<PAGE>
[Letterhead of Robotic Vision Systems, Inc.]
NOTICE OF SPECIAL MEETING IN LIEU OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 19, 1995
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting in lieu of Annual Meeting of
Stockholders (the "Special Meeting") of Robotic Vision Systems, Inc., a Delaware
corporation ("RVSI"), will be held on Tuesday, September 19, 1995, commencing at
10:00 A.M., local time, at The Bank of New York, One Wall Street, New York, New
York for the following purposes:
1. To consider and vote upon the approval and adoption of that certain
Agreement and Plan of Merger and Reorganization, dated as of April 27,
1995, as amended and restated as of July 11, 1995 (the "Merger
Agreement"), by and among RVSI, Acuity Imaging, Inc., a Delaware
corporation ("Acuity"), and RVSI Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of RVSI ("Subsidiary"),
pursuant to which, among other matters, (i) Subsidiary will be merged
with and into Acuity (the "Merger") and Acuity will become a wholly-owned
subsidiary of RVSI, and (ii) each share of Common Stock, $.01 par value,
of Acuity will be converted into the right to receive, and become
exchangeable for (the "Exchange Ratio"), 0.766 of a share of Common
Stock, $.01 par value, of RVSI (the "RVSI Common Stock"); provided,
however, that if the average of the closing prices of RVSI Common Stock
on The Nasdaq National Market for the 20 trading days ending on (and
including) the third day immediately prior to the Special Meeting (the
"Average Closing Price") is greater than $14.50, then the Exchange Ratio
shall be equal to the quotient of $11.107 divided by the Average Closing
Price (provided that in no event shall the Exchange Ratio be less than
0.555375); and if the Average Closing Price is less than $10.00, then the
Exchange Ratio shall be equal to the quotient of $7.66 divided by the
Average Closing Price (provided that in no event shall the Exchange Ratio
be more than 0.925626), all as more fully described in the accompanying
Joint Proxy Statement/Prospectus;
2. To elect nine directors of RVSI for the ensuing year;
3. To consider and vote upon a proposal to approve RVSI's Amended and
Restated 1991 Stock Option Plan;
4. To consider and vote upon a proposal to amend RVSI's Certificate of
Incorporation to increase the number of shares of RVSI Common Stock
authorized thereunder from 20,000,000 shares to 30,000,000 shares;
5. To ratify the selection of Deloitte & Touche LLP as RVSI's independent
auditors for the fiscal year ending September 30, 1995; and
6. To transact such other business incidental to the RVSI Special Meeting
as may properly come before such meeting or any adjournment or
postponement thereof.
A copy of the Merger Agreement is attached as Exhibit A to the accompanying
Joint Proxy Statement/Prospectus and is incorporated herein by reference.
The Board of Directors of RVSI has fixed August 9, 1995 as the record date
for the determination of stockholders entitled to notice of and to vote at the
Special Meeting. The affirmative vote of holders of a majority of all
outstanding RVSI Common Stock present (in person or represented by proxy) at the
Special Meeting is necessary to approve and adopt the Merger Agreement and for
the taking of the other actions specified above at the Special Meeting except
the proposal to amend RVSI's Certificate of
<PAGE>
Incorporation. The affirmative vote of holders of a majority of all outstanding
RVSI Common Stock entitled to vote at the Special Meeting is necessary to
approve the proposal to amend RVSI's Certificate of Incorporation.
Whether or not you plan to attend the Special Meeting, please complete, date
and sign the accompanying proxy card and mail it promptly in the enclosed
pre-addressed envelope, which requires no postage if mailed in the United
States.
Robert H. Walker
SECRETARY
Dated: August 9, 1995
(ii)
<PAGE>
[Letterhead of Acuity Imaging, Inc.]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 19, 1995
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Acuity Imaging, Inc., a Delaware corporation ("Acuity"), will be
held on Tuesday, September 19, 1995, commencing at 10:00 A.M., local time, at
the offices of Acuity, 9 Townsend West, Nashua, New Hampshire, for the following
purposes:
1. To consider and vote upon the approval and adoption of that certain
Agreement and Plan of Merger and Reorganization, dated as of April 27,
1995, as amended and restated as of July 11, 1995 (the "Merger
Agreement"), by and among Acuity, Robotic Vision Systems, Inc., a
Delaware corporation ("RVSI"), and RVSI Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of RVSI ("Subsidiary"),
pursuant to which, among other matters, (i) Subsidiary will be merged
with and into Acuity (the "Merger") and Acuity will become a wholly-owned
subsidiary of RVSI, and (ii) each share of Common Stock, $.01 par value,
of Acuity (the "Acuity Common Stock") will be converted into the right to
receive, and become exchangeable for (the "Exchange Ratio"), 0.766 of a
share of Common Stock, $.01 par value, of RVSI (the "RVSI Common Stock");
provided, however, that if the average of the closing prices of RVSI
Common Stock on The Nasdaq National Market for the 20 trading days ending
on (and including) the third trading day immediately prior to the Special
Meeting (the "Average Closing Price") is greater than $14.50, then the
Exchange Ratio shall be equal to the quotient of $11.107 divided by the
Average Closing Price (provided that in no event shall the Exchange Ratio
be less than 0.555375); and if the Average Closing Price is less than
$10.00, then the Exchange Ratio shall be equal to the quotient of $7.66
divided by the Average Closing Price (provided that in no event shall the
Exchange Ratio be more than 0.925626), all as more fully described in the
accompanying Joint Proxy Statement/Prospectus; and
2. To transact such other business incidental to the Special Meeting that
may properly come before such meeting or any adjournment or postponement
thereof.
A copy of the Merger Agreement is attached as Exhibit A to the accompanying
Joint Proxy Statement/Prospectus and is incorporated herein by reference.
The Board of Directors of Acuity has fixed August 9, 1995 as the record date
for the determination of stockholders entitled to notice of and to vote at the
Special Meeting. The affirmative vote of holders of a majority of all
outstanding Acuity Common Stock entitled to vote at the Special Meeting is
necessary to approve and adopt the Merger Agreement.
Whether or not you plan to attend the Special Meeting, please complete, date
and sign the accompanying proxy card and mail it promptly in the enclosed
pre-addressed envelope, which requires no postage if mailed in the United
States.
BY ORDER OF THE BOARD OF DIRECTORS
Ofer Gneezy
PRESIDENT
Dated: August 9, 1995
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
AND
ACUITY IMAGING, INC.
JOINT PROXY STATEMENT
---------------------
ROBOTIC VISION SYSTEMS, INC.
PROSPECTUS
---------------------
This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is
being furnished by Robotic Vision Systems, Inc., a Delaware corporation
("RVSI"), to holders of shares of Common Stock, $.01 par value, of RVSI (the
"RVSI Common Stock"), and by Acuity Imaging, Inc., a Delaware corporation
("Acuity"), to holders of shares of Common Stock, $.01 par value, of Acuity (the
"Acuity Common Stock"), in connection with the respective solicitation of
proxies by the Boards of Directors of RVSI and Acuity for use at the Special
Meeting in lieu of Annual Meeting of Stockholders of RVSI and the Special
Meeting of Stockholders of Acuity, respectively, to be held at the times and
places and for the purposes set forth in the accompanying Notice of Special
Meeting in lieu of Annual Meeting and Notice of Special Meeting of Stockholders
or any adjournment or postponement thereof (the "RVSI Special Meeting" and the
"Acuity Special Meeting," respectively, and collectively, the "Meetings").
At each of the Meetings, the stockholders of RVSI and Acuity will consider
and vote upon a proposal to approve and adopt that certain Agreement and Plan of
Merger and Reorganization, dated as of April 27, 1995, as amended and restated
as of July 11, 1995 (the "Merger Agreement"), by and among RVSI, RVSI
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of RVSI
("Subsidiary"), and Acuity. A copy of the Merger Agreement is attached to this
Proxy Statement/Prospectus as Exhibit A and is incorporated herein by reference.
Under the terms of the Merger Agreement, Acuity will become a wholly-owned
subsidiary of RVSI through the merger of Subsidiary with and into Acuity (the
"Merger"), and each outstanding share of Acuity Common Stock will be converted
into the right to receive, and become exchangeable for (the "Exchange Ratio"),
0.766 of a share of RVSI Common Stock; provided, however, that if the average of
the closing prices of RVSI Common Stock on The Nasdaq National Market for the 20
trading days ending on (and including) the third trading day immediately prior
to the RVSI Special Meeting (the "Average Closing Price") is greater than
$14.50, then the Exchange Ratio shall be equal to the quotient of $11.107
divided by the Average Closing Price (provided that in no event shall the
Exchange Ratio be less than 0.555375) (the "Minimum Collar"); and if the Average
Closing Price is less than $10.00, then the Exchange Ratio shall be equal to the
quotient of $7.66 divided by the Average Closing Price (provided that in no
event shall the Exchange Ratio be more than 0.925626) (the "Maximum Collar" and
collectively with the Minimum Collar, the "Collars").
--------------------------
This Proxy Statement/Prospectus also constitutes the prospectus of RVSI with
respect to a maximum of 2,500,000 shares (less the aggregate amount of
fractional shares that are paid in cash) of RVSI Common Stock to be issued in
exchange for the Acuity Common Stock in connection with the Merger and up to
24,000 shares of RVSI Common Stock issuable upon the exercise of rights that
will be issued pursuant to the Merger in exchange for rights granted under
Acuity's 1994 Employee Qualified Stock Purchase Plan. This Proxy
Statement/Prospectus does not cover any resales of RVSI Common Stock that will
be received by affiliates of Acuity in connection with the Merger, and no person
is authorized to make any use of this Proxy Statement/Prospectus in connection
with any such resale. The Registration Statement, of which this Proxy
Statement/Prospectus forms a part, includes a separate prospectus covering such
resales.
This Proxy Statement/Prospectus and the enclosed form of proxy are first
being mailed to the respective stockholders of RVSI and Acuity on or about
August 11, 1995.
On August 9, 1995 the reported closing sales price of a share of RVSI Common
Stock on The Nasdaq National Market and the closing sales price of a share of
Acuity Common Stock on The Nasdaq Small-Cap Market were $16.00 and $9.25,
respectively. Acuity stockholders are urged to obtain current price information
for RVSI Common Stock in connection with their consideration of the Merger
Agreement and the transactions contemplated thereby.
--------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is August 9, 1995.
<PAGE>
AVAILABLE INFORMATION
RVSI and Acuity are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Copies of such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at 7 World Trade Center, New York, New York
10048 and Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60611. Copies of such material can also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.
RVSI has filed a Registration Statement on Form S-4 (the "Registration
Statement") with the Commission pursuant to the provisions of the Securities Act
of 1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, of which this Proxy Statement/Prospectus is a part. As
permitted by the rules and regulations of the Commission, this Proxy Statement/
Prospectus omits certain information contained in the Registration Statement.
Such Registration Statement and the exhibits thereto may be inspected and copied
at the Commission's principal office in Washington, D.C. as well as its Regional
Offices in New York, New York and Chicago, Illinois at their respective offices
set forth above.
