UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
Amendment No. 1
Form 10-K/A
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended ____________________, or
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from October 1, 1998 to December 31, 1998
Commission file number: 0-26620
ACCOM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3055907
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
1490 O'Brien Drive
Menlo Park, CA 94025
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 328-3818
----------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
----------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES NO X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $3,541,444 as of April 20, 1999, based upon
the closing prices on the Over-the-Counter (OTC) Bulletin Board reported for
such date. Shares of Common Stock held by each officer and director and by each
person who owns 5% of more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
There were 10,123,247 shares of Registrant's Common Stock issued and
outstanding as of April 20, 1999.
<PAGE>
AMENDMENT NO. 1
FORM 10-K/A
This Amendment No. 1 to Form 10-K/A is being filed by Accom, Inc.
("Accom" or the "Company") to add the Items comprising Part III information not
later than 120 days after the end of the transition period (the "Transition
Period") covered by the Form 10-K, as provided in General Instruction G(3) to
Form 10-K. The Transition Period was from October 1, 1998 to December 31, 1998,
as a result in the change in the Company's fiscal year end from September 30 to
December 31.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information as to the Company's executive officers appears at the end
of Part I of the Company's Form 10-K.
DIRECTORS
The Company currently has authorized five directors. Each director is
elected for a period of one year at the Company's annual meeting of stockholders
and serves until the next annual meeting or until his successor is duly elected
and qualified. There are no family relationships among any of the directors or
executive officers of the Company.
Set forth below is information regarding the directors, including
information furnished by them as to their principal occupation at present and
for the last five years, certain other directorships held by them, the year in
which each became a director of the Company and their ages as of April 20, 1999:
Directors Position with the Company Age
--------- ------------------------- ---
Junaid Sheikh Chairman of the Board, President, 45
and Chief Executive Officer
Lionel M. Allan Director 55
Thomas E. Fanella Director 52
David A. Lahar Director 41
Eugene M. Matalene, Jr. Director 51
Arrangements in Connection with the Election of a Director
On March 12, 1999, the Company issued 6% Senior Subordinated
Convertible Notes due March 12, 2004 (the "Convertible Notes") in the aggregate
principal amount of $3,500,000 to a group of six investors led by American
Bankers Insurance Group, Inc. ("American Bankers"), including Mr. Matalene. So
long as American Bankers holds either shares or Convertible Notes representing
at least 50% of the Company's Common Stock (the "Common Stock") issuable upon
conversion of the Convertible Notes, American Bankers has the right to nominate
an
2
<PAGE>
individual as a member of the Company's management slate of directors submitted
for election to the Company's Board of Directors (the "Board of Directors").
American Bankers nominated Mr. Matalene, a director of American Bankers. After
the Company expanded its Board of Directors from four to five directors, Mr.
Matalene was appointed as the Company's fifth director in accordance with the
Company's Bylaws.
Business Experience of Board Directors
Junaid Sheikh has served as the Chairman of the Board of Directors
since June 1988 and as the Company's President and Chief Executive Officer since
November 1991. Mr. Sheikh was also the President and Chairman of the Board of
Directors of Axial Systems Corporation, a maker of on-line editing systems, from
May 1990 to October 1991.
Lionel M. Allan has served on the Board of Directors since April 1995.
For more than the past five years, Mr. Allan has been President of Allan
Advisors, Inc., a board of directors and legal consulting firm. Mr. Allan also
is a director and past Chairman of the Board of KTEH Public Television Channel
54 in San Jose, California, a director of Global Motorsport Group, Inc., a
motorcycle products company, and a director of Catalyst Semiconductor, Inc., a
semiconductor company.
Thomas E. Fanella has served on the Board of Directors since March
1997. Since August 1988, Mr. Fanella has been President and Chief Executive
Officer of KTEH Public Television Channel 54 in San Jose, California. Mr.
Fanella is also a director of the Catholic Television Network, the Pacific
Mountain Network and the Silicon Valley Forum.
David A. Lahar has served on the Board of Directors since February
1998. Since September 1992, Mr. Lahar has been a Managing Director of EOS
Capital, Inc., an investment, venture capital and consulting firm. From 1992 to
June 1996, Mr. Lahar was the President of Aurora Electronics, Inc. ("Aurora"), a
company which he co-founded and which is a provider of spare parts distribution
services and electronics recycling and recovery services to computer
manufacturers and field service providers. From 1986 to 1992, Mr. Lahar was a
Managing Director in the Investment Banking Division of PaineWebber
Incorporated.
Eugene M. Matalene, Jr. has served on the Board of Directors since
March 1999. Since 1997, Mr. Matalene has served as President to Strata Capital
Management Corp., a merchant bank. He was a Managing Director of Furman Selz, an
investment bank, from 1996 to 1997 and a Managing Director of PaineWebber
Incorporated, an investment bank, from 1987 to 1996. Mr. Matalene has been a
director of American Bankers Insurance Group, Inc., a specialty insurance
products company, since 1990.
3
<PAGE>
Compensation of Directors
Of the Company's five directors, one director is a salaried employee of
the Company. Directors who are employees of the Company do not receive any
additional compensation or benefits for their service as directors. But, see
"Certain Relationships and Related Transactions," below, for a discussion of
certain transactions between the Company and certain members of the board of
directors.
The four remaining non-employee directors are compensated for their
services through the issuance of stock options. When first elected or appointed
as directors, non-employee directors are granted non-statutory stock options to
purchase 10,000 shares of Common Stock. Then, after each annual meeting, each
non-employee director receives options to purchase 2,500 share of Common Stock,
provided the non-employee directors has served on the Board of Directors for at
least six months. All such options expire 10 years from the date of grant, have
an exercise price at the fair market value of the Common Stock on the date of
grant and are immediately exercisable. However, any shares purchased under such
options are subject to repurchase by the Company. The Company's repurchase right
with respect to the initial grant of options lapses in a series of four equal
annual installments over the director's period of continued service, with the
first such installment to lapse upon the director's completion of one year of
Board service measured from the date of grant. The Company's repurchase right
with annual grants lapses one year from the date of grant.
