 10-K for the Transition Period from
October 1, 1998 to December 31, 1998, under the sections in Item 1 entitled
"Manufacturing and Suppliers," "Competition," "Proprietary Rights and Licenses"
and "Additional Factors That May Affect Future Results," as well as other
factors, could affect future results and have affected the Company's actual
results in the past and could cause the Company's results for future years or
quarters to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company, including without limitation,
those contained in this 10-Q report. Forward-looking statements can be
identified by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words.
Overview
Accom designs, manufactures, sells, and supports a complete line of
digital video signal processing, editing, and disk recording, and virtual set
tools, primarily for the worldwide, professional video production, post
production and live broadcasting, and computer video production and
post-production, marketplaces. The Company's systems are designed to be used by
video professionals to create, edit and broadcast high quality video content
such as television shows, commercials, news, music videos and video games.
<TABLE>
The following table summarizes the Company's products and the primary
marketplaces they address:
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
MARKETS / Product Primary Applications
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
PRODUCTION:
- ----------------------------------------------------------------------------------------------------------------
Virtual Set Production Tools
- ----------------------------------------------------------------------------------------------------------------
ELSET(R) Virtual Set Virtual sets for high-end video content creation
Production in real time
- ----------------------------------------------------------------------------------------------------------------
Computer Graphics and Animation Digital Disk Recorders
- ----------------------------------------------------------------------------------------------------------------
WSD(R)/2Xtreme Desktop computer graphics and animation production
- ----------------------------------------------------------------------------------------------------------------
POST PRODUCTION:
- ----------------------------------------------------------------------------------------------------------------
Digital Signal Processors
- ----------------------------------------------------------------------------------------------------------------
8150 Digital Switcher Digital switcher for on-line post production editing
for commercials and long form television programs
- ----------------------------------------------------------------------------------------------------------------
Digital Editors
- ----------------------------------------------------------------------------------------------------------------
Axial(R) 3000 Edit controller for on-line post production editing
for commercials and long form television programs
Sphere family of Integrated non-linear editing workstation for long and
products short form programs and commercials
- ----------------------------------------------------------------------------------------------------------------
Video Digital Disk Recorders
- ----------------------------------------------------------------------------------------------------------------
APR(TM)/Attache On-line post production editing and effects and on-air
playback of graphics for broadcast
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTION
- ----------------------------------------------------------------------------------------------------------------
Digital Signal Processors
- ----------------------------------------------------------------------------------------------------------------
Dveous(TM) and Brutus Digital Video Effects systems for news and sports
- ----------------------------------------------------------------------------------------------------------------
Digital News Graphics and Clip Servers
- ----------------------------------------------------------------------------------------------------------------
Axess(TM) Creation and broadcast distribution of news graphics
and short video segments
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
The Company's revenues are currently derived primarily from product
sales. The Company generally recognizes revenue upon product shipment. If
significant obligations exist at the time of shipment, revenue recognition is
deferred until such obligations are met.
The Company's gross margin has historically fluctuated from quarter to
quarter. Gross margins are dependent on the mix of higher and lower-priced
products having various gross margin percentages and the percentage of sales
made through direct and indirect distribution channels.
Results of Operations
Three Months Ended June 30, 1999 and June 30, 1998
<TABLE>
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the three months ended June 30, 1999 and
1998 as reported (dollar amounts in thousands):
<CAPTION>
Three Months Ended
June 30, Increase (Decrease)
---------------------- -------------------------
1999 1998 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Net sales $ 8,348 $ 3,028 $ 5,320 175.7%
Cost of sales 3,870 1,546 2,324 150.3%
------- ------- ------- -----
Gross profit 4,478 1,482 2,996 202.2%
Operating expenses:
Research and development 1,836 773 1,063 137.5%
Marketing and sales 2,339 1,362 977 71.7%
General and administrative 840 340 500 147.1%
------- ------- ------- -----
Total operating expenses 5,015 2,475 2,540 102.6%
------- ------- ------- -----
Operating loss (537) (993) 456 45.9%
Interest and other income (expenses), net (62) 41 (103) (251.2%)
------- ------- ------- -----
Net loss $ (599) $ (952) 353 37.1%
======= ======= ======= =====
</TABLE>
<TABLE>
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the three months ended June 30, 1999 and
1998, as a percentage of net sales, as reported:
<CAPTION>
Three Months Ended Increase
June 30, (Decrease)
-------- ----------
1999 1998
---- ----
<S> <C> <C>
Net sales 100.0 % 100.0 % -- %
Cost of sales 46.4 % 51.1 % (4.7)%
---------------------------------
Gross margin 53.6 % 48.9 % 4.7 %
Operating expenses:
Research and development 22.0 % 25.5 % (3.5)%
Marketing and sales 28.0 % 45.0 % (17.0)%
General and administrative 10.1 % 11.2 % (1.1)%
---------------------------------
Total operating expenses 60.1 % 81.7 % (21.6)%
---------------------------------
Operating loss (6.5)% (32.8)% 26.3 %
Interest and other income (expenses), net (0.7)% 1.4 % (2.1)%
---------------------------------
Net loss (7.2)% (31.4)% 24.2 %
=================================
</TABLE>
Net sales. The increase in net sales during the three months ended June
30, 1999, from levels for the same period in 1998 was primarily due to increased
sales in the post production and distribution marketplaces as well as increased
customer service revenues. The increased sales resulted largely from sales from
product lines acquired in the Scitex Digital Video acquisition. International
sales for the three months ended June 30, 1999 and 1998, represented 32.6% and
39.7% of net sales, respectively.
-9-
<PAGE>
<TABLE>
The following table presents net sales dollar volume for the three
months ended June 30, 1999 and 1998, by market and related percentages of total
net sales (dollar amounts in thousands):
<CAPTION>
Three Months Ended
June 30,
--------------------------------------------------------
1999 1998
--------------------- ---------------------
Marketplace Amount Percent Amount Percent
----------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Production $ 744 8.9% $ 1,405 46.4%
Post Production 4,265 51.1% 592 19.6%
Distribution 2,316 27.7% 899 29.7%
Other 1,023 12.3% 132 4.3%
----------------------------- -----------------------------
$ 8,348 100.0% $ 3,028 100.0%
============================= =============================
</TABLE>
Cost of sales. Cost of sales, as a percentage of sales, decreased for
the three months ended June 30, 1999, from levels for the three months ended
June 30, 1998, as a result of increased overall sales and a higher proportion of
higher-margin, customer service sales.
Research and development. Research and development expenses for the
three months ended June 30, 1999, increased over levels for the same period in
1998 primarily due to increases in headcount, consultant expenses, and materials
and services related to specific project development. The increase in headcount
was primarily a result of the acquisition of the Scitex Digital Video assets and
business in December, 1998.
Marketing and sales. Marketing and sales expenses for the three months
ended June 30, 1999 increased over levels for the three months ended June 30,
1998, primarily due to increases in headcount and related overhead expenses,
sales commission expenses, and travel expenses. The increase in headcount was
primarily a result of the acquisition of the Scitex Digital Video assets and
business in December, 1998.
General and administrative. The increase in general and administrative
expenses for the three months ended June 30, 1999 from levels for the same
period in 1998 was primarily due to increases in headcount and related overhead
expenses, consultant fees, and amortization of intangibles. The increase in
headcount was primarily a result of the acquisition of the Scitex Digital Video
assets and business in December, 1998.