No person is authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus,
and if given or made, such information or representations should not be relied
upon as having been authorized. This Proxy Statement/Prospectus does not
constitute an offer to sell, or a solicitation of an offer to purchase, the
securities offered by this Proxy Statement/Prospectus, or the solicitation of a
proxy, in any jurisdiction to or from any person to whom or from whom it is
unlawful to make such offer, solicitation of an offer or proxy solicitation in
such jurisdiction. Neither the delivery of this Proxy Statement/Prospectus nor
any distribution of securities pursuant to this Proxy Statement/Prospectus
shall, under any circumstances, create any implication that there has been no
change in the information set forth herein in the affairs of RVSI or Acuity
since the date of this Proxy Statement/Prospectus. However, if any material
change occurs during the period that this Proxy Statement/Prospectus is required
to be delivered, this Proxy Statement/ Prospectus will be amended or
supplemented accordingly. All information regarding RVSI in this Proxy
Statement/Prospectus has been supplied by RVSI, and all information regarding
Acuity in this Proxy Statement/Prospectus has been supplied by Acuity.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SUMMARY.................................................................................................... i
The Proposed Merger...................................................................................... i
General................................................................................................ i
Special Meeting of RVSI Stockholders................................................................... i
Special Meeting of Acuity Stockholders................................................................. ii
The Parties............................................................................................ ii
Required Vote.......................................................................................... iii
The Merger............................................................................................. iii
Effective Time......................................................................................... iv
Exchange of Stock Certificates......................................................................... iv
Background............................................................................................. iv
Recommendations of the Boards of Directors and Reasons for the Merger.................................. iv
Opinion of Financial Advisors.......................................................................... v
Conditions to the Merger............................................................................... v
Rights to Terminate and Amendments..................................................................... v
Conflicts of Interest.................................................................................. vi
Comparison of Rights under Applicable Law.............................................................. vi
Accounting Treatment................................................................................... vi
Certain Federal Income Tax Consequences of the Merger.................................................. vi
Absence of Appraisal Rights............................................................................ vi
Absence of Regulatory Filings and Approvals............................................................ vi
Comparative Per Share Data of RVSI Common Stock and Acuity Common Stock................................ vi
Risk Factors........................................................................................... vii
Summary Historical Financial Information................................................................. viii
Summary Historical Financial Information of RVSI....................................................... viii
Summary Historical Financial Information of Acuity..................................................... ix
Summary Pro Forma Combined Financial Information......................................................... x
Comparative Per Share Information........................................................................ xi
RISK FACTORS............................................................................................... 1
Risks Relating to the Merger............................................................................. 1
Risks Associated with Exchange Ratio................................................................... 1
Uncertainties of Post-Merger Operations................................................................ 1
Fluctuations in the Semiconductor Market............................................................... 1
Market Impact of Future Sales of RVSI Common Stock..................................................... 1
Absence of Dividends................................................................................... 2
Possible Volatility of Stock Price..................................................................... 2
Risks Relating to Acuity................................................................................. 2
Recent Losses.......................................................................................... 2
Accumulated Deficit; History of Operating Losses;...................................................... 2
Loan Default........................................................................................... 2
Dependence on Distributors............................................................................. 3
Dependence on Supplier................................................................................. 3
Competition............................................................................................ 3
Recent Merger and Changes in Management................................................................ 3
Risks Relating to RVSI................................................................................... 3
Concentration of Revenues.............................................................................. 3
Competition............................................................................................ 3
Pending Litigation..................................................................................... 4
Uncertainty of Patent Protection....................................................................... 4
Major Supplier in Bankruptcy........................................................................... 4
Export Sales........................................................................................... 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INTRODUCTION............................................................................................... 4
THE RVSI SPECIAL MEETING................................................................................... 5
Purpose of the Meeting................................................................................... 5
Date, Time and Place; Record Date........................................................................ 5
Voting Rights............................................................................................ 5
THE ACUITY SPECIAL MEETING................................................................................. 6
Purpose of the Meeting................................................................................... 6
Date, Time and Place; Record Date........................................................................ 7
Voting Rights............................................................................................ 7
THE PROPOSED MERGER........................................................................................ 8
General.................................................................................................. 8
Closing; Effective Time.................................................................................. 8
Exchange of Stock Certificates........................................................................... 8
No Fractional Shares..................................................................................... 9
Background of the Merger................................................................................. 10
Recommendations of the Boards of Directors and Reasons for the Merger.................................... 14
RVSI................................................................................................... 14
Acuity................................................................................................. 15
Opinions of Financial Advisors........................................................................... 17
Janney Montgomery Scott Inc............................................................................ 17
Fechtor, Detwiler & Co., Inc........................................................................... 19
The Merger Agreement..................................................................................... 22
General................................................................................................ 22
Conversion of Options.................................................................................. 23
Stock Purchase Rights.................................................................................. 23
Representations and Warranties......................................................................... 23
Certain Covenants and Agreements....................................................................... 24
No Solicitation of Other Transactions.................................................................. 25
Conditions to the Merger............................................................................... 26
Termination and Expense Reimbursement.................................................................. 27
Break-up Fees and Expense Reimbursement................................................................ 28
Amendment and Waiver................................................................................... 28
Conflicts of Interest.................................................................................... 29
Expenses................................................................................................. 29
Absence of Regulatory Filings and Approvals.............................................................. 29
Restrictions on Sales by Affiliates...................................................................... 29
Accounting Treatment..................................................................................... 30
Listing on The Nasdaq National Market.................................................................... 30
Appraisal Rights......................................................................................... 30
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................................................. 30
ELECTION OF DIRECTORS...................................................................................... 32
Information Concerning Nominees.......................................................................... 32
Information Concerning the Board......................................................................... 33
Reporting Delinquencies.................................................................................. 34
PROPOSAL TO APPROVE RVSI AMENDED AND RESTATED 1991 STOCK OPTION PLAN....................................... 34
Background............................................................................................... 34
Key Provisions........................................................................................... 35
Number of Shares....................................................................................... 35
Administration......................................................................................... 35
Eligibility............................................................................................ 35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Term of 1991 Option Plan............................................................................... 35
Term of Options........................................................................................ 35
Option Price........................................................................................... 36
Certain Rules for Certain Stockholders................................................................. 36
Payment................................................................................................ 36
Option Document; Restriction on Transferability........................................................ 36
Amendments to the Option Document and the 1991 Option Plan............................................. 36
Tax Aspects of the 1991 Option Plan.................................................................... 36
Recommendation and Vote.................................................................................. 37
LIMITATION OF SECTION 16(b) LIABILITY UPON APPROVAL OF THE
1991 OPTION PLAN.......................................................................................... 37
PROPOSAL TO AMEND RVSI'S CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED CAPITALIZATION................ 38
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS.......................................................... 38
COMPARATIVE PER SHARE PRICES AND DIVIDENDS OF RVSI COMMON STOCK AND ACUITY COMMON STOCK.................... 39
SELECTED HISTORICAL FINANCIAL DATA OF ACUITY............................................................... 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ACUITY............ 41
Results of Operations.................................................................................... 41
Liquidity, Capital Resources and Financial Condition..................................................... 49
SELECTED HISTORICAL FINANCIAL DATA OF RVSI................................................................. 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF RVSI.............. 52
Results of Operations.................................................................................... 52
Liquidity and Capital Resources.......................................................................... 55
Export Sales............................................................................................. 55
Effect of Inflation...................................................................................... 55
Proposed Acquisition..................................................................................... 56
Private Placement........................................................................................ 56
ACUITY AND RVSI PRO FORMA COMBINED FINANCIAL STATEMENTS.................................................... 57
BUSINESS OF ACUITY......................................................................................... 64
General.................................................................................................. 64
Business and Products.................................................................................... 64
Compatibility with Factory Standards................................................................... 65
Flexible Product Architecture.......................................................................... 65
Easy to Use Products................................................................................... 65
Hardware................................................................................................. 66
Systems.................................................................................................. 66
Engineering Services..................................................................................... 67
Marketing, Sales and Service............................................................................. 67
Materials and Supply..................................................................................... 69
Competition.............................................................................................. 69
Intellectual Property.................................................................................... 69
Research and Development................................................................................. 70
Environmental Conditions................................................................................. 70
Employees................................................................................................ 70
Facilities............................................................................................... 70
Legal Proceedings........................................................................................ 71
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Cognition (Discontinued Operations)...................................................................... 71
MANAGEMENT OF ACUITY....................................................................................... 71
Executive Officers and Directors......................................................................... 71
Executive Compensation................................................................................... 73
Employment Contracts and Termination of Employment Arrangements.......................................... 74
Compensation of Directors................................................................................ 74
Certain Relationships and Related Transactions........................................................... 75
Security Ownership of Certain Beneficial Owners and Management........................................... 76
DESCRIPTION OF ACUITY'S SECURITIES......................................................................... 77
Acuity Common Stock...................................................................................... 77
Transfer Agent........................................................................................... 77
Reports to Stockholders.................................................................................. 77
BUSINESS OF RVSI........................................................................................... 78
History.................................................................................................. 78
Vision Technology........................................................................................ 79
Markets and Products..................................................................................... 80
Semiconductor Lead Inspection Systems.................................................................. 81
Aircraft Ice Detection System.......................................................................... 81
Manufacturing............................................................................................ 82
Marketing................................................................................................ 82
Customers................................................................................................ 83
Research and Development................................................................................. 83
Sources of Supply........................................................................................ 83
Backlog.................................................................................................. 83
Customer Service and Support............................................................................. 84
Government Regulation.................................................................................... 84
Proprietary Protection................................................................................... 84
Competition.............................................................................................. 84
Employees................................................................................................ 84
Facilities............................................................................................... 85
Litigation............................................................................................... 85
MANAGEMENT OF RVSI......................................................................................... 86
Executive Officers and Directors......................................................................... 86
Prior to the Merger.................................................................................... 86
After the Merger....................................................................................... 86
Executive Compensation................................................................................... 87
Employee Agreements...................................................................................... 88
Directors' Compensation.................................................................................. 88
Certain Relationships and Related Transactions........................................................... 88
PRINCIPAL STOCKHOLDERS OF RVSI............................................................................. 89
DESCRIPTION OF RVSI'S SECURITIES........................................................................... 90
Common Stock............................................................................................. 90
Warrants................................................................................................. 90
Transfer Agent........................................................................................... 90
Reports to Stockholders.................................................................................. 90
COMPARISON OF RIGHTS OF HOLDERS OF ACUITY COMMON STOCK AND RVSI COMMON STOCK............................... 91
Authorized Shares of Capital Stock....................................................................... 91
Meetings................................................................................................. 91
Directors and Officers................................................................................... 92
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
LEGAL MATTERS.............................................................................................. 92
EXPERTS.................................................................................................... 92
CHANGE IN ACUITY'S ACCOUNTANTS............................................................................. 92
STOCKHOLDER PROPOSALS...................................................................................... 93
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
Agreement and Plan of Merger and Reorganization, dated as of April 27, 1995, as
amended and restated as of July 11, 1995, by and between Robotic Vision Systems, Inc.,
RVSI Acquisition Corp. and Acuity Imaging, Inc ............................................................ Exhibit A
Section 262 of the General Corporation Law of the State of Delaware ........................................ Exhibit B
Opinion of Janney Montgomery Scott Inc. .................................................................... Exhibit C
Opinion of Fechtor, Detwiler & Co., Inc. ................................................................... Exhibit D
Amended and Restated 1991 Stock Option Plan ................................................................ Exhibit E
</TABLE>
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS
ARE URGED TO REVIEW THE ENTIRE PROXY STATEMENT/ PROSPECTUS AND THE EXHIBITS
THERETO. CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED IN THIS SUMMARY HAVE
THE MEANINGS GIVEN TO THEM ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. UNLESS
OTHERWISE INDICATED, THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS ASSUMES
THAT THE EXCHANGE RATIO WILL EQUAL 0.766.
THE PROPOSED MERGER
GENERAL
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of RVSI Acquisition Corp. ("Subsidiary"), a newly-organized Delaware
corporation and a wholly-owned subsidiary of Robotic Vision Systems, Inc., a
Delaware corporation ("RVSI"), with and into Acuity Imaging, Inc., a Delaware
corporation ("Acuity"), pursuant to that certain Agreement and Plan of Merger
and Reorganization, dated as of April 27, 1995, as amended and restated as of
July 11, 1995 (the "Merger Agreement"), by and among RVSI, Subsidiary and
Acuity. At such time as the Certificate of Merger required under Delaware law is
filed with the Secretary of State of the State of Delaware (the "Effective
Time"), each outstanding share of Common Stock, $.01 par value, of Acuity (the
"Acuity Common Stock") will be converted into the right to receive, and become
exchangeable for (the "Exchange Ratio"), 0.766 of a share of Common Stock, $.01
par value, of RVSI (the "RVSI Common Stock"); provided, however, that if the
average of the closing prices of RVSI Common Stock on The Nasdaq National Market
for the 20 trading days ending on (and including) the third trading day
immediately prior to the RVSI Special Meeting (the "Average Closing Price") is
greater than $14.50, then the Exchange Ratio shall be equal to the quotient of
$11.107 divided by the Average Closing Price (provided that in no event shall
the Exchange Ratio be less than 0.555375) (the "Minimum Collar"); and if the
Average Closing Price is less than $10.00, then the Exchange Ratio shall be
equal to the quotient of $7.66 divided by the Average Closing Price (provided
that in no event shall the Exchange Ratio be more than 0.925626) (the "Maximum
Collar" and collectively with the Minimum Collar, the "Collars").
SPECIAL MEETING OF RVSI STOCKHOLDERS
At the Special Meeting in lieu of Annual Meeting of Stockholders of RVSI, or
any adjournment or postponement thereof (the "RVSI Special Meeting"), the
stockholders of RVSI (the "RVSI Stockholders") will be asked to consider and
vote upon proposals to (i) approve and adopt the Merger Agreement and the
transactions contemplated thereby, (ii) elect nine directors, (iii) approve
RVSI's Amended and Restated 1991 Stock Option Plan, (iv) approve an amendment to
RVSI's Certificate of Incorporation increasing RVSI's authorized shares of
Common Stock and (v) ratify the selection by RVSI's Board of Directors (the
"RVSI Board") of RVSI's independent auditors. The RVSI Special Meeting is
scheduled to be held at 10:00 A.M., local time, on Tuesday, September 19, 1995,
at The Bank of New York, One Wall Street, New York, New York. The RVSI Board has
fixed the close of business on August 9, 1995 as the record date (the "RVSI
Record Date") for the determination of holders of RVSI Common Stock entitled to
notice of and to vote at the RVSI Annual Meeting. See "The RVSI Special
Meeting."