In accordance with the Company's standard arrangements, the Company
made the following issuances in 1998 calendar year. Mr. Lahar was issued 10,000
options upon his first becoming a director of the Company on February 17, 1998.
Messrs. Fanella and Mr. Allan were issued 2,500 options upon re-election as
directors of the Company on February 17, 1998. Mr. Matalene was issued 10,000
options upon his first becoming a director of the Company on March 12, 1999.
Board Meetings and Committees
The Board of Directors held a total of one meeting during the
Transition Period. Each incumbent director attended at the one meeting, and no
committee meetings were held during the Transition Period. The Company's Audit
Committee is comprised of Messrs. Fanella and Lahar. The Audit Committee did not
meet during the Transition Period. The Company does not have a Compensation or
Nominating committee and did not during the Transition Period.
4
<PAGE>
Item 11. Executive Compensation
Report of the Board of Directors
The Board of Directors has general responsibility for establishing the
compensation payable to the Company's executive officers and other key
executives and has the sole and exclusive authority to administer the Company's
1995 Stock Option/Stock Issuance Plan (the "Stock Option Plan") under which
grants may be made to such individuals. Until September 15, 1996, such functions
were performed by the Compensation Committee of the Board and are now performed
by the full Board of Directors.
General Compensation Policy. Under the supervision of the Board of
Directors, the Company's compensation policy is designed to attract and retain
qualified key executives critical to the Company's growth and long-term success.
It is the objective of the Board of Directors to have a portion of each
executive's compensation contingent upon the Company's performance as well as
upon the individual's personal performance. Accordingly, each executive
officer's compensation package is comprised of three elements: (i) base salary
which reflects individual performance and expertise, (ii) variable bonus awards
payable in cash and tied to the achievement of certain performance goals for the
Company or the executive and (iii) long-term, stock-based incentive awards that
are designed to strengthen the mutuality of interests between the executive
officers and the Company's stockholders. The summary below describes in more
detail the factors which the Board of Directors considers in establishing each
of the three primary components of the compensation package provided to the
executive officers.
Base Salary. The level of base salary is established primarily on the
basis of the individual's qualifications and relevant experience, the strategic
goals for which he has responsibility, the compensation levels at companies that
compete with the Company for business and executive talent, and the incentives
necessary to attract and retain qualified management. Base salary is reevaluated
each year to take into account the individual's performance and to maintain a
competitive salary structure. Company performance does not play a significant
role in the determination of base salary.
Cash-Based Incentive Compensation. Cash bonuses are awarded on a
discretionary basis to executive officers on the basis of their success in
achieving designated individual goals and the Company's success in achieving
specific company-wide goals, such as customer satisfaction, revenue growth and
earnings growth.
Long-Term Incentive Compensation. The Company has utilized the Stock
Option Plan to provide executives and other key employees with incentives to
maximize long-term stockholder values. Awards under this plan by the Board of
Directors take the form of stock options designed to give the recipient a
significant equity stake in the Company and thereby closely align his interests
with those of the Company's stockholders. Factors considered in making such
awards include the individual's position in the Company, his performance and
responsibilities, and internal comparability considerations. In addition, the
Board of Directors takes into account each individual's position with the
Company and his existing holdings of unvested options. Each
5
<PAGE>
option grant allows the executive officer to acquire shares of Common Stock at a
fixed price per share (the fair market value on the date of grant) over a
specified period of time (up to 10 years). The options typically vest in
periodic installments over a four-year period, contingent upon the executive
officer's continued employment with the Company. Accordingly, the option will
provide a return to the executive officer only if he remains in the Company's
service, and then only if the market price of the Common Stock appreciates over
the option term.
CEO Compensation. In setting the compensation payable during the 1998
calendar year to the Company's Chief Executive Officer, Junaid Sheikh, the Board
of Directors used the same factors as described above for the executive
officers. The Board established a combination compensation package for Mr.
Sheikh, including a base salary and stock option grants in line with those
received by other executives of comparably-sized companies in similar
industries. In December 1998, the Board granted Mr. Sheikh options to purchase
250,000 shares of common stock, a portion of which were general compensation
options commensurate with options granted to other officers and key employees of
the Company and a portion of which were in consideration of the extraordinary
efforts expended by Mr. Sheikh in the negotiation and consummation of the
Company's acquisition of Scitex Digital Video.
Report on Repriced Stock Options. In May 1998, the Board of Directors
determined that it was in the best interest of the Company to offer to reprice
the then-existing stock options of the Company with exercise prices in excess of
the then-current fair market value of the Company's Common Stock. The Company
also changed the vesting on such options from a five-year period to a four-year
period, with 25% of the shares vesting at the end of the first year and the rest
vesting equally over the following three years. Included in the repricing
actions were options held by the Company's executive officers and certain
directors, but not any of the options that had been automatically granted to the
non-employee directors pursuant to the Stock Option Plan. The objectives of the
Stock Option Plan are to promote the interests of the Company by providing
employees, certain directors, and certain consultants or independent contractors
an incentive to acquire a proprietary interest in the Company and to continue to
render services to the Company. It was the view of the Board of Directors that
stock options with exercise prices substantially above the current market price
of the Company's Common Stock were viewed negatively by most optionees of the
Company, and provided little, if any, equity incentive to the optionees. The
Board thus concluded that such option grants seriously undermined the specific
objectives of the Stock Option Plan and should properly be repriced. In making
this decision, the Board also considered the fairness of such a determination in
relation to other stockholders. In the opinion of the Board, the stockholders'
long-term best interests were clearly served by the retention and motivation of
optionees.