Interest and other income, net. Interest and other income, net, for the
three months ended June 30, 1999, decreased over levels for the three months
ended June 30, 1998, due to a decrease in the levels of interest-paying
investments as well as an increase in debt taken on, in part, to fund the
acquisition of the Scitex Digital Video assets and business.
-10-
<PAGE>
Results of Operations
Six Months Ended June 30, 1999 and June 30, 1998
<TABLE>
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the six months ended June 30, 1999 and 1998
as reported (dollar amounts in thousands):
<CAPTION>
Six Months Ended
June 30, Increase (Decrease)
-------- -------------------
1999 1998 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Net sales $ 17,886 $ 6,101 $ 11,785 193.2%
Cost of sales 7,929 2,909 5,020 172.6%
-------- -------- -------- -----
Gross profit 9,957 3,192 6,765 211.9%
Operating expenses:
Research and development 3,781 1,608 2,173 135.1%
Marketing and sales 4,439 2,542 1,897 74.6%
General and administrative 1,647 646 1,001 155.0%
-------- -------- -------- -----
Total operating expenses 9,867 4,796 5,071 105.7%
-------- -------- -------- -----
Operating income (loss) 90 (1,604) 1,694 105.6%
Interest and other income (expenses), net (173) 81 (254) (313.6%)
-------- -------- -------- -----
Loss before provision for income taxes (83) (1,523) 1,440 94.6%
Provision for income taxes 2 5 (3) (60.0%)
-------- -------- -------- -----
Net loss $ (85) $ (1,528) 1,443 94.4%
======== ======== ======== =====
</TABLE>
<TABLE>
The following table presents the Company's Condensed Consolidated
Interim Statements of Operations for the six months ended June 30, 1999 and
1998, as a percentage of net sales, as reported:
<CAPTION>
Six Months Ended Increase
March 31, (Decrease)
--------- ----------
1999 1998
---- ----
<S> <C> <C> <C>
Net sales 100.0 % 100.0 % -- %
Cost of sales 44.3 % 47.7 % (3.4)%
-------------------------------
Gross margin 55.7 % 52.3 % 3.4 %
Operating expenses:
Research and development 21.2 % 26.3 % (5.1)%
Marketing and sales 24.8 % 41.7 % (16.9)%
General and administrative 9.2 % 10.6 % (1.4)%
-------------------------------
Total operating expenses 55.2 % 78.6 % (23.4)%
-------------------------------
Operating income (loss) 0.5 % (26.3)% 26.8 %
Interest and other income (expenses), net (1.0)% 1.3 % (2.3)%
-------------------------------
Net loss (0.5)% (25.0)% 24.5 %
===============================
</TABLE>
Net sales. The increase in net sales during the six months ended June
30, 1999, from levels for the same period in 1998 was primarily due to increased
sales in the post production and distribution marketplaces as well as increased
customer service revenues. The increased sales resulted largely from sales from
product lines acquired in the Scitex Digital Video acquisition. International
sales for the six months ended June 30, 1999 and 1998, represented 34.0% and
45.1% of net sales, respectively.
<TABLE>
The following table presents net sales dollar volume for the six months
ended June 30, 1999 and 1998, by market and related percentages of total net
sales (dollar amounts in thousands):
-11-
<PAGE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------------------------
1999 1998
--------------------- ---------------------
Marketplace Amount Percent Amount Percent
----------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Production $ 1,968 11.0% $ 3,243 53.2%
Post Production 9,644 53.9% 1,527 25.0%
Distribution 4,203 23.5% 967 15.8%
Other 2,071 11.6% 364 6.0%
----------------------------- -----------------------------
$ 17,886 100.0% $ 6,101 100.0%
============================= =============================
</TABLE>
Cost of sales. Cost of sales, as a percentage of sales, decreased for
the six months ended June 30, 1999, from levels for the six months ended June
30, 1998, as a result of increased overall sales and a higher proportion of
higher-margin, customer service sales.
Research and development. Research and development expenses for the six
months ended June 30, 1999, increased over levels for the same period in 1998
primarily due to increases in headcount and related overhead expenses,
consultant expenses, and materials and services related to specific project
development. The increase in headcount was primarily a result of the acquisition
of the Scitex Digital Video assets and business in December, 1998.
Marketing and sales. Marketing and sales expenses for the six months
ended June 30, 1999, increased over levels for the six months ended June 30,
1998, primarily due to increases in headcount and related overhead expenses,
expenses for consultants and temporary employees, sales commission expenses, and
trade show expenses. The increase in headcount was primarily a result of the
acquisition of the Scitex Digital Video assets and business in December, 1998.
General and administrative. The increase in general and administrative
expenses for the six months ended June 30, 1999, from levels for the same period
in 1998 was primarily due to increases in headcount and related overhead
expenses, expenses for consultants and temporary employees, and amortization of
intangibles. The increase in headcount was primarily a result of the acquisition
of the Scitex Digital Video assets and business in December, 1998.
Interest and other income, net. Interest and other income, net, for the
six months ended June 30, 1999, decreased over levels for the six months ended
June 30, 1998, due to a decrease in the levels of interest-paying investments as
well as an increase in debt taken on, in part, to fund the acquisition of the
Scitex Digital Video assets and business.
-12-
<PAGE>
Liquidity and Capital Resources
Since inception, the Company has financed its operations and
expenditures for property and equipment through the sale of capital stock,
borrowings under a bank line of credit, issue of senior subordinated convertible
notes, and term loans. As of June 30, 1999, the Company had $977,000 of cash and
cash equivalents.
Operating activities provided $671,000 in net cash in the six months
ended June 30, 1999 and used $1.2 million in net cash in the six months ended
June 30, 1998. Net cash provided by operations in the six months ended June 30,
1999, was due primarily to a decrease in inventories partially offset by an
increase in accounts receivable and other current assets and a decrease in other
accrued liabilities. Proceeds from the issue of long-term, senior subordinated
convertible notes, together with cash provided by operating activities, were
used in financing activities for the repayment of amounts borrowed previously
under a line of credit. Net cash used by operations in the six months ended June
30, 1998, was primarily due to the net loss, an increase in inventories, and a
decrease in accounts payable partially offset by a decrease in accounts
receivable. Additional cash was used in investing activities for the purchase of
property and equipment.
On December 10, 1998, the Company signed an agreement with LaSalle
Business Credit, Inc., a member of the ABN AMRO group, for a revolving line of
credit ("line"). The agreement was amended on March 11, 1999 and July 23, 1999.
The line of credit provides for borrowings subject to the level of eligible
accounts receivable and inventories and requires compliance with certain
financial covenants. The line is secured by all the assets of the Company. Under
the terms of the July, 1999, amendment to the original agreement between the
Company and LaSalle Business Credit, the amount of the line was reduced from
$7.5 million to $4.0 million, the borrowing base was reduced, the interest rate
charged on borrowings against the line was increased by 50 basis points, and
certain financial covenants were changed. As of June 30, 1999, the Company was
in compliance with the amended financial covenants and had no borrowings
outstanding under the line.
On March 12, 1999, the Company completed a private placement of $3.5
million in senior subordinated convertible notes with a group of investors. The
notes have a coupon rate of 6% per year, mature in 2004, and are convertible, at
any time, into shares of Accom common stock at a price of $1.30 per share.