THE RVSI BOARD WITHOUT DISSENT HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT THE RVSI STOCKHOLDERS VOTE
"FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
THE RVSI BOARD WITHOUT DISSENT HAS ALSO DESIGNATED EACH OF THE NOMINEES FOR
ELECTION AS DIRECTORS, APPROVED RVSI'S AMENDED AND RESTATED 1991 STOCK OPTION
PLAN AND THE PROPOSED AMENDMENT TO RVSI'S CERTIFICATE OF INCORPORATION AND
SELECTED RVSI'S INDEPENDENT AUDITORS. THE RVSI BOARD RECOMMENDS THAT THE RVSI
STOCKHOLDERS VOTE "FOR" EACH OF SUCH NOMINEES, "FOR" THE PROPOSALS TO APPROVE
RVSI'S AMENDED AND RESTATED 1991 STOCK OPTION PLAN AND THE AMENDMENT TO RVSI'S
CERTIFICATE OF INCORPORATION AND "FOR" RATIFICATION OF ITS SELECTION OF RVSI'S
INDEPENDENT AUDITORS. SEE "THE PROPOSED MERGER --
(i)
<PAGE>
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER -- RVSI,"
"ELECTION OF DIRECTORS," "PROPOSAL TO APPROVE RVSI'S AMENDED AND RESTATED 1991
STOCK OPTION PLAN," "PROPOSAL TO AMEND RVSI'S CERTIFICATE OF INCORPORATION" AND
"RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS."
SPECIAL MEETING OF ACUITY STOCKHOLDERS
At the Special Meeting of Stockholders of Acuity, or any adjournment or
postponement thereof (the "Acuity Special Meeting"), the stockholders of Acuity
(the "Acuity Stockholders") will be asked to consider and vote upon a proposal
to approve and adopt the Merger Agreement and the transactions contemplated
thereby. The Acuity Special Meeting is scheduled to be held at 10:00 A.M., local
time, on Tuesday, September 19, 1995, at the offices of Acuity, 9 Townsend West,
Nashua, New Hampshire. The Board of Directors of Acuity (the "Acuity Board") has
fixed the close of business on August 9, 1995 as the record date (the "Acuity
Record Date") for the determination of holders of Acuity Common Stock entitled
to notice of and to vote at the Acuity Special Meeting. See "The Acuity Special
Meeting."
THE ACUITY BOARD WITHOUT DISSENT HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT THE ACUITY STOCKHOLDERS
VOTE "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY. SEE "THE PROPOSED MERGER -- RECOMMENDATIONS
OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER -- ACUITY."
THE PARTIES
RVSI. RVSI designs, manufactures, markets and installs machine vision-based
products for productivity improvement and quality control applications in the
manufacturing workplace. These products have as their primary component RVSI's
proprietary three-dimensional ("3-D") machine vision technology. This technology
uses sophisticated structured laser light and optical triangulation techniques
to acquire precise three-dimensional measurement information about the surface
of a viewed object.
RVSI's LS Lead Scanning Systems offer automated high-speed 3-D semiconductor
package lead inspection with the added feature of non-contact scanning of the
packages in their shipping trays ("in-tray scanning"). The system uses a
laser-based, non-contact, 3-D measurement technique to inspect and sort quad
flat packs, thin quad flat packs, plastic leaded chip carriers, ball grid arrays
and thin small outline packs from their carrying trays. The system measurements
include coplanarity, total package height, true position spread and span, as
well as lead angle, width, pitch and gap.
RVSI was incorporated in New York in 1976 and reincorporated in Delaware in
1977. RVSI's executive offices are located at 425 Rabro Drive East, Hauppauge,
New York 11788; its telephone number is (516) 273-9700.
ACUITY. Acuity designs, manufactures, markets and services two-dimensional
("2-D") machine vision systems for use in industrial automation. These products
emulate many of the functions performed by the human eye and are used for image
processing within the industrial and manufacturing processes to perform such
functions as measurement, flaw detection, verification of the presence and
correctness of parts and subassemblies, and inspection of manufactured products.
Typically, this equipment is utilized in applications where human inspection is
not practical or where the use of machine vision systems is faster, more
reliable and more economical than human inspection. Acuity's products utilize a
combination of software, an image processing computer and electronic cameras to
perform their functions.
Acuity was incorporated in Delaware in 1980 as Automatix Incorporated
("Automatix"). On January 26, 1994 Itran Corp., a privately held corporation,
was merged with and into Automatix. In connection with such merger, Automatix
contemporaneously changed its name to Acuity Imaging, Inc. ("Acuity"). Acuity's
executive offices are located at 9 Townsend West, Nashua, New Hampshire 03063
and its telephone number is (603) 598-8400.
SUBSIDIARY. Subsidiary is a newly-organized Delaware corporation and a
wholly-owned subsidiary of RVSI. Subsidiary was organized for the sole purpose
of merging with and into Acuity.
(ii)
<PAGE>
REQUIRED VOTE
RVSI STOCKHOLDERS. The vote of RVSI stockholders in favor of the Merger
Agreement and consummation of the transactions contemplated thereby is not
required by the General Corporation Law of the State of Delaware ("DGCL"). Such
vote is being sought by RVSI pursuant to the requirements of The Nasdaq National
Market. The affirmative vote of the majority of shares of RVSI Common Stock
present, either in person or represented by proxy, at the Special Meeting is
required to approve the Merger Agreement and each of the other matters presented
for stockholder approval with the exception of the proposal to amend RVSI's
Certificate of Incorporation, which requires the affirmative vote of a majority
of all of the outstanding shares of RVSI Common Stock entitled to vote thereon.
At the Record Date, there were 13,128,576 shares of RVSI Common Stock
outstanding. The presence, either in person or represented by proxy, of the
holders of a majority of the shares of RVSI Common Stock outstanding as of the
Record Date is necessary to constitute a quorum at the RVSI Special Meeting. As
of the Record Date, RVSI's directors, executive officers and their respective
affiliates as a group held shares representing approximately 1.8% of the votes
entitled to be cast by RVSI Stockholders at the RVSI Special Meeting. Such
percentage does not include shares issuable pursuant to currently exercisable
options and warrants. See "The RVSI Special Meeting -- Voting Rights."
RVSI Stockholders do not have appraisal rights under the DGCL. See "The
Proposed Merger -- Absence of Appraisal Rights."
ACUITY STOCKHOLDERS. Pursuant to the DGCL, the affirmative vote of the
holders of at least a majority of the shares of Acuity Common Stock outstanding
as of the Record Date is required to approve and adopt the Merger Agreement and
the transactions contemplated thereby. At the Record Date, there were 2,486,937
shares of Acuity Common Stock outstanding. The presence, either in person or
represented by proxy, of the holders of a majority of the shares of Acuity
Common Stock outstanding as of the Record Date is necessary to constitute a
quorum at the Acuity Special Meeting. As of the Record Date, Acuity's directors,
executive officers and their respective affiliates as a group held shares
representing approximately 3.2% of the votes entitled to be cast by Acuity
Stockholders at the Acuity Special Meeting. Such percentage does not include
shares issuable pursuant to currently exercisable options. See "The Acuity
Special Meeting -- Voting Rights."
Acuity Stockholders do not have appraisal rights under the DGCL. See "The
Proposed Merger -- Absence of Appraisal Rights."
THE MERGER
GENERAL. All issued and outstanding shares of Acuity Common Stock will be
converted into RVSI Common Stock upon completion of the Merger. It is a
condition of the Merger that the shares of RVSI Common Stock issued in the
Merger be listed on The Nasdaq National Market. At the Effective Time,
Subsidiary will be merged with and into Acuity, and Subsidiary will cease to
exist as a separate entity. Acuity will be the surviving corporation in the
Merger and will thereby become a wholly-owned subsidiary of RVSI.
CONVERSION OF SHARES. At the Effective Time, each then outstanding share of
Acuity Common Stock will be converted into the right to receive, and become
exchangeable for (the "Exchange Ratio"), 0.766 of a share of RVSI Common Stock
(subject to possible adjustments to the Exchange Ratio as a result of
implementation of the Collars), the Exchange Ratio having been established
through arms-length negotiations between RVSI and Acuity. See "Description of
RVSI's Securities -- Common Stock." No fractional shares of RVSI Common Stock
will be issued in the Merger, and holders of shares of Acuity Common Stock that
are converted in the Merger will be entitled to a cash payment (without
interest) in lieu of such fractional shares. See "The Proposed Merger -- No
Fractional Shares."
CONVERSION OF OPTIONS. As a consequence of the Merger, options to purchase
up to 205,646 shares of Acuity Common Stock ("Acuity Options") at various
exercise prices will be converted at the
(iii)
<PAGE>
Effective Time into options to purchase up to 157,524 shares of RVSI Common
Stock at exercise prices determined by dividing the exercise price per share of
Acuity Common Stock provided for in such Acuity Option by the Exchange Ratio.
See "The Merger Agreement -- Conversion of Options."
STOCK PURCHASE RIGHTS. As a consequence of the Merger, purchase rights
under Acuity's 1994 Employee Qualified Stock Purchase Plan will be converted
into rights to purchase up to an estimated 19,150 shares of RVSI Common Stock,
based upon the Exchange Ratio. See "The Merger Agreement -- Stock Purchase
Rights."
EFFECTIVE TIME
After all the conditions set forth in the Merger Agreement have been
satisfied or waived, the Merger will become effective at such time as the
Certificate of Merger required under the DGCL is accepted for filing by the
Secretary of State of the State of Delaware. Such filing will be made
simultaneously with or as soon as practicable after the closing of the
transactions contemplated by the Merger Agreement. See "The Proposed Merger --
Closing; Effective Time."
EXCHANGE OF STOCK CERTIFICATES
From and after the Effective Time, each holder of an outstanding certificate
which immediately prior to the Effective Time represented shares of Acuity
Common Stock (the "Acuity Certificates") shall cease to have any rights as a
stockholder of Acuity and each holder's sole right shall be to receive in
exchange for such holder's Acuity Certificates, upon surrender to American Stock
Transfer & Trust Company (the "Exchange Agent"), a certificate or certificates
representing the number of whole shares of RVSI Common Stock (the "RVSI
Certificates"), which such holder is entitled to receive pursuant to the Merger
Agreement. As soon as practicable after the Effective Time, the Exchange Agent
will send transmittal instructions to each Acuity Stockholder describing the
procedure for surrendering the Acuity Certificates for the RVSI Certificates.
See "The Proposed Merger -- Exchange of Stock Certificates."
RVSI STOCKHOLDERS WILL NOT BE REQUIRED TO SURRENDER CERTIFICATES EVIDENCING
SHARES OF RVSI COMMON STOCK FOLLOWING THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE SUBSEQUENT IMPLEMENTATION OF THE MERGER.
BACKGROUND
The terms of the Merger Agreement resulted from arm's length negotiations
between representatives of RVSI and Acuity. See "The Proposed Merger --
Background."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
RVSI. On July 11, 1995, the RVSI Board without dissent approved the Merger
Agreement and the transactions contemplated thereby. The RVSI Board recommends
that the RVSI Stockholders vote "FOR" approval and adoption of the Merger
Agreement and the transactions contemplated thereby.
The recommendation of the RVSI Board is based upon its belief that the terms
of the Merger Agreement are fair and in the best interests of RVSI and the RVSI
Stockholders and that the Merger will result in benefits to the RVSI
Stockholders. For a discussion of the factors considered by the RVSI Board in
making its recommendation, see "The Proposed Merger -- Recommendations of the
Boards of Directors and Reasons for the Merger -- RVSI."
ACUITY. On July 6, 1995, the Acuity Board without dissent approved the
Merger Agreement and the transactions contemplated thereby. The Acuity Board
recommends that the Acuity Stockholders vote "FOR" approval and adoption of the
Merger Agreement and the transactions contemplated thereby.
The recommendation of the Acuity Board is based upon its belief that the
terms of the Merger Agreement are fair and in the best interests of Acuity and
the Acuity Stockholders and that the
(iv)
<PAGE>
Merger will result in benefits to the Acuity Stockholders. For a discussion of
the factors considered by the Acuity Board in making its recommendation, see
"The Proposed Merger -- Recommendations of the Boards of Directors and Reasons
for the Merger -- Acuity."