In this context, the Board decided that effective May 15, 1998 (the
"Grant Date") all optionees holding stock options with exercise prices in excess
of the fair market value of the Company's Common Stock should receive a
one-for-one repricing of their then-existing unexercised stock options with a
new exercise price set at $1.03125 per share, the fair market value of the
Company's Common Stock on the Grant Date. The Company completed this repricing
through a one-for-one stock option exchange of "underwater" stock options for
all optionees. The vesting schedule of the new options, as well as all other
options, was changed
6
<PAGE>
from a vesting schedule over a five-year period to a vesting schedule over a
four-year period (with 25% vesting after one year and the balance vesting on a
equal monthly basis thereafter). The exchange was completed in May 1998. It is
the opinion of the Board of Directors that this program helped build optionee
morale and provided new incentives for the Company's employees and management.
The Board of Directors
Junaid Sheikh
Lionel M. Allan
Thomas E. Fanella
David A. Lahar
Eugene M. Matalene, Jr.
Compensation Committee Interlocks and Insider Participation
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Board of Directors. Mr. Sheikh,
Chairman of the Board of Directors, is also President and Chief Executive
Officer of the Company. Mr. Sheikh participated in deliberations of the Board of
Directors concerning executive officer compensation.
Stock Performance Graph
The following graph shows a comparison of cumulative total stockholder
returns for the Company, the Nasdaq Total Return Index, and the Hambrecht &
Quist Technology Index for the period commencing September 26, 1995, the date of
the initial public offering of the Company's Common Stock, to the last day of
the Company's fiscal year on December 31, 1998.
<TABLE>
[The following descriptive data is supplied in accordance with Rule 304(d) of Regulation S-T.]
<CAPTION>
9/26/95 9/30/95 9/30/96 9/30/97 9/30/98 12/31/98
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Accom, Inc. $100 $ 97.22 $ 22.22 $ 29.17 $ 4.17 $ 6.94
NASDAQ Total Return Index $100 $100.55 $119.31 $163.79 $164.19 $211.23
Hambrecht & Quist Technology Index $100 $101.14 $111.02 $165.53 $153.80 $217.10
</TABLE>
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, which might incorporate future
filings made by the Company under those statutes, the preceding Report of the
Board of Directors on Executive Compensation and Stock Performance Graph are not
to be incorporated by reference into any of those previous filings; nor is such
report or graph to be incorporated by reference into any future filings which
the Company may make under those statutes.
7
<PAGE>
Summary of Cash and Certain Other Compensation
The following Summary Compensation Table sets forth the compensation
earned by the Company's Chief Executive Officer and the three other highest-paid
executive officers whose salary and bonus for the calendar year ended December
31, 1998 was in excess of $100,000 (collectively, the "Named Officers") for
services rendered in all capacities to the Company for that calendar year.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Long-Term
Compensation Compensation
Fiscal --------------------------- -------------------- ------------
Year Securities All Other
Name and Present Principal Ended Calendar Underlying Options Compensation
Position Sept. 30 Year Salary ($) Bonus ($) (1) (#)* ($)
- -------- -------- ---- ---------- ------------- -------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Junaid Sheikh.................. 1998 $176,973 $0 397,286 (2) $2,782 (5)
President, Chief Executive 1998 $170,528 $0 147,286 (2) $2,722 (5)
Officer and 1997 $149,220 $0 87,286 (3) $866 (5)
Chairman of the Board 1996 $159,644 $0 137,286 (4) $2,266 (5)
Ian Craven..................... 1998 $145,000 $2,000 98,125 (6) $1,458 (5)
Senior Vice President, 1998 $141,596 $2,000 88,125 (6) $1,449 (5)
Engineering 1997 $130,000 $5,000 58,125 (7) $351 (5)
1996 $129,000 $0 33,125 (8) $1,203 (5)
Harris Rogers.................. 1998 $128,199 $0 65,499 (9) $554 (12)
Vice President, Marketing 1998 $118,199 $1,000 65,499 (9) $492 (12)
1997 $101,439 $4,716 54,166 (10) $351 (12)
1996 $ 84,251 $1,439 34,166 (11) $369 (12)
Donald Petersen................ 1998 $128,115 $0 117,916 (13) $553 (12)
Vice President, Manufacturing 1998 $124,345 $0 107,916 (13) $549 (12)
1997 $111,416 $5,000 75,833 (14) $330 (12)
1996 $105,502 $0 50,833 (15) $347 (12)
<FN>
- -------------------------------
(*) Includes options repriced in the fiscal years ending September 30, 1996 and
1997.
(1) Represents bonus compensation earned in such calendar year.
(2) Includes options to purchase 87,286 shares of the Company's Common Stock
that were canceled on May 15, 1998 and repriced to $1.03125 per share. See
"Option Grants in Last Calendar Year" below.
(3) Represents options to purchase 87,286 shares of the Company's Common Stock
that were canceled on February 18, 1997 and repriced to $1.3125 per share.
(4) Includes options to purchase 54,166 shares of the Company's Common Stock
that were canceled on April 23, 1996 and repriced to $3.25 per share.
(5) Represents standard life insurance and key man insurance premiums paid by
the Company for the benefit of the named Officer.
8
<PAGE>
(6) Includes options to purchase 58,125 shares of the Company's Common Stock
that were canceled on May 15, 1998 and repriced to $1.03125 per share. See
"Option Grants in Last Calendar Year" below.
(7) Includes options to purchase 18,125 shares of the Company's Common Stock
that were canceled on February 18, 1997 and repriced to $1.3125 per share.
(8) Includes options to purchase 18,125 shares of the Company's Common Stock
that were canceled on April 23, 1996 and repriced to $3.25 per share.