Proceeds from the private placement were used to pay the balance on the line of
credit with LaSalle Business Credit that was outstanding at the time the
proceeds were received.
Based on current revenue levels, the Company believes that its existing
cash and cash equivalents will be sufficient to meet its cash requirements for
at least the next twelve months. Although operating activities may provide cash
in certain periods, to the extent the Company grows in the future, its operating
and investing activities may use cash and, consequently, such growth may require
the Company to obtain additional sources of financing. There can be no assurance
that any necessary additional financing will be available to the Company on
commercially reasonable terms, if at all.
Status of Progress in Becoming Year 2000 Compatible
The "Year 2000 Issue" is typically the result of software being
written using two digits rather than four digits to define the applicable year.
If the Company's software with date-sensitive functions is not Year 2000
compliant, it may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, interruptions in
manufacturing operations, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
-13-
<PAGE>
The Company has made a preliminary review of the most pertinent Year
2000 issues which have been identified as potentially having a material impact
on the Company's operations and financial condition. More comprehensive study in
certain areas is still to be undertaken.
The Company has identified three areas relating to Year 2000 issues
which may materially affect the Company's business: 1) Information Technology,
addressing internal software and business systems; 2) the Company's Products;
and 3) Third Party, addressing the preparedness of suppliers.
Information Technology Program: Internal applications systems such as
inventory and financial accounting software, computer network hardware and
software, and software applications programs may have Year 2000 problems. As a
result of the acquisition of Scitex Digital Video (SDV) on December 10, 1998,
the Company decided to use the Man-Man software already in use at SDV as its
main inventory and accounting software. The Man-Man software currently in use is
version 10.2 which is not Year 2000 compliant. Version 11.3, an upgrade of this
software, is Year 2000 compliant and has been procured by the Company by renewal
of its Man-Man license, at a cost of $67,000. Total cost to implement this
upgrade is estimated to be less than $100,000. As of June 30, 1999, at least
$20,000 of expected costs had been identified which related to replacement of
software applications and operating systems (which currently are readily
available for licensing by the Company) which the Company anticipates will take
place in the third quarter of 1999. Related to these software upgrades, hardware
on certain computers may also need to be replaced to make them compatible with
the upgraded software. The estimated cost of replacing such hardware is $30,000.
If required modifications to existing software and hardware and conversions to
new software are not made, or are not completed in a timely way, the Year 2000
Issue could have a material impact on the operations of the Company due to the
inability to accurately and effectively track inventory and other financial
results.
Product Readiness Program: Certain products the Company sells have been
identified to have Year 2000 problems which must be corrected to permit smooth
operation by the user. The Year 2000 solution consists of software changes which
are transmitted to customers by way of CD-ROMs and floppy diskettes. These
changes have been completed and transmitted to all customers on the Company's
customer list. These changes are also available to customers who are not on the
Company's current customer list. The Company believes the costs associated with
these activities is immaterial given the relatively low cost of the media and
small amount of internal labor utilized. The Company is currently assessing its
exposure to contingencies related to the Year 2000 Issue for the products it has
sold; however, it does not expect these contingencies to have a material impact
on the operations of the Company.
Third Party Program: The Company relies on numerous vendors in the
course of operating the business. If these vendors encounter Year 2000 problems
which impact their ability to deliver goods and services to the Company, the
Company's business might be materially and adversely affected. The Company is in
the process of conducting a comprehensive survey of its vendors to determine
their Year 2000 readiness and will complete this survey in the third quarter of
1999. The Company has not yet determined the extent to which the Company's
operations are vulnerable to those third parties' failure to remediate their own
Year 2000 issues. In order to protect against the acquisition of additional
non-compliant products, the Company will require that certain hardware and
software suppliers providing goods and services to the Company after June, 1999,
warrant that products sold or licensed to the Company are Year 2000 compliant.
Finally, the Company is also vulnerable to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failures and related service interruptions.
The Company anticipates addressing and remedying the critical Year 2000
issues by the end of the third quarter of 1999, which is prior to any
anticipated impact on its operating systems and expects the Year 2000 project to
continue beyond the year 2000 with respect to resolution of non-critical issues.
These dates are contingent upon the timeliness and accuracy of software and
hardware upgrades from vendors, adequacy and quality of resources available to
work on completion of the project and any other
-14-
<PAGE>
unforeseen factors. There can be no assurance that the Company will be
successful in its efforts to resolve any Year 2000 issues and to continue
operations in the year 2000. The failure of the Company to successfully resolve
such issues could result in a shutdown of some or all of the Company's
operations, which would have a material adverse effect on the Company.
Contingency Plans.
The Company has not yet developed a contingency plan to address
situations that may result if the Company is unable to achieve Year 2000
readiness of its critical operations but anticipates developing such a plan
during the third quarter of 1999. There can be no assurance that the Company
will be able to develop a contingency plan that will adequately address issues
that may arise in the year 2000. The failure of the Company to develop and
implement, if necessary, an appropriate contingency plan could have a material
impact on the operations of the Company.
Costs.
The total expense of the Year 2000 project is currently estimated to be
less than $150,000 which is not material to the Company's business operations or
financial condition. The Company has not yet fully estimated all the Year 2000
costs, in particular, those costs associated with the replacement of software
running on personal computers and the costs of modifying, testing and
distributing updates to ensure its own products are Year 2000 compliant. The
costs incurred to date have not been material.
If the Company or its suppliers fail to remedy any Year 2000 issues,
the most likely worst case scenario would include one or a combination of the
following events occurring: interruption of electricity which would prevent the
manufacturing and testing of products; collapse of financial and communications
networks which would hinder the payment and collection of invoices as well as
basic business transactions conducted over the telephone or the Internet;
shortages of supplies and parts resulting from "panic" buying or hoarding which
would adversely affect the manufacturing of products as well as ongoing research
and development; malfunctioning of date-sensitive parts and assemblies used in
products the Company manufactures and develops which would render those parts
inoperable. Any of these occurrences could result in the Company incurring
material costs and losing revenue. At this time, the Company is not able to
estimate the extent or duration of the events discussed above or to quantify the
effect they would have on the Company's future revenues and results from
operations.
The expenses of the Year 2000 project are being funded through
operating cash flows.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. There can be no assurance that these
estimates will be achieved and actual results could differ materially from those
anticipated.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Accom develops its technology in the United States and sells its
products primarily in North America, Europe, and the Far East. As a result, the
Company's financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
As all of the Company's sales are currently made in U.S. dollars, a
strengthening of the dollar could make the Company's products less competitive
in foreign markets. The Company's interest expense on short-term notes payable
are sensitive to changes in the general level of interest rates. Due to the
nature of the Company's debts, the Company has concluded that there is currently
no material market risk exposure. Therefore, no quantitative tabular disclosures
have been presented.
-15-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Effective May 26, 1999, the Board of Directors unanimously voted to
amend the Company's Bylaws 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 anniversary date of 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.
Effective July 20, 1999, pursuant to the prior approval of the
Company's stockholders at the Annual Meeting of Stockholders and of the
Company's Board of Directors, the Amended and Restated Certificate of
Incorporation of the Company (the "Certificate") was amended as
described below. First, the Certificate was amended 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. Second, the Certificate was
amended to adopt classified board provisions 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"). Third,
the Certificate was amended 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.