OPINION OF FINANCIAL ADVISORS
JANNEY MONTGOMERY SCOTT INC. In its role as financial advisor to RVSI,
Janney Montgomery Scott Inc. ("JMS") was asked to render an opinion to the RVSI
Board as to the fairness to the RVSI Stockholders, from a financial point of
view, of the Exchange Ratio. JMS delivered its written opinion dated July 20,
1995, a copy of which is attached hereto as Exhibit C (the "JMS Opinion"), to
the RVSI Board to the effect that, as of the date of its opinion, and based upon
and subject to the matters set forth in its opinion, the Exchange Ratio is fair,
from a financial point of view, to the RVSI Stockholders. The JMS Opinion is
necessarily based on market, economic and other conditions as they existed on
the date JMS delivered its opinion, the information made available to JMS as of
such date and the review and analysis conducted by JMS as of such date. The
summary of the JMS Opinion set forth in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion, a copy
of which is attached hereto as Exhibit C. See "The Proposed Merger -- Opinions
of Financial Advisors -- Janney Montgomery Scott Inc." and Exhibit C hereto.
FECHTOR, DETWILER & CO., INC. In its role as financial advisor to Acuity,
Fechtor, Detwiler & Co., Inc. ("Fechtor, Detwiler") was asked to render an
opinion to the Acuity Board as to the fairness to the Acuity Stockholders, from
a financial point of view, of the Exchange Ratio. On July 10, 1995, Fechtor,
Detwiler orally advised the Acuity Board to the effect that the Exchange Ratio
was fair, from a financial point of view, to the Acuity Stockholders. Fechtor,
Detwiler thereafter delivered its written opinion dated July 17, 1995, a copy of
which is attached hereto as Exhibit D (the "Fechtor, Detwiler Opinion"), to the
Acuity Board to the effect that, as of the date of its opinion, and based upon
and subject to the matters set forth in its opinion, the Exchange Ratio is fair,
from a financial point of view, to the Acuity Stockholders. The Fechtor,
Detwiler Opinion is necessarily based on market, economic and other conditions
as they existed on the date Fechtor, Detwiler delivered its opinion, the
information made available to Fechtor, Detwiler as of such date and the review
and analysis conducted by Fechtor, Detwiler as of such date. The summary of the
Fechtor, Detwiler Opinion set forth in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion, a copy
of which is attached hereto as Exhibit D. See "The Proposed Merger -- Opinions
of Financial Advisors -- Fechtor, Detwiler & Co., Inc." and Exhibit D hereto.
CONDITIONS TO THE MERGER
The obligations of RVSI and Acuity to consummate the Merger are subject to
the satisfaction of a number of conditions, including the approval of the Merger
Agreement and the transactions contemplated thereby by the holders of a majority
of the shares of RVSI Common Stock present at the RVSI Special Meeting and by
the holders of a majority of the shares of Acuity Common Stock. See "The
Proposed Merger -- The Merger Agreement -- Conditions to the Merger."
RIGHTS TO TERMINATE AND AMENDMENTS
The Merger Agreement may be terminated prior to the closing of the
transactions contemplated thereby (the "Closing Date") under certain
circumstances. If the Merger Agreement is terminated, under certain
circumstances, (i) either RVSI or Acuity may be obligated to reimburse the other
for up to $450,000 in documented transaction expenses, and (ii) Acuity may be
obligated to pay RVSI a break-up fee. See "The Proposed Merger -- The Merger
Agreement -- Termination and Expense Reimbursement" and "Break-up Fees and
Expenses Reimbursement."
Subject to compliance with applicable law, the Merger Agreement may be
amended at any time prior to or, subject to certain conditions, after its
approval by the RVSI Stockholders and the Acuity Stockholders by a written
agreement executed by RVSI, Subsidiary and Acuity. See "The Proposed Merger --
The Merger Agreement -- Amendment and Waiver."
(v)
<PAGE>
CONFLICTS OF INTEREST
Upon effectiveness of the Merger, and assuming a favorable vote by a
majority of the RVSI Stockholders, both Donald J. Kramer and Ofer Gneezy, each
presently a director of Acuity, will become directors of RVSI. See "The Proposed
Merger -- Conflicts of Interest" and "Election of Directors."
COMPARISON OF RIGHTS UNDER APPLICABLE LAW
The rights of Acuity Stockholders are currently governed by the DGCL,
Acuity's Certificate of Incorporation (the "Acuity Certificate of
Incorporation") and Acuity's Bylaws (the "Acuity Bylaws"). Holders of Acuity
Common Stock immediately prior to the Effective Time will become RVSI
Stockholders, and from and after the Effective Time, their rights as RVSI
Stockholders will be governed by the DGCL, RVSI's Certificate of Incorporation
(the "RVSI Certificate of Incorporation") and RVSI's Bylaws (the "RVSI Bylaws").
There are no significant differences between the rights of Acuity Stockholders
under the Acuity Certificate of Incorporation and the Acuity Bylaws and the
rights of RVSI Stockholders under the RVSI Certificate of Incorporation and the
RVSI Bylaws. See "Comparison of Rights of Holders of Acuity Common Stock and
RVSI Common Stock."
ACCOUNTING TREATMENT
The Merger will be accounted for as a "pooling of interests" transaction in
accordance with generally accepted accounting principles. See "The Proposed
Merger -- Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
It is expected that the Merger will constitute a reorganization for federal
income tax purposes and, accordingly, that no gain or loss will be recognized by
Acuity Stockholders upon the exchange of Acuity Common Stock solely for shares
of RVSI Common Stock. See "Certain Federal Income Tax Considerations." BECAUSE
CERTAIN FEDERAL TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH ACUITY STOCKHOLDER, EACH SUCH HOLDER IS URGED
TO CONSULT HIS OR HER TAX ADVISOR TO DETERMINE THE SPECIFIC FEDERAL AND ANY
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER.
ABSENCE OF APPRAISAL RIGHTS
Acuity Stockholders and RVSI Stockholders are not entitled to appraisal
rights under the DGCL in connection with the Merger. See "The Proposed Merger --
Absence of Appraisal Rights" and Section 262 of the DGCL attached as Exhibit B
hereto.
ABSENCE OF REGULATORY FILINGS AND APPROVALS
The Merger is not subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, and the rules and regulations thereunder,
which provide that certain merger transactions may not be consummated until
required information and material have been furnished to the Antitrust Division
of the Department of Justice and the Federal Trade Commission and certain
waiting periods have expired or been terminated. See "The Proposed Merger --
Absence of Regulatory Filings and Approvals."
COMPARATIVE PER SHARE DATA OF RVSI COMMON STOCK AND ACUITY COMMON STOCK
RVSI Common Stock is quoted on The Nasdaq National Market and Acuity Common
Stock is quoted on The Nasdaq Small-Cap Market under the symbols "ROBV" and
"ACUT," respectively. On July 11, 1995 (the last trading day prior to the public
announcement that RVSI and Acuity had entered into the amended Merger
Agreement), the closing bid prices of RVSI Common Stock and Acuity Common Stock
were $13.75 and $10.125, respectively. On an equivalent per share basis
calculated by multiplying the closing bid price of RVSI Common Stock on The
Nasdaq National Market on July 11, 1995 by 0.766, the applicable Exchange Ratio,
the value of shares of RVSI Common Stock to be received by Acuity Stockholders
was $10.53 per share of Acuity Common Stock. On August 9, 1995, the closing bid
price of RVSI Common Stock was $16.00 per share; therefore, the Exchange Ratio
for that date was approximately 0.694 and the value of the shares of RVSI Common
Stock to be received by Acuity Stockholders was $11.11 per share of Acuity
Common Stock on such
(vi)
<PAGE>
date. ACUITY STOCKHOLDERS ARE URGED TO OBTAIN CURRENT PRICE INFORMATION FOR RVSI
COMMON STOCK IN CONNECTION WITH THEIR CONSIDERATION OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY. See "Comparative Per Share Prices and
Dividends of RVSI Common Stock and Acuity Common Stock."
RISK FACTORS
In considering whether to approve the Merger Agreement and the transactions
contemplated thereby, RVSI and Acuity Stockholders should consider the
following:
RISKS RELATING TO THE MERGER
- Risks Associated With Exchange Ratio
- Uncertainties of Post-Merger Operations
- Fluctuations in the Semiconductor Market
- Market Impact of Future Sales of RVSI Common Stock
- Absence of Dividends
- Possible Volatility of Stock Price
RISKS RELATING TO ACUITY
- Recent Losses
- Accumulated Deficit; History of Operating Losses
- Loan Default
- Dependence on Distributors
- Competition
- Recent Merger and Changes in Management
RISKS RELATING TO RVSI
- Concentration of Revenues
- Competition
- Pending Litigation
- Uncertainty of Patent Protection
- Major Supplier in Bankruptcy
- Export Sales
See "Risk Factors."
(vii)
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical information, which does not give effect to
the Merger, should be read in conjunction with the financial statements of RVSI,
with the consolidated financial statements of Acuity and with the pro forma
combined financial information which gives effect to the Merger, which appear
elsewhere in this Proxy Statement/Prospectus.
SUMMARY HISTORICAL FINANCIAL INFORMATION OF RVSI
STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
------------------- ---------------------------------------------------------------
1995 (E) 1994 (E) 1994 1993 1992 1991 1990
-------- -------- -------- -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ 16,600 $ 11,790 $ 24,613 $ 19,943 $ 13,335 $ 8,519 $ 11,256
Income (loss) before
Benefit from Income
Taxes and Extraordinary
Items................... $ 3,222 $ 1,006 $ 2,710 $ 1,104 $ (983) $ (2,428) $ (5,523)(a)
Benefit from Income
Taxes................... $ 2,060 $ 1,093 $ 401 $ 495 -- -- --
Income (Loss) before
Extraordinary Items..... $ 5,282 $ 2,099 $ 3,111 $ 1,599 $ (983) $ (2,428) $ (5,523)(a)
Extraordinary Items...... -- -- -- -- $1,210(b)(c) -- --
Net Income (Loss)........ $ 5,282 $ 2,099 $ 3,111 $ 1,599 $ 227(b)(c) $ (2,428) $ (5,523)(a)
Income (Loss) Per Share
before Extraordinary
Items................... $ .38 $ .16 $ .24 $ .14 $ (.13) $ (.38) $ (.87)
Net Income (Loss) Per
Share................... $ .38 $ .16 $ .24 $ .14 $ .03 $ (.38) $ (.87)
Weighted Average Number
of Common Shares and
Equivalents............. 13,765(d) 12,830(d) 13,057(d) 12,534(d) 7,783 6,354 6,337
<FN>
- ------------------------------
(a) Includes restructuring charges of $2,526,000.
(b) Includes an extraordinary credit of $1,138,000 (net of income tax provision
of $97,000) relating to an agreement with General Motors Corporation. See
Note 12 of Notes to Financial Statements of RVSI.
(c) Includes extraordinary credits of $72,000 resulting from utilization of net
operating loss carryforwards.
(d) Weighted average number of common shares and common share equivalents
calculated using the modified treasury stock method. See Note 1i of Notes
to Financial Statements of RVSI.
(e) Derived from unaudited financial statements.
</TABLE>
BALANCE SHEET DATA (IN THOUSANDS):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------
MARCH 31, 1995(A) 1994 1993 1992 1991 1990
----------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Assets................................... $ 21,710 $ 14,988 $ 7,889 $ 4,515 $ 4,296 $ 5,963
Current Liabilities............................ $ 6,936 $ 5,742 $ 6,215 $ 4,463 $ 5,899 $ 5,140
Total Liabilities.............................. $ 7,149 $ 5,952 $ 6,460 $ 4,798 $ 6,297 $ 5,564
Stockholders' Equity (Deficiency).............. $ 14,561 $ 9,036 $ 1,429 $ (283) $ (2,001) $ 399
Working Capital (Deficiency)................... $ 8,311 $ 4,664 $ (766) $ (1,326) $ (2,476) $ (530)
<FN>
- ------------------------------
(a) Derived from unaudited financial statements.
</TABLE>
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations of RVSI" and the Notes to Financial
Statements of RVSI.