(9) Includes options to purchase 45,499 shares of the Company's Common Stock
that were canceled on May 15, 1998 and repriced to $1.03125 per share. See
"Option Grants in Last Calendar Year" below.
(10) Represents options to purchase 34,166 shares of the Company's Common Stock
that were canceled on February 18, 1997 and repriced to $1.3125 per share.
(11) Includes options to purchase 14,166 of the Company's Common Stock that were
canceled on April 23, 1996 and repriced to $3.25 per share.
(12) Represents standard life insurance premiums paid by the Company for the
benefit of the Named Officer.
(13) Includes options to purchase 75,833 shares of the Company's Common Stock
that were canceled on May 15, 1998 and repriced to $1.03125 per share. See
"Option Grants in Last Calendar Year" below.
(14) Includes options to purchase 35,833 shares of the Company's Common Stock
that were canceled on February 18, 1997 and repriced to $1.3125 per share.
(15) Includes options to purchase 35,833 shares of the Company's Common Stock
that were canceled on April 23, 1996 and repriced to $3.25 per share.
</FN>
</TABLE>
Option Grants
The following table provides information with respect to the stock
option grants made during the year ended December 31, 1998 under the Company's
1995 Stock Option/Stock Issuance Plan to the Named Officers. No stock
appreciation rights were granted to these individuals during such calendar year.
<TABLE>
OPTION GRANTS IN LAST CALENDAR YEAR
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rate of Stock
Price Appreciation
Individual Grants for Option Term
--------------------------------------------------------------- -------------------------
% of Total
Options
Granted to Exercise
Options Employees in Price (2) Expiration
Name Granted Calendar Year(1) ($/share) Date 5% ($)(3) 10% ($)(3)
- ---- ------- ---------------- --------- ---- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Junaid Sheikh 250,000(4) 23.7% $0.6500 12/04/08 41,112 161,718
60,000(5) 5.7% $0.8750 2/05/08 33,017 83,671
4,166(6) N/A $1.0313 1/19/05 1,656 3,826
50,000(6) N/A $1.0313 1/15/06 23,407 55,557
33,120(6) N/A $1.0313 9/03/06 17,062 41,212
9
<PAGE>
Ian Craven 10,000(4) 0.9% $0.6500 12/04/08 1,644 6,469
30,000(5) 2.8% $0.8750 2/05/08 16,508 41,836
40,000(6) N/A $1.0313 3/14/07 22,214 54,453
3,125(6) N/A $1.0313 1/15/05 1,240 2,864
15,000(6) N/A $1.0313 1/15/06 7,022 16,667
Harris Rogers 20,000(5) 1.9% $0.8750 2/05/08 11,005 27,890
20,000(6) N/A $1.0313 3/14/07 11,007 27,227
15,000(6) N/A $1.0313 7/10/06 7,557 18,178
2,499(6) N/A $1.0313 7/01/05 1,072 2,507
8,000(6) N/A $1.0313 1/15/06 3,745 8,889
Donald W. Petersen 10,000(4) 0.9% $0.6500 12/04/08 1,644 6,469
30,000(5) 2.8% $0.8750 2/05/08 16,508 41,836
40,000(6) N/A $1.0313 3/14/07 22,214 54,453
20,833(6) N/A $1.0313 10/10/04 7,882 18,076
15,000(6) N/A $1.0313 1/15/06 7,022 16,667
<FN>
- ------------------
(1) The percentages shown are based upon the options granted in calendar
year 1998, excluding repriced options.
(2) The exercise price may be paid in cash, in shares of Common Stock
valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares and the federal and state income tax liability incurred by the
optionee in connection with such exercise.
(3) Disclosure of the 5% and 10% assumed annual rates of compounded stock
price appreciation is mandated by the Securities and Exchange
Commission. There is no assurance provided to any executive officer or
any other holder of the Company's securities that the actual stock
price appreciation over the 10-year option term will be at the assumed
5% and 10% levels or at any other defined level. Unless the market
price of the Common Stock appreciates over the option term, no value
will be realized from the option grants made to the executive officers.
(4) 25% of these options vest on December 4, 1999, and thereafter one
1/36th of the remaining unvested options vest each month. The Board of
Directors also has the authority to provide for the automatic vesting
of shares subject to the outstanding option upon the occurrence of
certain hostile takeovers. Each option has a maximum term of 10 years,
subject to earlier termination in the event of the optionee's cessation
of employment with the Company.
(5) 25% of these options vest on February 5, 1999, and thereafter one
1/36th of the remaining unvested options vest each month. The Board of
Directors also has the authority to provide for the automatic vesting
of shares subject to the outstanding option upon the occurrence of
certain hostile takeovers. Each option has a maximum term of 10 years,
subject to earlier termination in the event of the optionee's cessation
of employment with the Company.
(6) Represents option granted on May 15, 1998 in connection with the
cancellation of an existing outstanding option with an exercise price
in excess of $1.0313 per share. Concomitant with the repricing on May
15, 1998, the vesting schedule for these options changed. Under the
previous method, options vested in five equal annual installments with
20% of the option shares vesting on a cliff basis after each year of
service. Under the new method, options will vest and be exercisable
with respect to 25% of the option shares after one year of service, and
1/36th per month for each month of service thereafter. See "Ten-Year
Option/SAR Repricings" below.