In addition, effective July 20, 1999, pursuant to the approvals
described above, the Company's Bylaws were amended to conform with the
Classified Board Provisions.
Item 3. Defaults Upon Senior Securities
None.
-16-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
On July 20, 1999, the Company held its annual meeting of stockholders.
At such meeting, the Company's stockholders approved the following
items by the following votes:
<TABLE>
1. The election of the following directors with two directors serving
a three-year term, two directors serving a two-year term, and two
directors serving a one-year term:
<CAPTION>
Nominee Term For Withheld Abstain
----------------------------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Junaid Sheikh 3 years 9,896,422 0 17,072
Lionel M. Allan 1 year 9,896,422 0 17,072
Thomas E. Fanella 2 years 9,896,422 0 17,072
David A. Lahar 2 years 9,896,422 0 17,072
Eugene M. Matalene, Jr. 1 year 9,896,422 0 17,072
Michael Luckwell 3 years 9,896,422 0 17,072
</TABLE>
2. An amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Common
Stock from 20,233,497 to 40,000,000 and the number of total
authorized shares of capital stock from 22,233,497 to 42,000,000
For 9,811,290
Against 96,204
Abstain 6,000
3. An amendment to the Company's Restated Certificate of
Incorporation adopting classified provisions and an amendment to
the Company's Bylaws to conform with the classified Board
provisions
For 6,201,247
Against 1,057,670
Abstain 25,923
Broker Non-Vote 2,628,654
4. An amendment to 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 6,242,294
Against 1,022,079
Abstain 20,467
Broker Non-Vote 2,628,654
5. An amendment to the Company's 1995 Stock Incentive/Stock Issuance
Plan
For 7,207,341
Against 74,533
Abstain 2,966
Broker Non-Vote 2,628,654
6. Ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for the Company's 1999
calendar year
For 9,911,009
Against 1,150
Abstain 1,335
-17-
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
4.1 Certificate of Amendment of the Bylaws of the
Company, dated as of May 26, 1999.
4.2 Certificate of Amendment of Certificate of
Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware on July
20, 1999
4.3 Certificate of Amendment of the Bylaws of the
Company, dated as of July 20, 1999
10.1 Second Amendment to Loan and Security Agreement,
dated as of July 23, 1999, between the Company and
LaSalle Business Credit, Inc.
10.2 Amendment to Restricted Stock Purchase Agreement,
dated as of June 20, 1999, between the Company and
Lionel M. Allan and Amended and Restated Secured
Promissory Note, issued to Lionel M. Allan in the
principal amount of $65,000, each dated as of June
20, 1999
10.3 Amended and Restated Secured Promissory Note, dated
as of June 20, 1999, issued to Phillip Bennett in the
principal amount of $500,000
27.1 Financial Data Schedule (EDGAR filed version only)
(b) Reports on Form 8-K.
On December 23, 1998, the Company filed a Current Report on
Form 8-K to report the Company's acquisition of the assets of
Scitex Digital Video, Inc. ("Scitex") and certain of Scitex's
affiliates as well as the details of the financing the Company
obtained related to such acquisition, including a loan
agreement and a sale of common stock. The Company did not file
the audited historical financial statements of the acquired
business and the pro forma financial statements of the
combined businesses required to be filed as an amendment to
the Form 8-K within 60 days after the original filing due date
because the audited financial statements for Scitex Digital
Video did not exist. The Company currently is in the process
of arranging for the preparation of the audited financials of
Scitex Digital Video and will file the financial statements
required by such Form 8-K as soon as practicable after the
audit is complete.
-18-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACCOM, INC.
By: /s/ JUNAID SHEIKH
-----------------------------------
(Junaid Sheikh)
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ DONALD K. McCAULEY
------------------------------------
(Donald K. McCauley)
Senior Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 12, 1999
-19-
EXHIBIT 4.1
CERTIFICATE OF AMENDMENT
OF
THE BYLAWS
OF
ACCOM, INC.
Accom, Inc., a corporation duly organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The amendment to the Corporation's Bylaws set forth below was duly
adopted by the Board of Directors of the Corporation and consented to by the
stockholders of the Corporation in accordance with Section 109 of the General
Corporation Law of the State of Delaware.
2. Article II of the Corporation's Bylaws is hereby amended to read in
its entirety as follows:
"ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election
of directors shall be held at such place, at such time and on such date
as may be designated from time to time by the Board of Directors.
Meetings of stockholders for any other purpose may be held at such
place time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten (10) nor more than
sixty (60) days before the date of the meeting.
Section 3. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given not fewer than ten (10) nor
more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 4. A special meeting of the stockholders may be called
at any time by the Board of Directors, or by the chairman of the board,
or by the president. No other person or persons are permitted to call a
special meeting."
Section 5. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting,
<PAGE>
arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 6. Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of
stockholders (i) pursuant to the corporation's notice of meeting, (ii)
by or at the direction of the Board of Directors or (iii) by any
stockholder of the corporation who was a stockholder of record at the
time of giving of notice provided for in this bylaw, who is entitled to
vote at the meeting and who complied with the notice procedures set
forth in Article II, Section 6 below.
Section 7. For nominations or other business to be property
brought before an annual meeting by a stockholder pursuant to clause
(iii) of Article II, Section 5 above, the stockholder must have given
timely notice thereof in writing to the secretary of the corporation
and such other business must be a proper matter for stockholder action.
To be timely, a stockholder's notice shall be delivered to the
secretary at the principal executive offices of the corporation not
later than the close of business on the 90th day nor earlier than the
close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the
event that the date of the annual meeting is more than 30 days before
or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the
close of business on the 120th day prior to such annual meeting and not
later than the close of business on the later of the 90th day prior to
such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. In no event
shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as
described above. Such stockholder's notice shall set forth (i) as to
each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that
is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (ii) as to any other business
that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and
(iii) as to the
2
<PAGE>
stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made, (x) the name and
address of such stockholder and of such beneficial owner, as they each
appear on the corporation's books, and (y) the class and number of
shares of the corporation which are owned beneficially and of record by
such stockholder and such beneficial owner.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise
provided by statute or by the certificate of incorporation. If,
however, such quorum shall not be present or represented at any meeting
of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented any
business may be transacted that might have been transacted at the
meeting as originally notified. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the
meeting.
Section 9. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present
in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express
provision of the statutes or of the certificate of incorporation, a
different vote is required, in which case such express provision shall
govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each
share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three (3) years from
its date, unless the proxy provides for a longer period.
Section 11. The stockholders of the Corporation may not take
action by written consent without a meeting but must take any such
actions at a duly called annual or special meeting.
3. Article VIII, Section 1 of the Company's Bylaws hereby is amended in
its entirety to read as follows:
"ARTICLE VIII
Section 1. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to
make, adopt, alter, amend or repeal the Bylaws of the corporation,
subject to the right of the stockholders entitled to vote with respect
thereto to amend or repeal Bylaws made
3
<PAGE>
by the Board of Directors as provided for in the certificate of
incorporation or in these Bylaws. The affirmative vote of 66-2/3% of
the total number of votes of the then outstanding shares of capital
stock of this corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required for the
adoption, amendment or repeal of the following Sections of the
corporation's Bylaws: Article II, Section 4 and Article II, Section 6
by the stockholders of this corporation."