(viii)
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION OF ACUITY
STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------ YEAR ENDED DECEMBER 31,
APRIL 1, APRIL 2, -----------------------------------------------------
1995 (A) 1994 (A) 1994 1993 1992 1991 (A) 1990 (A)
----------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 4,895 $ 5,189 $ 22,168 $ 18,734 $ 16,610 $ 15,230 $ 14,038
Income (Loss) from Continuing
Operations Before Income Taxes.... $ (141) $ 454 $ 1,416 $ 67 $ 499 $ 642 $ 67
Provision for Income Taxes......... -- $ 44 $ 110 $ 97 $ 48 $ 37 --
Income (Loss) from Continuing
Operations........................ $ (141) $ 410 $ 1,306 $ (30) $ 451 $ 605 $ 67
Income (Loss) from Discontinued
Operations (b).................... -- -- -- -- $ 1,214 $ (333) $ (1,188)
Income (Loss) before Extraordinary
Item.............................. $ (141) $ 410 $ 1,306 $ (30) $ 1,665 $ 272 $ (1,121)
Extraordinary Item (c)............. -- -- -- -- 46 -- --
Net Income (Loss).................. $ (141) $ 410 $ 1,306 $ (30) $ 1,711 $ 272 $ (1,121)
----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- --------- ---------
Income (Loss) Per Share from
Continuing Operations............. $ (0.06) $ 0.16 $ 0.51 $ (0.01) $ 0.19 $ 0.25 $ 0.03
Discontinued Operations............ -- -- -- -- $ 0.51 (0.14) $ (0.50)
Extraordinary Item (c)............. -- -- -- -- $ 0.02 -- --
Net Income (Loss) Per Share........ $ (0.06) $ 0.16 $ 0.51 $ (0.01) $ 0.72 $ 0.11 $ (0.47)
----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- --------- ---------
Weighted Average Number of Common
Shares and Equivalents............ 2,417 2,579 2,569 2,380 2,383 2,383 2,383
----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- --------- ---------
<FN>
- ------------------------------
(a) Derived from unaudited data.
(b) Discontinued operations related to SuperCads, Inc. (known by its trade
name, Cognition), which was sold on July 15, 1992. See Note 3 of Notes to
Financial Statements of Acuity.
(c) Extraordinary Item represents gain of $46 (net of income taxes of $3) for
extinguishment of debt in 1992.
</TABLE>
RECENT LOSSES
Acuity estimates it has incurred a loss of approximately $500,000 on
revenues of approximately $4,100,000 in its second quarter ended July 1, 1995.
For the six months ended July 1, 1995, Acuity estimates that it incurred a loss
of $640,000 on revenues of $9,000,000. This compares with earnings of $669,000
on revenues of $10,575,000 for the six months ended July 2, 1994.
BALANCE SHEET DATA (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
APRIL 1, 1995 (A) 1994 1993 1992 1991(A) 1990(A)
----------------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total Assets...................................... $ 6,470 $ 6,720 $ 7,622 $ 6,409 $ 5,855 $ 6,043
Current Liabilities............................... $ 4,166 $ 3,357 $ 6,597 $ 2,326 $ 1,934 $ 2,822
Total Liabilities................................. $ 4,166 $ 4,372 $ 6,597 $ 5,351 $ 6,357 $ 6,663
Stockholders' Equity (Deficiency)................. $ 2,304 $ 2,348 $ 1,025 $ 1,058 $ (502) $ (620)
Working Capital................................... $ 1,296 $ 2,470 $ 353 $ 3,467 $ 3,269 $ 2,463
<FN>
- ------------------------------
(a) Derived from unaudited financial statements.
</TABLE>
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Acuity" and Notes to Consolidated
Financial Statements of Acuity.
(ix)
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------- FOR FISCAL YEAR ENDED
MARCH 31, MARCH 31, ------------------------------------
1995 1994 1994 (A) 1993 (A) 1992 (A)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $27,330 $21,996 $ 46,781 $ 38,677 $ 29,945
Income (Loss) From Continuing Operations Before Income
Taxes................................................ $ 3,292 $ 790 $ 4,126 $ 1,171 $ (484)
Income Tax Benefit (Provision)........................ $ 2,067 $ 1,059 $ 291 $ 398 $ (48)
Income (Loss) From Continuing Operations.............. $ 5,359 $ 1,849 $ 4,417 $ 1,569 $ (532)
Income From Discontinued Operations................... -- -- -- -- $ 1,214
Extraordinary Items................................... -- -- -- -- $ 1,256
Net Income............................................ $ 5,359 $ 1,849 $ 4,417 $ 1,569 $ 1,938
Income (Loss) Per Share:
Primary:
Continued Operations................................ $ .34 $ .13 $ .30 $ .13 $ (.06)
Discontinued Operations............................. -- -- -- -- $ .13
---------- ---------- ---------- ---------- ----------
Income Before Extraordinary Items................... $ .34 $ .13 $ .30 $ .13 $ .07
Extraordinary Items................................. -- -- -- -- $ .13
---------- ---------- ---------- ---------- ----------
Net Income.......................................... $ .34 $ .13 $ .30 $ .13 $ .20
Fully Diluted:
Continuing Operations............................... $ .34 $ .13 $ .29 $ .12 $ (.06)
Discontinued Operations............................. -- -- -- -- $ .13
---------- ---------- ---------- ---------- ----------
Income Before Extraordinary Items................... $ .34 $ .13 $ .29 $ .12 $ .07
Extraordinary Items................................. -- -- -- -- $ .13
---------- ---------- ---------- ---------- ----------
Net Income.......................................... $ .34 $ .13 $ .29 $ .12 $ .20
Weighted Average Number of Common and Common
Equivalent Shares Outstanding
Primary:............................................ 15,615(b) 14,335(b) 14,858(b) 14,023(b) 9,608
Fully Diluted:...................................... 15,700(b) 14,450(b) 15,061(b) 14,023(b) 9,608
<FN>
- ------------------------------
(a) The fiscal year ended 1994, 1993, and 1992 was September 30, 1994, 1993,
and 1992 for RVSI and was December 31, 1994, 1993, and 1992 for Acuity,
respectively.
(b) Weighted average number of common shares and common equivalents calculated
using the modified treasury stock method.
</TABLE>
PRO FORMA COMBINED BALANCE SHEET DATA (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31, 1995
--------------
<S> <C>
Total Assets.................................................................. $ 28,096
Current Liabilities........................................................... $ 11,785
Total Liabilities............................................................. $ 11,998
Stockholders' Equity.......................................................... $ 16,098
Working Capital............................................................... $ 8,840
</TABLE>
(x)
<PAGE>
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
RVSI PRO ACUITY
RVSI ACUITY FORMA EQUIVALENT PRO
HISTORICAL HISTORICAL COMBINED (1) FORMA (1)
----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Book Value Per Share as of March 31, 1995.................... $ 1.25 $ .94 $ 1.19 $ .91
Income (Loss) From Continuing Operations Per Share for the
six months ended March 31, 1995
Primary:................................................. $ .38 $ .05 $ .34 $ .26
Fully Diluted:........................................... $ .38 $ .05 $ .34 $ .26
For the year ended
Fiscal 1994 (2):
Primary:................................................. $ .24 $ .51 $ .30 $ .23
Fully Diluted:........................................... $ .24 $ .51 $ .29 $ .22
Fiscal 1993 (2):
Primary:................................................. $ .14 $ (.01) $ .13 $ .10
Fully Diluted:........................................... $ .14 $ (.01) $ .12 $ .09
Fiscal 1992 (2):
Primary:................................................. $ (.13) $ .19 $ (.06) $ (.04)
Fully Diluted:........................................... $ (.13) $ .19 $ (.06) $ (.04)
Dividends per share (3)
<FN>
- ------------------------
(1) RVSI pro forma combined per share amounts and the Acuity equivalent pro
forma per share amounts represent the historical information of RVSI and
the historical information of Acuity effected by the exchange ratio of the
merger.
(2) The year ended fiscal 1994 was September 30, 1994 for RVSI and December 31,
1994 for Acuity, the year ended fiscal 1993 was September 30, 1993 for RVSI
and December 31, 1993 for Acuity and the year ended fiscal 1992 was
September 30, 1992 for RVSI and December 31, 1992 for Acuity.
(3) Neither Company paid any dividends during the periods indicated.
</TABLE>
(xi)
<PAGE>
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, RVSI Stockholders and Acuity Stockholders should review
carefully the following factors in deciding whether to vote in favor of approval
of the Merger Transaction.
RISKS RELATING TO THE MERGER:
- RISKS ASSOCIATED WITH EXCHANGE RATIO. The Merger Agreement provides that
upon consummation of the Merger, each share of Acuity Common Stock will be
exchanged for 0.766 of a share of RVSI Common Stock; provided, however, that if
the average of the closing prices of RVSI Common Stock on The Nasdaq National
Market for the 20 trading days ending on (and including) the third trading day
immediately prior to the RVSI Special Meeting (the "Average Closing Price") is
greater than $14.50, then the Exchange Ratio shall be equal to the quotient of
$11.107 divided by the Average Closing Price (provided that in no event shall
the Exchange Ratio be less than 0.555375); and if the Average Closing Price is
less than $10.00, then the Exchange Ratio shall be equal to the quotient of
$7.66 divided by the Average Closing Price (provided that in no event shall the
Exchange Ratio be more than 0.925626). However, the Exchange Ratio is not
subject to adjustment if the Average Closing Price per share of RVSI Common
Stock is (i) between $10.00 and $14.50, (ii) below approximately $8.27 or (iii)
above approximately $20.00. As the price of RVSI Common Stock at the Effective
Time may vary from the price as of the date on which the Merger Agreement was
executed due to changes in the business, operations and prospects of RVSI,
general market and economic conditions, and other factors, the market value of
the shares of RVSI Common Stock which holders of Acuity Common Stock will
receive in the Merger may be greater or less than the market value of such RVSI
Common Stock as of the date of the Merger Agreement. Acuity and RVSI each
obtained the opinion of its respective financial advisor, dated as of July 20,
1995 and July 17, 1995, respectively, that the consideration to be received by
the stockholders of Acuity upon the consummation of the Merger is fair from a
financial point of view and that the Exchange Ratio is fair, from a financial
point of view, to the RVSI Stockholders, respectively. Each of Acuity and RVSI
do not intend to obtain an updated opinion of its respective financial advisor
subsequent to the date of this Proxy Statement/Prospectus. See "The Merger
Agreement -- Exchange Ratio."
- UNCERTAINTIES OF POST-MERGER OPERATIONS. Mergers of companies in
technological industries are generally considered more difficult to make
successful than in other industries, since combining the different technologies
as they currently exist may not be completely possible. Also, key employees in
the technology industry are less easily replaced than in general manufacturing
companies. Therefore, the loss of key employees as a result of the Merger could
have a negative effect on RVSI. See "Business of RVSI -- Employees" and
"Business of Acuity -- Employees."
- FLUCTUATIONS IN THE SEMICONDUCTOR MARKET. The semiconductor industry has
been subject to significant market fluctuations and periodic downturns, which
often have had a disproportionately negative effect on manufacturers of
semiconductor capital equipment including RVSI and its LS 2000 and 3000 Series
lead scanning systems. The future financial results of RVSI may, therefore,
depend significantly on the market demand for integrated circuit devices. See
"Business of Acuity" and "Business of RVSI."
- MARKET IMPACT OF FUTURE SALES OF RVSI COMMON STOCK. Sales of substantial
amounts of shares of RVSI Common Stock in the public market following the Merger
could adversely affect the market price of the RVSI Common Stock. As of the date
of this Proxy Statement/Prospectus, 10,737,108 shares of RVSI Common Stock are
unrestricted and freely tradable. There are currently 2,391,468 restricted
shares of RVSI Common Stock, as such term is defined under Rule 144 of the
Securities Act, of which 1,110,000 shares will be registered under the
Securities Act prior to January 1996 and thereby be freely tradable.
Upon consummation of the Merger, an additional 1,904,993 shares (excluding
shares issuable upon exercise of options) of RVSI Common Stock (the "Merger
Shares") will be outstanding. Merger
1
<PAGE>
Shares owned by nonaffiliates of Acuity (approximately 1,844,590 shares) will be
eligible for sale immediately upon consummation of the Merger. Merger Shares
owned by affiliates of Acuity (approximately 60,403 shares) may not be sold
until after the results covering 30 days of post-Merger combined operations of
RVSI and Acuity have been filed with the Commission, sent to stockholders of
RVSI or otherwise publicly disclosed. After such public disclosure, affiliates
of Acuity will be able to sell such shares without restriction. See "The
Proposed Merger -- Restrictions on Sales by Affiliates."
Upon consummation of the Merger, there also will be outstanding options,
warrants and rights to purchase up to 2,970,670 shares of RVSI Common Stock. The
sale of a substantial amount of these shares could have an adverse effect on the
future market price of RVSI Common Stock. See "The Proposed Merger -- Conversion
of Options" and "Principal Stockholders of Acuity" and "Principal Stockholders
of RVSI."