</FN>
</TABLE>
10
<PAGE>
Option Exercises and Holdings
The table below sets forth information concerning the exercise of
options during the calendar year ended December 31, 1998 and unexercised options
held as of the end of such year by the Named Officers. No stock appreciation
rights were exercised during such calendar year or outstanding as of the end of
that calendar year.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST CALENDAR YEAR
AND CALENDAR YEAR-END OPTION VALUES
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Shares Aggregate Unexercised Options at In-the-Money Options at
Acquired On Value Realized Calendar Year End Calendar Year End (1)
Name Exercise ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------------- ------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Junaid Sheikh 0 $0 73,657 / 323,629 $0 / $0
Ian Craven 0 $0 31,496 / 66,629 $0 / $0
Harris Rogers 0 $0 24,994 / 40,505 $0 / $0
Donald W. Petersen 0 $0 51,353 / 66,563 $302 / $0
<FN>
- ---------------
(1) Market price at calendar year end ($0.625) less exercise price. For
purposes of this calculation, the calendar year end market price of the
shares is deemed to be the closing sale price of the Company's Common
Stock as reported on the Over-the-Counter Bulletin Board on December
31, 1998.
</FN>
</TABLE>
Ten-Year Option/SAR Repricings
The following table sets forth certain information as of December 31,
1998 with respect to the repricing of certain stock options held by the
Company's executive officers.
11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ---------- ------------ ------------- ------------- ------------- -------------
Number Of Length Of
Securities Market Original
Underlying Price Of Exercise Option Term
Options Stock At Price At Remaining
Name Date Repriced Time Of Time Of New At Date Of
Or Amended Repricing Repricing Exercise Repricing
(#) Or Or Price ($) Or Amendment
Amendment Amendment
($) ($)
- ------------------------------------- ---------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Junaid Sheikh (1)................ 5/15/98 4,166 $1.03125 $1.3125 $1.03125 6.7 years
5/15/98 50,000 $1.03125 $1.3125 $1.03125 7.7 years
President, Chief Executive 5/15/98 33,120 $1.03125 $1.3125 $1.03125 8.3 years
Officer and Chairman of the Board 2/18/97 4,166 $1.3125 $3.25 $1.3125 7.9 years
2/18/97 50,000 $1.3125 $3.25 $1.3125 8.9 years
2/18/97 33,120 $1.3125 $1.88 $1.3125 9.5 years
4/23/96 4,166 $3.25 $4.80 $3.25 8.7 years
4/23/96 50,000 $3.25 $5.75 $3.25 9.7 years
- ------------------------------------- ---------- ------------ ------------- ------------- ------------- -------------
Ian Craven (1)................... 5/15/98 3,125 $1.03125 $1.3125 $1.03125 6.7 years
5/15/98 15,000 $1.03125 $1.3125 $1.03125 7.7 years
Senior Vice President, 5/15/98 40,000 $1.03125 $1.3125 $1.03125 8.8 years
Engineering 2/18/97 3,125 $1.3125 $3.25 $1.3125 7.9 years
2/18/97 15,000 $1.3125 $3.25 $1.3125 8.9 years
4/23/96 3,125 $3.25 $4.80 $3.25 8.7 years
4/23/96 15,000 $3.25 $5.75 $3.25 9.7 years
- ------------------------------------- ---------- ------------ ------------- ------------- ------------- -------------
Harris Rogers (1)................ 5/15/98 15,000 $1.03125 $1.3125 $1.03125 8.2 years
5/15/98 2,499 $1.03125 $1.3125 $1.03125 7.1 years
Vice President, Marketing 5/15/98 8,000 $1.03125 $1.3125 $1.03125 7.7 years
5/15/98 20,000 $1.03125 $1.25 $1.03125 8.8 years
2/18/97 15,000 $1.3125 $3.25 $1.3125 9.4 years
2/18/97 4,166 $1.3125 $3.25 $1.3125 8.4 years
2/18/97 10,000 $1.3125 $3.25 $1.3125 8.9 years
2/18/97 5,000 $1.3125 $3.25 $1.3125 9.4 years
4/23/96 4,166 $3.25 $6.00 $3.25 9.2 years
4/23/96 10,000 $3.25 $5.75 $3.25 9.7 years
- ------------------------------------- ---------- ------------ ------------- ------------- ------------- -------------
Donald W. Petersen (1)........... 5/15/98 20,833 $1.03125 $1.31 $1.03125 6.4 years
5/15/98 15,000 $1.03125 $1.31 $1.03125 7.7 years
Vice President, Manufacturing 5/15/98 40,000 $1.03125 $1.31 $1.03125 8.8 years
2/18/97 20,833 $1.3125 $3.25 $1.3125 7.9 years
2/18/97 15,000 $1.3125 $3.25 $1.3125 8.9 years
4/23/96 20,833 $3.25 $4.80 $3.25 8.7 years
4/23/96 15,000 $3.25 $5.75 $3.25 9.7 years
- ------------------------------------- ---------- ------------ ------------- ------------- ------------- -------------
<FN>
- ------------------------------------------
(1) The Company repriced certain options in April 1996, February 1997 and May
1998. In each instance, in order to reincentivize certain of its
employees, the Compensation Committee of the Board of Directors or the
Board of Directors itself approved an option exchange for all employees
holding options with an exercise price in excess of the then current fair
market value (which is the price set forth in the column entitled "Market
Price Of Stock At Time of Repricing Or Amendment" above); such repricings
entitled each such employee to cancel their outstanding options in
exchange for new options with an exercise price equal to the then current
fair market value of the Company's Common Stock on the date of the
approval by the Board of Directors or Compensation Committee. In the
April 1996 and February 1997 repricings, the new options were subject to
the same vesting schedule as the canceled options, including the same
original vesting commencement date. In the May 1998 repricing, the new
options were amended to vest as follows: 25% of each grant vests on the
original vesting commencement date, and thereafter, one 1/36th of the
remaining unvested options of each grant vest each month for the next
three years.