4
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Lionel M. Allan, its Secretary, as of the 26th day of
May, 1999.
/s/ Lionel M. Allan
--------------------------------
Lionel M. Allan
Secretary
5
EXHIBIT 4.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ACCOM, INC.
Accom, Inc., a corporation duly organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The amendment to the Corporation's Certificate of Incorporation set
forth below was duly adopted by the Board of Directors of the Corporation and
consented to by the stockholders of the Corporation in accordance with Section
242 of the General Corporation Law of the State of Delaware.
2. Article IV of the Corporation's Certificate of Incorporation is
amended to read in its entirety as follows:
"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 outstanding. In case the number of shares of any series
shall be so decreased, the shares 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."
<PAGE>
3. Article VI of the Corporation's Certificate of Incorporation is
amended to read in its entirety as follows:
"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
2
<PAGE>
authorized number of directors shall have the effect of removing any
director prior to the expiration of such director's term of office."
4. Article XII of the Corporation's Certificate of Incorporation is
amended to read in its entirety as follows:
"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 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."
4. Article XIII of the Corporation's Certificate of Incorporation is
amended to read in its entirety as follows:
"ARTICLE XIII
This corporation elects to be governed by Section 203 of the Delaware
General Corporation Law."
3
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Junaid Sheikh, its Chief Executive Officer, on this
20th day of July, 1999.
/s/ Junaid Sheikh
--------------------------------------
Junaid Sheikh
Chief Executive Officer
ATTEST:
/s/ Donald K. McCauley
- --------------------------------------
Donald K. McCauley
Secretary
4
EXHIBIT 4.3
CERTIFICATE OF AMENDMENT
OF
THE BYLAWS
OF
ACCOM, INC.
Accom, Inc., a corporation duly organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The amendment to the Corporation's Bylaws set forth below was duly
adopted by the Board of Directors of the Corporation and consented to by the
stockholders of the Corporation in accordance with Section 109 of the General
Corporation Law of the State of Delaware.
2. Article III of the Corporation's Bylaws is hereby amended to read in
its entirety as follows:
"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
<PAGE>
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."
6
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Donald K. McCauley, its Secretary, on this 20th day of
July, 1999.
Donald K. McCauley
--------------------------------------
Donald K. McCauley
Secretary
7
EXHIBIT 10.1
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement, dated as of the
23rd day of July, 1999, is made by and between Accom, Inc. ("Borrower") and
LaSalle Business Credit, Inc. ("LaSalle") for the purpose of amending the Loan
and Security Agreement executed between them as of December 10, 1998, as it has
previously been amended (the "Agreement").
For valuable consideration, receipt and sufficiency of which are
acknowledged, Borrower and LaSalle agree as follows:
1. The definition of "Inventory Advance Rate" is hereby amended to read
as follows:
"Inventory Advance Rate shall mean twenty-five
percent (25%); provided, however, that the Inventory Advance
Rate will be increased after LaSalle's receipt of Borrower's
December 31, 1999 audited fiscal year-end financial statement
to the lesser of (i) forty percent (40%) or (ii) eighty-five
percent (85%) of the net liquidation value of Eligible
Inventory as determined by the Appraisal, but such increase
will occur only if no Default or Event of Default then exists
and Borrower is then in full compliance with all covenants in
this Agreement. LaSalle may require that a new appraisal be
performed, at Borrower's expense, by an appraiser acceptable
to LaSalle before the Inventory Advance Rate is increased.
2. The definition of "Revolving Loan Facility" is amended to read as
follows:
"Revolving Loan Facility shall mean the sum of
$4,000,000."
3. Paragraph 2(b) of the Agreement is amended in its entirety to read
as follows:
"(b) LaSalle agrees to make Revolving Loans to
Borrower up to the lesser of the following amounts, the amount
calculated pursuant to subparagraph (i) below being the
"Borrowing Base":
(i) an amount equal to the sum of:
(A) the applicable A/R Advance Rate
applied to the face amount of Eligible
Accounts plus,
<PAGE>
(B) the lesser of two million
dollars ($2,000,000) or the sum of
(x) the Inventory Advance Rate
applied to the value of Eligible
Inventory other than Rotational
Inventory, calculated on the lower
of cost or market value on a
first-in, first-out basis; plus
(y) the lesser of (1) the Inventory
Advance Rate for Eligible Inventory
which is Rotational Inventory
applied to the value of such
Rotational Inventory, calculated on
the lower of cost or market value
on a first-in, first-out basis or
(2) five hundred thousand dollars
($500,000), less
(C) the amount of all Letter of
Credit Obligations, less
(D) such reserves as LaSalle in its
sole discretion may from time to time
establish in determining the Borrowing Base
to reflect events, conditions, contingencies
or risks which may affect the Collateral,
the business, business prospects or
financial condition of Borrower, the
security interests of LaSalle, or the
security of the Loans, including but not
limited to a five hundred thousand dollar
($500,000) reserve to be maintained until
LaSalle has received and approved the
Appraisal and the Inventory Advance Rate has
been adjusted in LaSalle's reasonable credit
judgment based on the Appraisal, or
(ii) the Revolving Loan Facility, less the
amount of all Letter of Credit Obligations."
4. The second sentence of paragraph 5(a) of the Agreement is amended to
read as follows:
"Interest shall accrue on the principal amount of the
Revolving Loans made to Borrower outstanding at the end of
each day at a fluctuating rate per annum equal to one and
three-quarters percent (1.75%) above the Prime Rate."
2
<PAGE>
5. Paragraph 14(n)(i) of the Agreement is hereby amended in its
entirety to read as follows:
"(i) Consolidated Tangible Net Worth. Borrower and
its Subsidiaries, on a consolidated basis, shall maintain as
of the end of (A) the month ending September 30, 1999 a
Tangible Net Worth of not less than $3,200,000 (the "Base
Amount") and (B) each month thereafter, a Tangible Net Worth
of not less than the sum of (1) the Base Amount and (2) an
aggregate amount equal to ninety percent (90%) of the net
income after taxes of Borrower and its Subsidiaries, on a
consolidated basis, for each fiscal quarter ending subsequent
to September 30, 1999 (provided, however, that such aggregate
amount shall not be reduced by the amount of any net loss
before taxes of Borrower and its Subsidiaries, on a
consolidated basis, for any fiscal quarter)."
6. Paragraph 14(n)(ii) of the Agreement is hereby amended in its
entirety to read as follows:
"(ii) Cash Flow. Borrower and its Subsidiaries, on a
consolidated basis, shall have Cash Flow of no less than
$1,500,000 for the 12-month period ending December 31, 1999
and for each 12-month period ending as of the end of each
fiscal quarter thereafter."
7. Paragraph 14(n)(v) of the Agreement is hereby amended in its
entirety to read as follows:
"(v) Consolidated Capital Expenditures. Borrower and
its Subsidiaries, on a consolidated basis, shall not make
Capital Expenditures in any fiscal year in an aggregate amount
which exceeds the sum of three hundred fifty thousand dollars
($350,000); provided, however, that they may make Capital
Expenditures in an aggregate amount of up to $550,000 in
fiscal year 1999."