- ABSENCE OF DIVIDENDS. Neither Acuity nor RVSI has paid cash dividends on
its Common Stock, and RVSI does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. RVSI intends to reinvest any funds that
might otherwise be available for the payment of dividends in further development
of its business following the Merger. See "Comparative Share Prices and
Dividends of RVSI Common Stock and Acuity Common Stock."
- POSSIBLE VOLATILITY OF STOCK PRICE. Stock prices for many technology
companies fluctuate widely for reasons which may be unrelated to operating
performance or new product or service announcements. Broad market fluctuations,
earnings and other announcements of other companies, general economic conditions
or other matters unrelated to RVSI and outside its control also could affect the
market price of the RVSI Common Stock. See "Comparative Per Share Prices and
Dividends of RVSI Common Stock and Acuity Common Stock."
RISKS RELATING TO ACUITY
- RECENT LOSSES. Acuity estimates it has incurred a loss of approximately
$500,000 on revenues of approximately $4,100,000 in its second quarter ended
July 1, 1995. For the six months ended July 1, 1995, Acuity estimates that it
incurred a loss of $640,000 on revenues of $9,000,000. This compares with
earnings of $669,000 on revenues of $10,575,000 for the six months ended July 2,
1994. These estimated losses were primarily the result of Acuity's lack of
securing any one or two customers which have traditionally accounted for a
significant percentage of Acuity's revenues. In addition, the estimated losses
were also attributable to an increased percentage of total revenues generated
through Acuity's distribution network, which purchase Acuity's products at a
discount from its standard list prices. To a lesser extent, Acuity's estimated
losses were also attributable to a somewhat changing product line, which
included certain newly introduced products that did not achieve their projected
sales level and products with a slightly lower gross margin. Acuity believes
that the trends that resulted in its estimated losses could continue for the
foreseeable future.
- ACCUMULATED DEFICIT; HISTORY OF OPERATING LOSSES. Acuity has incurred
significant periodic operating losses during its history, the most recent being
an estimated loss of approximately $500,000 in the quarter ended July 1, 1995.
At present, Acuity has an accumulated deficit of approximately $60,000,000. See
Acuity's Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Acuity."
- LOAN DEFAULT. As a result of Acuity's recent net losses in 1995, Acuity
is in default of certain of the covenants in its outstanding bank line of
credit. Although Acuity has received a temporary forbearance from such defaults
from its lender, there can be no assurance that Acuity will not continue to be
in default of its line of credit upon expiration of such forbearance. If Acuity
is in default of its line of credit upon expiration of the forbearance, it would
be required to enter into negotiations with its lender in an attempt to resolve
the termination of such forbearance. The lender can demand payment at the
earlier of (i) September 30, 1995 or (ii) any termination of the Merger without
the Merger having been consummated. If the lender demands payment at the time of
the Merger, RVSI and Acuity anticipate no difficulty in repaying the loan. If
the lender demands payment without a consummation
2
<PAGE>
of the Merger, however, Acuity will be required to enter into negotiations with
its lender relating to such defaults. See Note 7 to Acuity's Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Acuity."
- DEPENDENCE ON DISTRIBUTORS. The majority of Acuity's current sales are
made, and a significant portion of future sales are expected to be made,
primarily through third party distributors. Accordingly, Acuity is dependent
upon the continued desire and ability of its distributors to successfully market
and sell its products, as well as their continued viability and financial
stability. See "Business of Acuity -- Marketing, Sales and Service."
- DEPENDENCE ON SUPPLIER. The Power PC, the key component of the PV90 and
PV60, is currently purchased from Apple Computer, Inc. ("Apple"). Acuity has
entered into a Value Added Reseller Agreement with Apple, which agreement may be
canceled upon thirty days written notice by either party. Acuity believes that
alternative sources (i.e., manufacturers of the newly introduced clones of
Apple's Power PC and retailers of Apple's Power PC) of such component are
available, but the price charged by these alternative sources could be higher
than the price Acuity is currently being charged by Apple.
- COMPETITION. Competition in the image processing/machine vision markets
is intense. There are a large number of companies that sell into these markets,
some of which are substantially larger and have greater financial resources,
customer product bases and distribution alternatives than Acuity. No one company
is recognized as the dominant force in the marketplace. Acuity believes that the
high level of competition in this marketplace will continue unabated. The
product development barriers to entering this market are not overwhelming.
- RECENT MERGER AND CHANGES IN MANAGEMENT. On January 26, 1994 Acuity was
formed by the merger of Automatix Incorporated ("Automatix") and Itran Corp.
("Itran"), a privately held corporation, with Automatix (now Acuity) as the
surviving company. Within the first twelve months after the merger of Automatix
and Itran, John Pemble, the Chief Executive Officer, and Roger Kuhn, the Chief
Financial Officer, of Acuity (who each held the same respective positions with
Itran prior to such merger) resigned from Acuity. Acuity has not replaced Mr.
Pemble. Mr. Kuhn was replaced by John A. Rogers, who was then the Chief
Accounting Officer of Acuity and had served as Chief Financial Officer of
Automatix prior to such merger. There can be no assurance that there may not be
additional changes in the key employees of Acuity in the future. See "Risk
Factors -- Risks Relating to the Merger" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Acuity."
RISKS RELATING TO RVSI
- CONCENTRATION OF REVENUES. RVSI's sales have been historically
concentrated in a small number of customers at any time, although the specific
customers change over time. Sales to Advanced Semiconductor Engineering Inc.
("ASE") and Anam Industrial Co., Ltd. ("Anam") accounted for approximately 11%
and 10%, respectively, of RVSI's revenues during the six months ended March 31,
1995. Sales to Intel Corporation and Motorola Inc. accounted for approximately
15% and 10%, respectively, of RVSI's revenues during the fiscal year ended
September 30, 1994. Sales to Samsung Corporation, Anam and Intel Corporation
accounted for approximately 15%, 13% and 13%, respectively, of RVSI's revenues
during its year ended September 30, 1993. No other customers accounted for more
than 10% of sales during such fiscal periods and fiscal years. The loss of any
one or more of these customers or any significant reduction in their orders for
RVSI's products may be expected to materially adversely affect RVSI's operations
and prospects. A majority of RVSI's sales in recent years has been export sales
to the Far East. For the six months ended March 31, 1995 and for the fiscal
years ended September 30,1994 and 1993, export sales accounted for approximately
79%, 62% and 74%, respectively, of RVSI's revenues. See "Business of RVSI --
Customers."
- COMPETITION. RVSI believes that the machine vision industry is currently
highly fragmented and intensely competitive. RVSI is aware that a large number
of concerns, which it estimates to be
3
<PAGE>
upward of 100, entered the industry in the years 1980 through 1986 and that most
of these were relatively young, private concerns. Over the past several years,
however, RVSI estimates that the number of its competitors has narrowed to less
than 25, which RVSI believes is attributable in substantial part to a
consolidation within the industry. RVSI is aware of several competitors which
promote substitute technologies. In addition, RVSI believes that there are other
concerns, some of which may be substantially larger and have substantially
greater assets and resources than RVSI, engaged in the development of technology
and products which would be competitive with those of RVSI should such concerns
choose to enter the machine vision marketplace. See "Business of RVSI --
Competition."
- PENDING LITIGATION. RVSI has been the subject of a counterclaim in
excess of $3.0 million asserted by the defendant in a proceeding previously
instituted by RVSI in which RVSI had alleged that such defendant had breached
certain agreements between RVSI and the defendant relating to the defendant's
purchase of all of the assets of RVSI's former welding and cutting systems
business. In view of the magnitude of the counterclaim against RVSI when
compared to RVSI's total assets of approximately $21.7 million at March 31,
1995, and given the inherent uncertainties of litigation, an adverse outcome to
RVSI in the counterclaim could materially adversely affect RVSI's financial
viability. See "Business -- Legal Proceedings."
- UNCERTAINTY OF PATENT PROTECTION. There can be no assurance that RVSI's
patents relating to its 3-D vision technology will not be infringed upon or that
RVSI will have adequate remedies for any such infringement. See "Business of
RVSI -- Proprietary Protection."
- MAJOR SUPPLIER IN BANKRUPTCY. During fiscal 1994, one of RVSI's major
suppliers voluntarily filed for protection under Chapter 11 of the Federal
Bankruptcy Act. RVSI anticipates that it may experience a short term
interruption in rebuilding its inventory of this product should this supplier
not emerge from bankruptcy successfully. See "Business of RVSI -- Sources of
Supply."
- EXPORT SALES. Foreign export sales accounted for 62%, 74% and 54% of
RVSI's revenues in fiscal 1994, 1993 and 1992, respectively. To the extent
foreign currencies weaken relative to the U.S. dollar, RVSI's products could
become more expensive in these countries. This could adversely affect both
RVSI's sales volumes and gross profitability. See "Business of RVSI -- Markets
and Products."
INTRODUCTION
This Proxy Statement/Prospectus is provided to the RVSI Stockholders in
connection with the RVSI Special Meeting. The RVSI Special Meeting will be held
on the date, at the time and in the location, and will be held to consider the
matters, set forth under "The RVSI Special Meeting." The RVSI Board is
soliciting proxies hereby for use at the RVSI Special Meeting. A form of proxy
is being provided to the RVSI Stockholders with this Proxy Statement/
Prospectus. Information with respect to the execution and revocation of proxies
is provided under "The RVSI Special Meeting -- Voting Rights."
This Proxy Statement/Prospectus also is provided to the Acuity Stockholders
in connection with the Acuity Special Meeting. The Acuity Special Meeting will
be held on the date, at the time and in the location, and will be held to
consider the matters, set forth under "The Acuity Special Meeting." The Acuity
Board is soliciting proxies hereby for use at the Acuity Special Meeting. A form
of proxy is being provided to the Acuity Stockholders with this Proxy
Statement/Prospectus. Information with respect to the execution and revocation
of proxies is provided under "The Acuity Special Meeting -- Voting Rights."
The costs of solicitation of RVSI Stockholder proxies and Acuity Stockholder
proxies will be borne by RVSI and Acuity, respectively. RVSI and Acuity will
reimburse the respective brokers, fiduciaries, custodians and other nominees for
reasonable out-of-pocket expenses incurred in sending this Proxy
Statement/Prospectus and other proxy materials to, and obtaining instructions
relating to such
4
<PAGE>
materials from, the respective beneficial owners of RVSI Common Stock and Acuity
Common Stock. RVSI Stockholder proxies may be solicited by directors, executive
officers or regular employees of RVSI, in person, by letter or by telephone or
telegram.
Acuity has retained D.F. King & Co., Inc. to assist it in the solicitation
of proxies at an estimated cost of $5,000, plus reimbursement of such company's
accountable expenses. Acuity Stockholder proxies will be solicited by employees
of D.F. King & Co. and also may be solicited by directors, executive officers or
regular employees of Acuity, in person, by letter or by telephone or telegram.
It is expected that representatives of Deloitte & Touche LLP and Arthur
Andersen LLP will be present at the respective Meetings of RVSI and Acuity and
will be available to respond to questions. They will be given an opportunity to
make a statement at the respective Meetings if they so desire.
THE RVSI SPECIAL MEETING
PURPOSE OF THE MEETING
At the RVSI Special Meeting, the RVSI Stockholders will be asked (1) to
consider and vote upon the approval and adoption of the Merger Agreement and the
transactions contemplated thereby, pursuant to which, among other matters, (i)
Subsidiary will be merged with and into Acuity and Acuity will become a
wholly-owned subsidiary of RVSI, and (ii) each share of Acuity Common Stock will
be converted into the right to receive, and become exchangeable for, 0.766 of a
share of RVSI Common Stock (subject to possible adjustments to the Exchange
Ratio as a result of implementation of the Collars), (2) to elect nine
directors, (3) to consider and vote upon a proposal to approve the Amended and
Restated RVSI 1991 Stock Option Plan (the "1991 Option Plan"), (4) to consider
and vote upon a proposal to approve an amendment to the RVSI Certificate of
Incorporation increasing RVSI's authorized Common Stock from 20,000,000 shares
to 30,000,000 shares and (5) to ratify the selection by the RVSI Board of RVSI's
independent auditors.
The RVSI Board without dissent has approved the Merger Agreement and the
transactions contemplated thereby and recommends that the RVSI Stockholders vote
"FOR" the proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby.
The RVSI Board without dissent has also designated each of the nominees for
election as directors, has approved the 1991 Option Plan and the proposed
amendment to the RVSI Certificate of Incorporation and has selected RVSI's
independent auditors. The RVSI Board recommends that the RVSI Stockholders vote
"FOR" each of such nominees, "FOR" the proposals to approve the 1991 Option Plan
and the amendment to the RVSI Certificate of Incorporation and "FOR"
ratification of its selection of independent auditors. See "The Proposed Merger
- -- Recommendations of the Boards of Directors and Reasons for the Merger --
RVSI," "Election of Directors," "Proposal to Approve RVSI's Amended and Restated
1991 Stock Option Plan," "Proposal to Amend RVSI's Certificate of Incorporation"
and "Ratification of Selection of Independent Auditors."