</FN>
</TABLE>
12
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than ten percent (10%) of the Company's
outstanding Common Stock are subject to the reporting requirements of Section
16(a) of the Securities Exchange Act of 1934, which requires such individuals to
file reports with respect to their ownership of and transactions in the
Company's securities. Officers, directors and greater than ten percent (10%)
stockholders are required to furnish the Company with copies of all such reports
they file. Based solely on its review of the copies of such forms received by
it, or written representations from certain reporting persons that no Forms 5
were required for those persons, the Company believes that, during the
Transition Period ended December 31, 1998 all filing requirements applicable to
its officers, directors, and greater than ten-percent beneficial owners were
complied with except that a Form 3 for Mr. Donald McCauley was filed late.
Item 12. Security Ownership of Certain Beneficial Owners and Management
COMMON STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
March 31, 1999 by (i) all persons who are beneficial owners of five percent or
more of the Company's Common Stock, (ii) each director, (iii) each executive
officer of the Company, and (iv) all current directors and executive officers as
a group.
<CAPTION>
Name and Address,
if Required, of Shares Percent of Shares
Beneficial Owner Beneficially Owned (1)(2) Beneficially Owned (1)(2)
---------------- ------------------------- -------------------------
<S> <C> <C>
Michael Luckwell ......................................... 3,418,750 33.8%
26 Catherine Place
London SW1E 6HF
American Bankers Insurance Group, Inc. (3)................ 2,307,692 18.6%
11222 Quail Roost Drive
Miami, FL 33157
El Dorado Ventures and affiliated entities (4)............ 988,782 9.8%
20300 Stevens Creek Boulevard
Suite 395
Cupertino, CA 95014
Scitex Digital Video, Inc. (5)............................ 1,000,000 9.0%
c/o Scitex Corporation Ltd.
P.O. Box 330
Herzilya B 46103 Israel
AWM Investment Company and affiliates (6)................. 534,400 5.3%
153 East 53 rd Street, 51st Floor
New York, NY 10022
Junaid Sheikh (7)......................................... 1,010,376 9.9%
Phillip Bennett (8)....................................... 750,000 7.4%
Ian Craven (9)............................................ 122,322 1.2%
Donald W. Petersen (10)................................... 66,457 *
Harris Rogers (11)........................................ 36,366 *
Donald K. McCauley (12) .................................. 0 *
13
<PAGE>
William Ludwig (12)....................................... 0 *
Lionel M. Allan (13)...................................... 157,472 1.5%
Thomas E. Fanella (14).................................... 12,500 *
David A. Lahar (15)....................................... 110,000 1.1%
Eugene M. Matalene, Jr.(16)............................... 86,923 *
All executive officers and directors as a group
(11 persons) (17)..................................... 2,352,416 22.3%
<FN>
- ----------
* Less than one percent (1%).
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the Company believes that persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock held by such person.
(2) The number of shares of Common Stock beneficially owned includes the shares
issuable pursuant to stock options which may be exercised within 60 days
after March 31, 1999. Shares issuable pursuant to such options are deemed
outstanding for computing the percentage of the person holding such options
but are not outstanding for computing the percentage of any other person.
(3) Includes the shares issuable upon conversion of the 6% Senior Subordinated
Convertible Note due March 12, 2004 (the "Convertible Notes") in the
aggregate principal amount of $3,000,000 held by American Bankers Insurance
Group, Inc. The Convertible Notes convert into that number of shares as
calculated by dividing the outstanding principal amount of such Convertible
Notes by a conversion price of $1.30, subject to adjustment. As of March
31, 1999, the $3,000,000 Convertible Note held by American Bankers
Insurance Group, Inc. converts into 2,307,692 shares.
(4) Reflects share ownership as of December 31, 1998, based on the Company's
records. Includes 10,334 shares of Common Stock owned by El Dorado C&L
Fund, L.P.; 5,765 shares of Common Stock owned by El Dorado Technology IV,
L.P.; 452,326 shares of Common Stock owned by El Dorado Ventures; and
520,357 shares of Common Stock owned by El Dorado Ventures III, L.P. Such
information is based upon the Company's knowledge after investigation, but
without independent confirmation from such entities.
(5) Includes a currently exercisable warrant to purchase 250,000 shares of the
Company's Common Stock at $1.00 per share and a currently exercisable
warrant to purchase 750,000 shares of the Company's Common Stock at $3.00
per share. Both warrants terminate upon the earlier to occur of (a)
December 10, 2008 or (b) an acquisition or change in control of the
Company.
(6) Reflects share ownership as of December 31, 1998, based on the Company's
records. Such shares are beneficially owned by (i) Special Situations Fund
III, L.P., a Delaware limited partnership (the "Fund"), (ii) MGP Advisers
Limited Partnership, a Delaware Limited Partnership ("MGP"), (iii) AWM
Investment Company, Inc., a Delaware corporation ("AWM") and (iv) Austin W.
Marxe. MGP is a general partner of and investment adviser to the Fund. MGP
is registered as an investment adviser under the Investment Advisers Act of
1940, as amended. AWM, a Delaware corporation primarily owned by Austin
Marxe, serves as the sole general partner of MGP. AWM is a registered
investment adviser under the Investment Advisers Act of 1940. Austin W.
Marxe is also the principal limited partner of MGP and is the President and
Chief Executive Officer of AWM. Mr. Marxe is principally responsible for
the selection, acquisition and disposition of the portfolio securities by
AWM on behalf of MGP and the Fund. Such information is based upon the
Company's knowledge after investigation, but without independent
confirmation from such entities.
(7) Includes 97,702 shares issuable upon currently exercisable options held by
Mr. Sheikh. Also includes 912,674 shares owned indirectly by Mr. Sheikh and
Mr. Sheikh's wife as Trustees of the Sheikh Revocable Trust.
(8) Includes 650,000 shares subject to a repurchase right of the Company, at
the issuance price, which lapses in equal monthly increments over a period
of three years, beginning December 1998.