8. The following new paragraph 14(n)(vi) is hereby added to the
Agreement:
"(vi) Maximum Loss. Borrower and its Subsidiaries, on
a consolidated basis, shall not incur a fiscal year-to-date
pre-tax loss, calculated in accordance with GAAP, in excess of
$525,000 as of September 30, 1999."
9. The following sentence is added to paragraph 14(t) of the Agreement:
"LaSalle will have the right to have Borrower's Inventory
appraised at any time, at Borrower's expense, by an appraiser
acceptable to LaSalle; provided, however, that in the absence
of an
3
<PAGE>
Event of Default, LaSalle will not require such appraisals
more often than twice a year."
10. Subject to execution of this Amendment and to LaSalle's receipt of
copies of written waivers executed by Scitex Digital Video, Inc. ("Scitex") and
American Bankers Insurance Group, Inc. ("ABIG") and certain other holders of
Borrower's 6% Senior Subordinated Convertible Notes (the "Senior Notes") waiving
any and all defaults of Borrower with respect to Borrower's obligations to
Scitex, ABIG and such holders, LaSalle waives, through the date hereof,
Borrower's (a) default of the covenant in paragraph 14(m) not to amend its
organizational documents, as a result of Borrower's amendment to its Bylaws
dated as of May 26, 1999, amendment to its Bylaws dated as of July 20, 1999, and
amendment to its Certificate of Incorporation dated as of July 20, 1999, copies
of which have been provided to LaSalle; (b) default of the Consolidated Tangible
Net Worth covenant in paragraph 14(n)(i) as such covenant existed prior to this
Amendment, (c) default of the Cash Flow covenant in paragraph 14(n)(ii) as such
covenant existed prior to this Amendment; and (d) default which has occurred
under paragraph 16(i) as a result of Borrower's default under its subordinated
promissory note in favor of Scitex and under its Senior Notes dated as of March
12, 1999. Upon the effective date of LaSalle's waiver, Borrower may make payment
to Scitex of all principal and interest accrued under the subordinated
promissory note and up to $1,015,000 representing principal which was scheduled
to be paid in June 1999, provided that all conditions for such payment under
paragraph 14(u) of the Agreement are satisfied and Scitex waives any and all
other defaults by Borrower through the date of payment.
11. Borrower shall pay all expenses, including attorney fees, which
LaSalle incurs in connection with the preparation of this Amendment and any
related documents. All such fees and expenses may be charged against Borrower's
loan account.
12. To induce LaSalle to enter into this Amendment, Borrower makes the
following representations and warranties:
(a) Each recital, representation and warranty contained in
this Amendment, in the Agreement as amended by this Amendment and in the Other
Agreements, are true and correct as of the date of this Amendment and do not
omit to state a material fact required to make those recitals, representations
and warranties not misleading, except to the extent the defaults described in
paragraph 10(d) affect such representations and warranties.
(b) Except as set forth in paragraph 10, no event has occurred
and is continuing which constitutes or would, with the giving of notice, the
passage of time or both, constitute an Event of Default under the Agreement or
any of the Other Agreements.
13. Except as specifically provided above, the Agreement and the Other
Agreements remain fully valid, binding and enforceable according to their terms.
14. Borrower hereby waives any and all defenses, claims, counterclaims
and offsets against LaSalle which may have arisen or accrued through the date of
this Amendment. Borrower acknowledges that LaSalle and its employees, agents and
attorneys have made no representations or promises except as specifically
reflected in this Amendment and in the written agreements which have been
previously executed.
4
<PAGE>
15. Each party represents and warrants to the other party that this
Amendment has been approved by all necessary corporate action, and the
individuals signing below represent and warrant that they are fully authorized
to do so.
ACCOM, INC.
By: /s/ DONALD K. McCAULEY
-------------------------------
(Donald K. McCauley)
Title: Senior Vice President, Finance and
Chief Financial Officer
LASALLE BUSINESS CREDIT, INC.
By: /s/ MARK E. LANDSEM
------------------------------------
(Mark E. Landsem)
Title: Vice President
5
EXHIBIT 10.2
Execution Copy
AMENDMENT TO
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AMENDMENT (this "Amendment") to the Restricted Stock Purchase
Agreement (the "Agreement"), dated as of December 7, 1998, by and between Accom,
Inc., a Delaware corporation (the "Company"), and Lionel M. Allan, an individual
residing in California (the "Purchaser"), has been executed and delivered
effective as of June 20, 1999, by and between the Company and the Purchaser.
BACKGROUND
In accordance with the terms and conditions of this Amendment, the
Company and the Purchaser desire to amend the Agreement: (i) to terminate the
Company's repurchase option upon certain of the 100,000 shares (the "Shares") of
the Company's Common Stock (the "Common Stock") sold to Purchaser by the Company
in connection with the Agreement, (ii) to eliminate the Company's rights
regarding the effect of tender of the purchase price, (iii) to terminate certain
restrictions on the transfer of the Shares and (iv) to amend the legend placed
upon the Shares.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements of the
Company and the Purchaser, and intending to be legally bound, the Company and
the Purchaser agree as follows:
1. Section 2 of the Agreement shall be amended and restated in its
entirety to read as follows:
"2. No Repurchase Option.
(a) On June 20, 1999, all Shares shall be fully
vested in the Purchaser and shall not be subject to any
repurchase option of the Company."
2. Section 3 of the Agreement shall no longer be of any force and
effect and shall be amended and restated in its entirety to read as follows:
"3. [Intentionally Omitted.]"
3. Section 4 of the Agreement shall no longer be of any force and
effect and shall be amended and restated in its entirety to read as follows:
"4. [Intentionally Omitted.]"
<PAGE>
4. Section 5.2 shall be amended and restated in its entirety to read as
follows:
"5.2 Accordingly, to implement the Purchaser's
representations and agreements, the Purchaser agrees to
authorize the Company to place substantially the following
legends, and any legend required by applicable State
Securities Laws, on each Certificate issued to the Purchaser
to evidence the Shares, and to place a stop order against
further transfer of the Shares except in compliance with the
Act and applicable State Securities Laws.
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ISSUED AND TRANSFERRED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND UNDER STATE SECURITIES
LAWS AND MAY NOT BE SOLD, TRANSFERRED OR DISPOSED OF UNLESS SO
REGISTERED OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE."
[The remainder of this page is intentionally left blank.]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first above written.
ACCOM, INC.
By: /s/ Junaid Sheikh
-------------------------------------
Junaid Sheikh
Chief Executive Officer
LIONEL M. ALLAN
/s/ Lionel M. Allan
----------------------------------------
3
<PAGE>
Execution Copy
AMENDED AND RESTATED
SECURED PROMISSORY NOTE
$65,000 June 20, 1999
FOR VALUE RECEIVED, Lionel M. Allan ("Maker"), promises to pay to
Accom, Inc., a Delaware corporation ("Payee"), in lawful money of the United
States of America, the principal sum of Sixty-Five Thousand dollars ($65,000)
together with interest in arrears on the unpaid principal balance of this Note
in accordance with Section 1.
This Note terminates and supersedes that certain Non-Recourse
Promissory Note issued by Maker to Payee dated December 7, 1998 (the "Canceled
Note"). The Canceled Note is attached hereto as Exhibit A.