DATE, TIME AND PLACE; RECORD DATE
The RVSI Special Meeting is scheduled to be held at 10:00 A.M., local time,
on Tuesday, September 19, 1995, at The Bank of New York, One Wall Street, New
York, New York. The RVSI Board has fixed the RVSI Record Date at the close of
business on August 9, 1995 for the determination of RVSI Stockholders entitled
to notice of and to vote at the RVSI Special Meeting. Only holders of record of
RVSI Common Stock as of the close of business on the RVSI Record Date will be
entitled to notice of and to vote at the RVSI Special Meeting.
VOTING RIGHTS
The vote of RVSI Stockholders in favor of the Merger Agreement and
consummation of the transactions contemplated thereby is not required by the
General Corporation Law of the State of Delaware ("DGCL"). Such vote is being
sought by RVSI pursuant to the requirements of The Nasdaq National Market. The
affirmative vote of the majority of shares of RVSI Common Stock present, either
in person or represented by proxy, at the RVSI Special Meeting is required to
approve the
5
<PAGE>
Merger Agreement and each of the other matters presented for stockholder
approval with the exception of the proposal to amend the RVSI Certificate of
Incorporation. Pursuant to the DGCL, the affirmative vote of the holders of at
least a majority of the shares of RVSI Common Stock outstanding as of the Record
Date is required to approve the proposal to amend the RVSI Certificate of
Incorporation. At the RVSI Record Date, there were 13,128,576 shares of RVSI
Common Stock outstanding. Holders of record of RVSI Common Stock outstanding as
of the RVSI Record Date are entitled to one vote per share at the RVSI Special
Meeting. The presence, either in person or represented by proxy, of the holders
of a majority of the shares of RVSI Common Stock outstanding as of the RVSI
Record Date is necessary to constitute a quorum at the RVSI Special Meeting. As
of the RVSI Record Date, RVSI's directors, executive officers and their
respective affiliates as a group held shares representing approximately 1.8% of
the votes entitled to be cast by RVSI Stockholders at the RVSI Special Meeting.
Such percentage does not include shares issuable pursuant to currently
exercisable options and warrants.
The RVSI Board is soliciting proxies so that each RVSI Stockholder on the
RVSI Record Date has the opportunity to vote on the proposals to be considered
at the RVSI Special Meeting. When a proxy card is returned properly signed and
dated, the shares represented thereby will be voted in accordance with the
instructions on the proxy card. If a RVSI Stockholder does not return a signed
proxy card, his or her shares will not be voted, unless such stockholder attends
and votes at the RVSI Special Meeting, and thus will have the effect of a vote
against the proposal to approve the amendment to the RVSI Certificate of
Incorporation.
A broker who holds shares in street name will not be entitled to vote on the
Merger, the 1991 Option Plan and the amendment to the RVSI Certificate of
Incorporation without instructions from the beneficial owner. This inability to
vote is referred to as a broker nonvote. Abstentions and broker nonvotes will be
counted for purposes of determining the existence of a quorum at the RVSI
Special Meeting. However, since the proposal for amendment of the RVSI
Certificate of Incorporation to be considered at the RVSI Special Meeting
requires the affirmative vote of at least a majority of the shares of RVSI
Common Stock outstanding as of the RVSI Record Date, abstentions and broker
nonvotes will have the effect of a negative vote with respect to such proposal,
but not as to the other proposals to be considered at the RVSI Special Meeting.
RVSI Stockholders are urged to mark the boxes on the proxy card to indicate how
their shares will be voted. If a RVSI Stockholder (other than a broker which
holds shares in street name for its customers) returns a signed proxy card, but
does not indicate how his or her shares are to be voted, the shares represented
by the proxy card will be voted "FOR" the proposal to approve and adopt the
Merger Agreement and the transactions contemplated thereby, in favor of each of
the nominees for election of directors, "FOR" the proposals to approve the 1991
Plan and the amendment to the RVSI Certificate of Incorporation and "FOR"
ratification of the RVSI Board's selection of RVSI's independent auditors.
The proxy card also confers discretionary authority on the individuals
appointed by the RVSI Board and named on the proxy card to vote the shares
represented thereby on any other matter incidental to the RVSI Special Meeting
that is properly presented for action at the RVSI Special Meeting or any
adjournment or postponement thereof.
Any RVSI Stockholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by (i) notifying in writing the Secretary
of RVSI, at 425 Rabro Drive East, Hauppauge, New York 11788, (ii) granting a
subsequent proxy or (iii) appearing in person and voting at the RVSI Special
Meeting. Attendance at the RVSI Special Meeting will not in and of itself
constitute revocation of a proxy.
THE ACUITY SPECIAL MEETING
PURPOSE OF THE MEETING
At the Acuity Special Meeting, the Acuity Stockholders will be asked to
consider and vote upon the proposal to approve and adopt the Merger Agreement
and the transactions contemplated thereby, pursuant to which, among other
matters, (i) Subsidiary will be merged with and into Acuity and
6
<PAGE>
Acuity will become a wholly-owned subsidiary of RVSI, and (ii) each share of
Acuity Common Stock will be converted into the right to receive, and become
exchangeable for, 0.766 of a share of RVSI Common Stock (subject to possible
adjustments to the Exchange Ratio as a result of implementation of the Collars).
The Acuity Board without dissent has approved the Merger Agreement and the
transactions contemplated thereby and recommends that the Acuity Stockholders
vote "FOR" the proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby. See "The Proposed Merger -- Recommendations
of the Boards of Directors and Reasons for the Merger -- Acuity."
DATE, TIME AND PLACE; RECORD DATE
The Acuity Special Meeting is scheduled to be held at 10:00 A.M., local
time, on Tuesday, September 19, 1995, at the offices of Acuity, 9 Townsend West,
Nashua, New Hampshire. The Acuity Board has fixed the Acuity Record Date as the
close of business on August 9, 1995 for the determination of Acuity Stockholders
entitled to notice of and to vote at the Acuity Special Meeting. Only holders of
record of Acuity Common Stock at the close of business on the Acuity Record Date
will be entitled to notice of and to vote at the Acuity Special Meeting.
VOTING RIGHTS
Pursuant to the DGCL, the affirmative vote of the holders of at least a
majority of the shares of Acuity Common Stock outstanding as of the Acuity
Record Date is required to approve and adopt the Merger Agreement and the
transactions contemplated thereby. At the Acuity Record Date, there were
2,486,937 shares of Acuity Common Stock outstanding. Holders of record of Acuity
Common Stock outstanding as of the Acuity Record Date are entitled to one vote
per share at the Acuity Special Meeting. The presence, either in person or
represented by proxy, of the holders of a majority of the shares of Acuity
Common Stock outstanding as of the Acuity Record Date is necessary to constitute
a quorum at the Acuity Special Meeting. As of the Acuity Record Date, Acuity's
directors, executive officers and their respective affiliates as a group held
shares representing approximately 3.2% of the votes entitled to be cast by
Acuity Stockholders at the Acuity Special Meeting. Such percentage does not
include shares issuable pursuant to currently exercisable options.
The Acuity Board is soliciting proxies so that each Acuity Stockholder on
the Acuity Record Date has the opportunity to vote on the proposals to be
considered at the Acuity Special Meeting. When a proxy card is returned properly
signed and dated, the shares represented thereby will be voted in accordance
with the instructions on the proxy card. If an Acuity Stockholder does not
return a signed proxy card, his or her shares will not be voted, unless such
stockholder attends and votes at the Acuity Special Meeting, and thus will have
the effect of a vote against the Merger Agreement and the transactions
contemplated thereby.
A broker who holds shares in street name will not be entitled to vote on the
Merger without instructions from the beneficial owner. This inability to vote is
referred to as a broker nonvote. Abstentions and broker nonvotes will be counted
for purposes of determining the existence of a quorum at the Acuity Special
Meeting. However, since the proposal to be considered at the Acuity Special
Meeting requires the affirmative vote of at least a majority of the shares of
Acuity Common Stock outstanding as of the Acuity Record Date, abstentions and
broker nonvotes will have the effect of a negative vote. Acuity Stockholders are
urged to mark the box on the proxy card to indicate how their shares will be
voted. If an Acuity Stockholder (other than a broker which holds shares in
street name for its customers) returns a signed proxy card, but does not
indicate how his or her shares are to be voted, the shares represented by the
proxy card will be voted "FOR" the proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby.
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The proxy card also confers discretionary authority on the individuals
appointed by the Acuity Board and named on the proxy card to vote the shares
represented thereby on any other matter incidental to the Acuity Special Meeting
that is properly presented for action at such meeting or at any
postponement or adjournment thereof.
Any Acuity Stockholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by (i) notifying in writing the President
of Acuity, at 9 Townsend West, Nashua, New Hampshire 03063, (ii) granting a
subsequent proxy or (iii) appearing in person and voting at the Acuity Special
Meeting. Attendance at the Acuity Special Meeting will not in and of itself
constitute revocation of a proxy.
THE PROPOSED MERGER
GENERAL
The following is a brief summary of certain aspects of the Merger. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached to this Proxy
Statement/Prospectus as Exhibit A.
At the Effective Time, Subsidiary will be merged with and into Acuity, and
Subsidiary will cease to exist as a corporation. Acuity will be the surviving
corporation in the Merger and shall become a direct, wholly-owned subsidiary of
RVSI.
At the Effective Time, each then outstanding share of Acuity Common Stock
will be converted into the right to receive, and become exchangeable for, 0.766
of a share of RVSI Common Stock (subject to possible adjustments to the Exchange
Ratio as a result of implementation of the Collars). No fractional shares of
RVSI Common Stock will be issued in the Merger, and Acuity Stockholders whose
shares are converted in the Merger will be entitled to a cash payment in lieu of
such fractional shares. See "-- No Fractional Shares."
As a consequence of the Merger, options to purchase 205,646 shares of Acuity
Common Stock at exercise prices ranging from $.89 to $22.50 per share (the
"Acuity Options") will be converted at the Effective Time into options to
purchase 157,524 shares of RVSI Common Stock at exercise prices ranging from
$1.16 to $29.37 per share. See "Management of Acuity -- Stock Option Plans."
None of the shares of RVSI Common Stock issued and outstanding immediately
prior to the Effective Time will be converted or otherwise modified in the
Merger. All of such shares will continue to be outstanding capital stock of RVSI
after the Merger.
A description of the relative rights, privileges and preferences of RVSI
Common Stock, including certain non-significant differences between RVSI Common
Stock and Acuity Common Stock, is set forth under "Description of RVSI's
Securities" and "Comparison of Rights of Holders of Acuity Common Stock and RVSI
Common Stock."
CLOSING; EFFECTIVE TIME
The closing of the transactions contemplated by the Merger Agreement (the
"Closing") will take place on the third business day immediately following the
date on which the last of the conditions set forth in the Merger Agreement is
satisfied or waived, or at such other time as RVSI and Acuity may agree
("Closing Date"). The Merger will become effective on the date the Certificate
of Merger required under Delaware law is accepted for filing by the Secretary of
State of the State of Delaware. Such filing will be made simultaneously with, or
as soon as practicable after, the Closing.
EXCHANGE OF STOCK CERTIFICATES
From and after the Effective Time, Acuity Stockholders immediately prior to
the Effective Time will be entitled to receive 0.766 of a share of RVSI Common
Stock (subject to possible adjustments to the Exchange Ratio as a result of
implementation of the Collars) in exchange for each share of Acuity Common Stock
held immediately prior to the Effective Time. See "-- General." Notwithstanding
the Exchange Ratio, no fractional shares of RVSI Common Stock will be issued.
See "-- No Fractional
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Shares." As soon as practicable after the Effective Time, the Exchange Agent
will mail transmittal instructions and a form of letter of transmittal to each
person who was an Acuity Stockholder immediately prior to the Effective Time.
The transmittal instructions will describe the procedures for surrendering the
Acuity Certificates that prior to the Merger represented Acuity Common Stock in
exchange for the RVSI Certificates representing RVSI Common Stock. The form of
letter of transmittal will specify that delivery shall be effected, and the risk
of loss and title to the RVSI Certificates shall pass, only upon actual delivery
of the Acuity Certificates to the Exchange Agent. Upon surrender of the Acuity
Certificates for cancellation to the Exchange Agent, together with a duly
executed letter of transmittal and such other documents as the Exchange Agent
may reasonably require, such Acuity Certificates will be canceled and the holder
of such Acuity Certificates will receive an RVSI Certificate representing that
number of whole shares of RVSI Common Stock to which the former Acuity
stockholder is entitled pursuant to the provisions of the Merger Agreement, in
addition to payment in cash for any fractional share of RVSI Common Stock.