(9) Includes 46,666 shares issuable upon currently exercisable options held by
Mr. Craven.
(10) Represents 66,457 shares issuable upon currently exercisable options held
by Mr. Petersen.
(11) Includes 36,366 shares issuable upon currently exercisable options held by
Mr. Rogers.
(12) Messrs. McCauley and Ludwig joined the Company in December, 1998.
14
<PAGE>
(13) Includes 54,600 shares issuable upon currently exercisable options held by
Mr. Allan. Also includes 2,456 shares owned indirectly by Mr. Allan as the
beneficiary of the Allan Advisors, Inc. Profit Sharing Plan FBO Lionel M.
Allan. Also includes 100,000 shares which are subject to a repurchase right
of the Company, at the issuance price, which lapses with respect to
one-third of the shares after one year and then with respect to the
remaining shares in equal monthly increments over the two years thereafter,
beginning in December 1998.
(14) Represents shares issuable upon currently exercisable options held by Mr.
Fanella, 5,000 of which shares are currently subject to a repurchase right
of the Company.
(15) Includes 10,000 shares issuable upon currently exercisable options held by
Mr. Lahar, 7,500 of which shares are currently subject to a repurchase
right of the Company. Also includes 100,000 shares which are subject to a
repurchase right of the Company, at the issuance price, which lapses with
respect to one-third of the shares after one year and then with respect to
the remaining shares in equal monthly increments over the two years
thereafter, beginning in December, 1998.
(16) Includes 10,000 shares issuable upon currently exercisable options held by
Mr. Matalene, all of which shares are currently subject to a repurchase
right of the Company. Also includes the shares issuable upon conversion of
the Convertible Notes in the aggregate principal amount of $100,000 held by
Mr. Matalene. The Convertible Notes convert into that number of shares as
calculated by dividing the outstanding principal amount of such Convertible
Notes by a conversion price of $1.30, subject to adjustment. As of March
31, 1999, the $100,000 Convertible Note held by Mr. Matalene converts into
76,923 shares. Mr. Matalene disclaims beneficial ownership of such 76,923
shares.
(17) Includes 334,291 shares issuable upon currently exercisable options. See
Footnotes above.
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions
On December 4, 1998, the Company entered into an agreement with Phillip
Bennett, as an inducement to Mr. Bennett to join the Company as Executive Vice
President, Technology and Engineering, which provided for the sale by the
Company to Mr. Bennett of 750,000 shares of Common Stock. Of such shares,
100,000 shares were sold at $0.50 per share for cash, 300,000 shares were sold
at $0.50 per share in consideration of the delivery by Mr. Bennett of a
non-recourse promissory note, and 350,000 shares were sold at $1.00 per share in
consideration of the delivery by Mr. Bennett of a non-recourse promissory note.
The 650,000 shares issued in consideration of the delivery of the promissory
note are subject to a repurchase right of the Company, at the issuance price,
which lapses in equal monthly increments over a period of three years.
On December 7, 1998, the Company entered into agreements with each of
Messrs. Allan and Lahar, directors of the Company, pursuant to which the Company
issued 100,000 shares of Common Stock to each of them. The shares were issued at
a price of $0.65 per shares. In consideration of his shares, Mr. Allan delivered
a non-recourse promissory note in the amount of $65,000. In exchange for his
shares, Mr. Lahar has delivered a recourse promissory note, as amended, due
September 1, 1999 in the amount of $65,000. The shares issued are subject to a
repurchase right of the Company, at the issuance price, which lapses with
respect to one-third of the shares after one year and then with respect to the
remaining shares in equal monthly increments over the two years thereafter. The
Company approved the sale of such shares to Messrs. Allan and Lahar primarily in
recognition of their significant efforts related to the acquisition by the
Company of substantially all of the assets of Scitex Digital Video, Inc.
("Scitex") which was consummated on December 10, 1998.
On December 10, 1998, the Company sold and issued 2,500,000 shares of
unregistered Common Stock, at a price of $0.60 per share, to Michael Luckwell, a
major stockholder of the Company, in a private placement. The purpose of the
sale of shares to Mr. Luckwell was to provide the Company with additional
capital in connection with the purchase by the Company of substantially all of
the assets of Scitex. The
15
<PAGE>
Company purchased the assets of Scitex concurrently with the sale of the shares
to Mr. Luckwell. In connection with such transaction, the Company granted Mr.
Luckwell the right to be nominated to the Board of Directors of the Company so
long as he holds more than 15% of the outstanding shares of Common Stock of the
Company, and the Company agreed to use its best efforts to take all required
steps to effect the nomination, including any required amendment of the
Company's charter documents. The Company also granted to Mr. Luckwell certain
demand and piggyback registration rights with respect to all of the shares of
Common Stock held by Mr. Luckwell. In addition, Mr. Luckwell agreed that, for so
long as Junaid Sheikh is the Chief Executive Officer of the Company, he would
not, directly or indirectly, acquire beneficial ownership of any additional
stock of the Company. Mr. Luckwell also agreed that he would not initiate,
commence or propose any proxy contest or other solicitation to vote or seek to
influence any other person with respect to the voting of any stock of the
Company with respect to the election or removal of the Board of Directors, nor
become a member of a "group" within the meaning of Section 13 of the Securities
Exchange Act of 1934, as amended. The Company and Mr. Luckwell additionally
agreed upon certain restrictions on transfers of the Company's stock held by Mr.
Luckwell. Prior to the sale of shares to Mr. Luckwell, the Company amended its
Preferred Shares Rights Agreement, dated as of September 13, 1996, to permit Mr.
Luckwell to acquire up to 3,425,000 shares of Common Stock (as adjusted for any
stock splits, stock dividends, recapitalizations or the like).