1. PAYMENTS.
1.1 Principal and Interest. Subject to Section 1.3,
(a) The principal amount of this Note then
outstanding shall be due and payable on December 7, 2003.
(b) Interest shall begin to accrue on the unpaid
principal balance of this Note commencing on December 7, 1998 until repayment of
this Note in full. The interest rate shall be a variable annual rate equal to
the prime rate of Comerica Bank which rate shall be established and adjusted as
necessary at the beginning of each calendar quarter during the term of this Note
and shall be calculated on the basis of a year of 365 or 366 days, as
applicable, and charged for the actual number of days elapsed.
(c) All accrued, unpaid interest shall be due and
payable together with the payment of principal on December 7, 2003.
1.2 Manner of Payment. All payments of principal and interest
on this Note shall be made by wire transfer to such accounts as specified by
Payee, promptly upon request of Maker, or by check at 1490 O'Brien Drive, Menlo
Park, CA 94025, or at such other place in the United States of America as Payee
shall designate to Maker in writing. If any payment of principal or interest on
this Note is due on a day which is not a Business Day, such payment shall be due
on the next succeeding Business Day, and such extension of time shall be taken
into account in calculating the amount of interest payable under this Note.
"Business Day" means any day other than a Saturday, Sunday or legal holiday in
the State of California.
1.3 Optional Prepayment. Maker may, without premium or
penalty, at any time and from time to time, prepay all or any portion of the
outstanding principal balance due under this Note, provided that each such
prepayment is accompanied by accrued interest on the amount of principal prepaid
calculated to the date of such prepayment. Any partial prepayments shall be
applied to installments of principal in inverse order of their maturity.
<PAGE>
2. DEFAULTS.
2.1 Events of Default. The occurrence of any one or more of
the following events with respect to Maker shall constitute an event of default
hereunder ("Event of Default"):
(a) If Maker shall fail to pay when due any payment
of principal or interest on this Note and such failure continues for five (5)
Business Days after Payee notifies Maker thereof writing;
(b) If, pursuant to or within the meaning of the
United States Bankruptcy Code or any other federal or state law relating to
insolvency or relief of debtors (a "Bankruptcy Law"), Maker shall (i) commence a
voluntary case or proceeding; (ii) consent to the entry of an order for relief
against it in an involuntary case; (iii) consent to the appointment of a
trustee, receiver, assignee, liquidator or similar official; or (iv) make an
assignment for the benefit of its creditors; or
(c) If a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that (i) is for relief against Maker in
an involuntary case; (ii) appoints a trustee, receiver, assignee, liquidator or
similar official for Maker or substantially all of Maker's properties; or (iii)
orders the liquidation of Maker, and in each case the order or decree is not
dismissed within 120 days.
2.2 Remedies. Upon the occurrence of an Event of Default
hereunder (unless all Events of Default have been cured or waived by Payee),
Payee may, at its option, (a) by written notice to Maker, declare the entire
unpaid principal balance of this Note, together with all accrued interest
thereon, immediately due and payable regardless of any prior forbearance, and
(b) exercise any and all rights and remedies available to it under applicable
law, including, without limitation, the right to collect from Maker all sums due
under this Note. Maker shall pay all reasonable attorneys' fees incurred by or
on behalf of Payee in connection with Payee's exercise of any or all of its
rights and remedies under this Note.
2.3 Recourse. Upon the occurrence of an Event of Default
hereunder (unless all Events of Default have been cured or waived by Payee),
Payee shall have full recourse against all tangible and intangible assets of
Maker, including, but not limited to, the shares of common stock of Payee
purchased by Maker (the "Shares") in connection with the Restricted Stock
Purchase Agreement, dated as December 7, 1998 and amended as of June 20, 1999,
between Maker and Payee (the "Restricted Stock Purchase Agreement"). Payee shall
have a full right of offset for any amounts due upon such Event of Default
against any amounts payable by Payee to Maker.
2
<PAGE>
3. COLLATERAL.
3.1. Security Interest. This Note constitutes a "security
agreement" within the meaning of the Uniform Commercial Code of the State of
California as in effect on the date hereof and as amended from time to time
hereafter. Payee and Maker desire to secure the payment and performance of all
money, debts, obligations and liabilities, whether direct or indirect, absolute
or contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with this Note (the "Secured
Obligations"). Accordingly, Maker hereby grants, assign, transfer, pledge, and
set over to Payee a first-priority security interest in and lien on the Shares.
3.2. Further Assurances. Maker agrees that at any time and
from time to time, at its expense, Maker will promptly execute and deliver all
further instruments and documents (including, without limitation, financing
statements and continuation statements), and take all further action that Payee
may request, in order to perfect and protect the security interests granted or
purported to be granted hereby and to enable Payee to exercise and enforce its
rights and remedies hereunder with respect to the Shares.
4. MISCELLANEOUS.
4.1 Waiver. The rights and remedies of Payee under this Note
shall be cumulative and not alternative. No waiver by Payee of any right or
remedy under this Note shall be effective unless in a writing signed by Payee.
Neither the failure nor any delay in exercising any right, power or privilege
under this Note will operate as a waiver of such right, power or privilege and
no single or partial exercise of any such right, power or privilege by Payee
will preclude any other or further exercise of such right, power or privilege or
the exercise of any other right, power or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right of Payee arising out of this
Note can be discharged by Payee, in whole or in part, by a waiver or
renunciation of the claim or right unless in a writing, signed by Payee; (b) no
waiver that may be given by Payee will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on Maker will be
deemed to be a waiver of any obligation of Maker or of the right of Payee to
take further action without notice or demand as provided in this Note.
4.2 Notices. All notices, requests, demands and other
communications called for or contemplated hereunder shall be in writing and
shall be deemed to have been duly given when delivered to the party to whom
addressed or when sent by telecopy (as indicated by a telecopy confirmation and
if promptly confirmed by registered or certified mail, return receipt requested,
prepaid and addressed) to the parties, their successors in interest, or their
assignees pursuant to the terms of Section 6.5 of the Restricted Stock Purchase
Agreement.
4.3 Severability. Any provision of this Note which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Note invalid,
illegal or unenforceable in any other jurisdiction.
3
<PAGE>
4.4 Governing Law. This Note shall be construed and enforced
in accordance with and governed by the laws of the State of Delaware.
4.5 Parties In Interest. This Note shall bind Maker and its
successors and assigns. This Note shall not be assigned or transferred by Maker
or Payee without the express prior written consent of Maker, except by operation
of law or in connection with the sale of all or substantially all of the stock
or assets of Maker or Payee (as applicable).
4.6 Section Headings, Construction. The headings of each
Section, subsection or other subdivision of this Note are for reference only and
shall not limit or control the meaning thereof. All references to "Section" or
"Sections" refer to the corresponding Section or Sections of this Note unless
otherwise specified. All words used in this Note will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the words "hereof" and "hereunder" and similar references refer to
this Note in its entirety and not to any specific section or subsection hereof.
4.7 No Usury. It is the intent of the parties that the rate of
interest and other charges to the Maker shall be lawful. If for any reason the
interest or other charges payable hereunder are found by a court of competent
jurisdiction, in a final determination, to exceed the limit which the Payee may
lawfully charge the Maker, then the obligation to pay interest or other charges
shall automatically be reduced to such limit and, if any amount in excess of
such limit shall have been paid, then such amount shall be refunded to the
Maker.