In connection with the acquisition of substantially all of the assets
of Scitex, the Company retained EOS Capital, Inc. to provide investment banking,
capital raising and financial consulting services, including seeking necessary
debt financing, obtaining a commitment from a lender and negotiating the
financial and other terms of the financing, as well as financial analysis
concerning the acquisition. Mr. Lahar, a director of the Company, is a managing
director and the sole equity owner of EOS Capital. Upon consummation of the
acquisition of the assets of Scitex, EOS Capital earned a $300,000 payment from
the Company for its services. Such amount was negotiated on an arm's length
basis and the Company believes that such amount and the terms of the agreement
with EOS Capital are at least as favorable as the Company could have obtained
from third parties.
In connection with the issuance of the Convertible Notes in the
aggregate principal amount of $3,500,000, the Company retained EOS Capital, Inc.
to provide further financial consulting services. Upon consummation of the
issuance of the Notes, EOS Capital earned a $87,000 consulting fee to be paid by
the Company for its services. Upon the consummation of the issuance, Mr.
Matalene also earned a $87,000 consulting fee to be paid by the Company for his
financial consulting services. Mr. Matalene, who became a director of the
Company upon the issuance of the Notes, is a director and shareholder of
American Bankers. Both such financial consulting fees were negotiated on an
arm's length basis, and the Company believes that such amount and the terms of
the agreement with EOS Capital and Mr. Matalene are at least as favorable as the
Company could have obtained from third parties.
Each of El Dorado Ventures, Michael Luckwell and American Bankers are
entitled to certain registration rights with respect to the Company's Common
Stock owned by such stockholder. See "Common Stock Ownership of Certain
Beneficial Owners and Management." The Company's Certificate of Incorporation
limits the liability of directors to the maximum extent permitted by the
Delaware General Corporation Law. The Company's Bylaws also provide that the
Company shall indemnify its directors, officers, employees and agents in such
circumstances. In addition, the Company has entered into indemnification
agreements with its officers and directors.
16
<PAGE>
The Company has retained Lionel Allan, a director of the Company, as a
consultant for legal and other business related matters. These services are in
addition to his services as a director of the Company. The Company pays Mr.
Allan $4,000 per month for such consulting services. Such amount was negotiated
on an arm's length basis and the Company believes that such amount and the terms
of the agreement with Mr. Allan are at least as favorable as the Company could
have obtained from third parties.
Item 14. Exhibits
(a)(3) The following exhibit shall be added to the list of Exhibits
previously filed with the Company's Form 10-K (numbered in accordance with Item
601 of Regulation S-K).
Number Description
------ -----------
10.8.1 Amended and Restated Secured Promissory Note, dated April 8, 1999
by David A. Lahar in favor of the Company.
ADDITIONAL INFORMATION AVAILABLE
THE COMPANY WILL PROVIDE WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S TRANSITION REPORT ON FORM 10-K/A, INCLUDING FINANCIAL STATEMENTS,
SCHEDULES AND A LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO THE ATTENTION OF
DONALD K. MCCAULEY, SENIOR VICE PRESIDENT, FINANCE, AND CHIEF FINANCIAL OFFICER
AT ACCOM, INC., 1490 O'BRIEN DRIVE, MENLO PARK, CALIFORNIA 94025, OR TELEPHONED
TO (650) 328-3818.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Amendment No. 1 to the
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Menlo Park, California on this 29th day of April,
1999.
ACCOM, INC.
By: /s/ JUNAID SHEIKH
-------------------------------------
Junaid Sheikh
Chairman of the Board of Directors,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Junaid Sheikh and Donald K. McCauley,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes may do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment No. 1 to Report on Form 10-K/A has been signed below by the
following persons in the capacities and on the dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JUNAID SHEIKH Chairman of the Board of Directors, April 29, 1999
----------------- President and Chief Executive Officer
(Junaid Sheikh) (Principal Executive Officer)
/s/ DONALD K. MCCAULEY Senior Vice President, Finance and April 29, 1999
---------------------- Chief Financial Officer (Principal
(Donald K. McCauley) Financial Officer and Principal
Accounting Officer)
/s/ LIONEL M. ALLAN Director April 29, 1999
-------------------
(Lionel M. Allan)
/s/ THOMAS E. FANELLA Director April 29, 1999
---------------------
(Thomas E. Fanella)
/s/ DAVID A. LAHAR Director April 29, 1999
------------------
(David A. Lahar)
/s/ EUGENE M. MATALENE, JR. Director April 29, 1999
- ---------------------------
(Eugene M. Matalene, Jr.)
</TABLE>
18
EXHIBIT 10.8.1
19
<PAGE>
EXECUTION COPY
AMENDED AND RESTATED SECURED PROMISSORY NOTE
$65,000 April 8, 1999
FOR VALUE RECEIVED, David A. Lahar ("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 at 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. Interest 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.
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, the principal
amount of this Note then outstanding shall be due and payable on September 1,
1999. Accrued, unpaid interest on the unpaid principal balance of this Note
shall be due and payable together with the payment of principal as described
above.
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.
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"):
<PAGE>
(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. 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 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 or intangible assets of Maker and EOS
Capital Profit Sharing Plan, including, but not limited 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, Payee and EOS Capital Profit
Sharing Plan (the "Shares"). 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.
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. Maker
and EOS Capital Profit Sharing Plan 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 and EOS Capital Profit Sharing Plan
hereby grant, assign, transfer, pledge, and set over to Payee a first-priority
security interest in and lien on the Shares.
2
<PAGE>
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 7.5 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.
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
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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.
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IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first stated above.
DAVID A. LAHAR
/s/ David A. Lahar
-----------------------------------------
EOS CAPITAL PROFIT SHARING PLAN
By: /s/ David A. Lahar
-------------------------------------
Name: David A. Lahar
Title: Trustee
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