[The remainder of this page is intentionally left blank.]
4
<PAGE>
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first stated above.
/s/ Lionel M. Allan
----------------------------------------
Lionel M. Allan
5
EXHIBIT 10.3
Execution Copy
AMENDED AND RESTATED
NON-RECOURSE PROMISSORY NOTE
$500,000 June 20, 1999
FOR VALUE RECEIVED, Phillip Bennett ("Maker"), promises to pay to
Accom, Inc., a Delaware corporation ("Payee"), in lawful money of the United
States of America, the principal sum of Five Hundred Thousand ($500,000)
together with interest in arrears on the unpaid principal balance of this Note
in accordance with Section 1.
This Note terminates and supersedes that certain Non-Recourse
Promissory Note issued by Maker to Payee dated December 7, 1998 (the "Canceled
Note"). The Canceled Note is attached hereto as Exhibit A.
1. PAYMENTS.
1.1 Principal and Interest. Subject to Section 1.3,
(a) The principal amount of this Note then
outstanding shall be due and payable on December 7, 2001.
(b) Interest shall begin to accrue on the unpaid
principal balance of this Note, if any, commencing on December 7, 1998 until
repayment of this Note in full. Commencing on December 7, 1998, the interest
rate shall be five and one half percent (5.5%) per annum calculated on the basis
of a year of 365 or 366 days, as applicable, and charged for the actual number
of days elapsed.
(c) Commencing on the date of this Note, all unpaid
interest accrued as of the last day of each calendar month shall be due and
payable in advance on the first Business Day of such month.
1.2 Manner of Payment. All payments of principal and interest
on this Note shall be made by wire transfer to such accounts as specified by
Payee, promptly upon request of Maker, or by check at 1490 O'Brien Drive, Menlo
Park, CA 94025, or at such other place in the United States of America as Payee
shall designate to Maker in writing. If any payment of principal on this Note is
due on a day which is not a Business Day, such payment shall be due on the next
succeeding Business Day. "Business Day" means any day other than a Saturday,
Sunday or legal holiday in the State of California.
1.3 Optional Prepayment. Maker may, without premium or
penalty, at any time and from time to time, prepay all or any portion of the
outstanding principal balance due under this Note, provided that each such
prepayment is accompanied by accrued interest on the
<PAGE>
amount of principal prepaid calculated to the date of such prepayment. Any
partial prepayments shall be applied to installments of principal in inverse
order of their maturity.
2. DEFAULTS.
2.1 Events of Default. The occurrence of any one or more of
the following events with respect to Maker shall constitute an event of default
hereunder ("Event of Default"):
(a) If Maker shall fail to pay when due any payment
of principal or interest on this Note and such failure continues for five (5)
Business Days after Payee notifies Maker thereof writing.
(b) If, pursuant to or within the meaning of the
United States Bankruptcy Code or any other federal or state law relating to
insolvency or relief of debtors (a "Bankruptcy Law"), Maker shall (i) commence a
voluntary case or proceeding; (ii) consent to the entry of an order for relief
against it in an involuntary case; (iii) consent to the appointment of a
trustee, receiver, assignee, liquidator or similar official; or (iv) make an
assignment for the benefit of its creditors.
(c) If a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that (i) is for relief against Maker in
an involuntary case; (ii) appoints a trustee, receiver, assignee, liquidator or
similar official for Maker or substantially all of Maker's properties; or (iii)
orders the liquidation of Maker, and in each case the order or decree is not
dismissed within 120 days.
(d) Upon the death of the Maker.
2.2 Remedies. Subject to Section 2.3, upon the occurrence of
an Event of Default hereunder (unless all Events of Default have been cured or
waived by Payee), Payee may, at its option, (i) by written notice to Maker,
declare the entire unpaid principal balance of this Note, together with all
accrued interest thereon, immediately due and payable regardless of any prior
forbearance, and (ii) exercise any and all rights and remedies available to it
under applicable law, including, without limitation, the right to collect from
Maker all sums due under this Note. Maker shall pay all reasonable attorneys'
fees incurred by or on behalf of Payee in connection with Payee's exercise of
any or all of its rights and remedies under this Note.
2.3 Non-Recourse Limitation on Remedies. Notwithstanding
anything to the contrary contained in this Note, Payee's recovery against Maker
under this Note upon an Event of Default shall be limited solely to the shares
of common stock of Payee purchased by Maker in the Restricted Stock Purchase
Agreement dated as of even date herewith between Maker and Payee. Maker shall
not be liable or have any personal liability in any other respect for the
payment of any amount due under this Note.
3. MISCELLANEOUS.
3.1 Waiver. The rights and remedies of Payee under this Note
shall be cumulative and not alternative. No waiver by Payee of any right or
remedy under this Note shall be effective unless in a writing signed by Payee.
Neither the failure nor any delay in exercising
2
<PAGE>
any right, power or privilege under this Note will operate as a waiver of such
right, power or privilege and no single or partial exercise of any such right,
power or privilege by Payee will preclude any other or further exercise of such
right, power or privilege or the exercise of any other right, power or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right of Payee arising out of this Note can be discharged by Payee, in whole or
in part, by a waiver or renunciation of the claim or right unless in a writing,
signed by Payee; (b) no waiver that may be given by Payee will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on Maker will be deemed to be a waiver of any obligation of Maker or of
the right of Payee to take further action without notice or demand as provided
in this Note.
3.2 Notices. All notices, requests, demands and other
communications called for or contemplated hereunder shall be in writing and
shall be deemed to have been duly given when delivered to the party to whom
addressed or when sent by telecopy (as indicated by a telecopy confirmation and
if promptly confirmed by registered or certified mail, return receipt requested,
prepaid and addressed) to the parties, their successors in interest, or their
assignees pursuant to the terms of Section 6.5 of the Restricted Stock Purchase
Agreement.
3.3 Severability. Any provision of this Note which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Note invalid,
illegal or unenforceable in any other jurisdiction.
3.4 Governing Law. This Note shall be construed and enforced
in accordance with and governed by the laws of the State of Delaware.
3.5 Parties In Interest. This Note shall bind Maker and its
successors and assigns. This Note shall not be assigned or transferred by Maker
or Payee without the express prior written consent of Maker, except by operation
of law or in connection with the sale of all or substantially all of the stock
or assets of Maker or Payee (as applicable).
3.6 Section Headings, Construction. The headings of each
Section, subsection or other subdivision of this Note are for reference only and
shall not limit or control the meaning thereof. All references to "Section" or
"Sections" refer to the corresponding Section or Sections of this Note unless
otherwise specified. All words used in this Note will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the words "hereof" and "hereunder" and similar references refer to
this Note in its entirety and not to any specific section or subsection hereof.
3.7 No Usury. It is the intent of the parties that the rate of
interest and other charges to the Maker shall be lawful. If for any reason the
interest or other charges payable hereunder are found by a court of competent
jurisdiction, in a final determination, to exceed the limit which the Payee may
lawfully charge the Maker, then the obligation to pay interest or other charges
shall automatically be reduced to such limit and, if any amount in excess of
such limit shall have been paid, then such amount shall be refunded to the
Maker.
3
<PAGE>
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first stated above.
/s/ Phillip Bennett
----------------------------------------
Phillip Bennett
4
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