ACUITY STOCKHOLDERS SHOULD NOT SUBMIT THEIR ACUITY CERTIFICATES FOR EXCHANGE
UNLESS AND UNTIL THEY HAVE RECEIVED THE TRANSMITTAL INSTRUCTIONS AND A FORM OF
LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
Acuity Stockholders will not be entitled to receive any dividends or other
distributions on RVSI Common Stock until the Merger has been consummated and
they have exchanged their Acuity Certificates for RVSI Certificates. Subject to
applicable laws, any such dividends and distributions after the Effective Time
will be accumulated and, at the time a former Acuity Stockholder surrenders his
or her Acuity Certificates to the Exchange Agent, all such accrued and unpaid
dividends and distributions, together with any cash payments in lieu of
fractional shares of RVSI Common Stock, will be paid without interest. It is not
anticipated that any accrued and unpaid dividends or distributions would exist
at the Effective Time. See "Comparative Per Share Prices and Dividends of RVSI
Common Stock and Acuity Common Stock."
If any RVSI Certificate is to be issued in a name other than that in which
the corresponding Acuity Certificate is registered, it is a condition to the
exchange of the Acuity Certificate that the former Acuity Stockholder requesting
such exchange comply with applicable transfer requirements and pay any
applicable transfer or other taxes, or establish to the satisfaction of RVSI
that such tax has been paid or is not applicable. No transfers of Acuity Common
Stock will be made on the stock transfer books of Acuity after the close of
business on the day prior to the Effective Time.
Neither the Exchange Agent nor any party to the Merger Agreement will be
liable to any former Acuity Stockholder for any shares of RVSI Common Stock
delivered to state authorities pursuant to applicable abandoned property,
escheat or other similar laws. At any time following 180 days after the
Effective Time, RVSI may require the Exchange Agent to return all RVSI Common
Stock and cash deposited with the Exchange Agent which has not been disbursed to
former Acuity Stockholders and thereafter any such holders which have not
remitted their Acuity Certificates to the Exchange Agent may look to RVSI only
as a general creditor with respect thereto.
NO FRACTIONAL SHARES
No certificates or scrip for fractional shares of RVSI Common Stock will be
issued upon the surrender for exchange of Acuity Certificates in the Merger. No
dividend, stock split or interest will be paid with respect to any fractional
share of RVSI Common Stock, and such fractional interests will not entitle the
owner thereof to vote or to any of the other rights of a RVSI Stockholder.
Instead, each Acuity Stockholder who would otherwise have been entitled to a
fraction of a share of RVSI Common Stock upon surrender of Acuity Certificates
for exchange will be entitled to receive from the Exchange Agent a cash payment
(without interest) at a pro rata price based on the average of the last reported
sale prices of RVSI Common Stock on The Nasdaq National Market for the 20-day
period ending with the third trading day prior to the Closing Date.
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BACKGROUND OF THE MERGER
The terms of the Merger Agreement resulted from arm's length negotiations
between representatives of RVSI and Acuity.
At a regular meeting of the RVSI Board held on February 1, 1994, the RVSI
Board unanimously authorized Pat V. Costa, RVSI's Chairman, President and Chief
Executive Officer, to seek out potential acquisition candidates. Mr. Costa was
entrusted with this task in view of his prior service as president of the
machine vision industry's national trade association, as a consequence of which
he was particularly knowledgeable as to the business, operations and prospects
of other companies in the machine vision industry.
The RVSI Board authorized the search for potential acquisition candidates
due to its desire to expand and diversify RVSI's product line and to accelerate
the growth of RVSI's business. The RVSI Board believed RVSI could better
withstand the cyclical changes characteristic of its industry with a broader
product line. The RVSI Board considered, but rejected, the possibility of
expanding its product line through internal diversification because it believed
that an acquisition of an existing operating company was a quicker and more
efficient method of product line expansion and diversification.
In initially determining whether or not to approach potential acquisition
candidates, Mr. Costa, together with other senior members of RVSI's management,
considered, among other factors, the following:
- valuation of the candidate relative to RVSI
- complementary nature of the candidate's products
- synergies that could be expected to accrue from the combination of RVSI
and the candidate
- management and technical capability resident in the candidate's
organization
- profitability of the candidate's business and its impact on RVSI's
earnings per share
- stage of development and competitive position of the candidate's products
- ability of the candidate to operate as an independent entity
RVSI made its initial contact with Acuity in August 1994 when Mr. Costa
telephoned John Pemble, who was then Chief Executive Officer of Acuity, to
inquire whether Acuity had an interest in holding business combination
discussions with RVSI. Mr. Pemble advised Mr. Costa that the matter required
discussion within Acuity before he could reply.
There were no subsequent discussions between RVSI and Acuity in these
regards until October 1994 when Mr. Pemble telephoned Mr. Costa to advise that
Acuity was interested in exploratory discussions with RVSI with respect to a
possible business combination. Mr. Costa visited Acuity's offices in Nashua, New
Hampshire to commence such discussions on October 18, 1994. Subsequently, Mr.
Costa met with Mr. Pemble at the Scan-Tech trade show in Chicago on November 1,
1994 for further discussions.
Mr. Pemble thereafter visited RVSI in Hauppauge, New York on November 3,
1994, and met with Mr. Costa and other senior RVSI officers. On November 24,
1994, at a regularly scheduled meeting of the Acuity Board, Mr. Pemble reviewed
the potential for a business combination with RVSI as part of an overall
discussion of merger and acquisition opportunities. Mr. Pemble reported on his
recent visit to RVSI and discussions with Mr. Costa. On December 8, 1994, Mr.
Costa and Ofer Gneezy, Acuity's President, spoke by telephone and set December
20, 1994 as the date for Mr. Gneezy to visit RVSI.
On December 12, 1994, RVSI and Acuity entered into reciprocal non-disclosure
agreements.
At the RVSI Board meeting held on December 14, 1994, the RVSI Board
specifically authorized Mr. Costa to continue to pursue Acuity as an acquisition
candidate.
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On December 20, 1994, Mr. Gneezy visited RVSI, at which time he met with Mr.
Costa and other senior RVSI officers. On the following day, Mr. Pemble called
Mr. Costa to advise of his resignation as Acuity's Chief Executive Officer. He
indicated that he would remain at Acuity through January 1995 for transition
purposes, including continuity of discussions with RVSI.
Subsequent to the December 20, 1994 meeting with Mr. Gneezy at RVSI, and
continuing over a period of approximately five weeks, RVSI and Acuity had
several exchanges of information and documents with the objective of providing
each other with insight into, among other things, each company's products,
capabilities, performance history and prospects.
Mr. Costa and Mr. Pemble next spoke by telephone on January 13, 1995. A
meeting for representatives of RVSI and Acuity to discuss a possible business
combination transaction was scheduled for January 20, 1995 at Logan Airport in
Boston.
Representing Acuity at the January 20th meeting in Boston were Donald J.
Kramer, Acuity's Chairman, Mr. Gneezy and Mr. Pemble. RVSI was represented by
Mr. Costa and Robert H. Walker, RVSI's Chief Financial Officer. RVSI presented
an offer to Acuity, along with various associated conditions. The offer was
neither accepted nor rejected by Acuity's representatives.
Mr. Costa spoke twice by phone with Mr. Pemble over the weekend of January
21 and 22, 1995. In those conversations it became apparent that there was a
misunderstanding between the parties as to the effect RVSI's offer would have
upon holders of Acuity's then outstanding stock options.
Mr. Costa and Mr. Pemble spoke again by phone on January 23, 1995. In that
conversation RVSI revised its offer to make specific provision for the
conversion upon the consummation of a business combination of Acuity's stock
options into options covering RVSI Common Stock. Messrs. Costa and Pemble also
discussed the quantitative parameters of "collars" and "break-up fees." Mr.
Pemble noted that R. Schorr Berman, an Acuity director, had been advised of the
status of discussions.
Mr. Costa and Mr. Pemble spoke again by phone on January 24, 1995. Mr.
Pemble said that C. William McDaniel, another Acuity director, had also then
been advised of the status of discussions. Mr. Pemble indicated that there was
some concern over the size of the break-up fees requested by RVSI as part of its
offer.
On January 26, 1995, at a regularly scheduled meeting of the Acuity Board,
Mr. Pemble reviewed the entire history of the discussions between Acuity and
RVSI and Mr. Gneezy detailed the elements of their proposed combination. After
lengthy discussion, the Acuity Board decided that the merger price should be
approximately $12.08 per Acuity share and it authorized Acuity's management to
retain Fechtor, Detwiler to advise Acuity on the fairness of the proposed
transaction. The Acuity Board authorized management to move forward with trying
to negotiate an agreement in principle with RVSI. Acuity engaged Fechtor,
Detwiler on January 30, 1995 to advise it on the fairness of the proposed
transaction from a financial point of view. An engagement letter for such
services was finalized and executed on March 2, 1995. Fechtor, Detwiler did not
participate in the negotiations between Acuity and RVSI of the Merger terms.
RVSI retained JMS in January 1995 to advise it on the fairness, from a
financial point of view, of the proposed Merger to the RVSI Stockholders. JMS
did not participate in the negotiations between RVSI and Acuity of the Merger
terms.
Mr. Costa and Mr. Pemble spoke again by phone on January 26, 1995 after the
conclusion of the Acuity Board meeting. Mr. Pemble indicated that Acuity wished
to receive the equivalent of $12.08 in RVSI Common Stock for each share of
Acuity Common Stock and a specified minimum number of shares of RVSI Common
Stock. Acuity also objected to the spread of the "collars," and provided a
counter offer on a break-up fee arrangement.
RVSI held a telephonic Board meeting on January 27, 1995 at which the RVSI
Board agreed to accept the $12.08 per share valuation requested by Acuity and to
fix the number of shares of RVSI Common Stock issuable to the Acuity
Stockholders at approximately 4,360,000, based on an RVSI
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share price of $6.625. The RVSI Board insisted on "collars" which were later in
the day finalized by Mr. Costa with Mr. Pemble and Mr. Gneezy at $5.50 and $7.50
per RVSI share, i.e., RVSI could elect not to proceed with the transaction if
the average market price of RVSI Common Stock during a 20-day trading period
preceding the proposed merger transaction exceeded $7.50 per share and Acuity
could elect not to proceed with the transaction if the average market price of
RVSI Common Stock during the 20-day trading period preceding the proposed merger
transaction fell below $5.50 per share. General agreement was also reached on
the issue of break-up fees. It was also further agreed that RVSI's counsel would
draft a letter of intent for review by Acuity's counsel and the respective
officers and directors of both companies, with the objective of executing a
letter of intent before the end of the weekend (January 29, 1995). The
difficulty of communications over the weekend, with the number of parties
involved and remaining issues to be resolved, led to the continuation of
discussions into Monday, January 30, 1995.
The RVSI Board held a telephonic meeting on January 30, 1995 to review
resolution of final open issues. On the same day, the Acuity Board held a
telephonic meeting and, at that meeting, Mr. Gneezy and Mr. Engel, Acuity's
counsel, reviewed the terms of the Letter of Intent and the Acuity Board voted
to authorize Acuity's management to execute the Letter of Intent. The Letter of
Intent was finalized and executed by RVSI and Acuity on the evening of January
31, 1995. It provided for an exchange ratio of 1.823396 shares of RVSI Common
Stock for each outstanding share of Acuity Common Stock. A joint press release
announcing the signing was issued on the morning of February 1, 1995.
Subsequent to the execution of the Letter of Intent, counsel for RVSI
prepared and distributed to both Acuity and its counsel a draft of the Merger
Agreement on February 10, 1995.
Following telephonic discussions and negotiations among the parties and
their respective counsel, revised drafts of the Merger Agreement were prepared
and distributed on February 22, 1995 and March 9, 1995, respectively.
After the Letter of Intent was signed, the "due diligence" process
commenced. At the outset RVSI and Acuity exchanged requests for documents needed
for that purpose. Due diligence visits were then made to Acuity by JMS. Several
RVSI officers and other personnel also visited Acuity during the due diligence
process.
Mr. Costa, accompanied by Maxwell Morton, a machine vision industry
consultant retained by RVSI, visited Acuity on February 7th and 8th, March 21st,
and April 4th and 5th, primarily to review and discuss Acuity's marketing and
sales organization, strategy, and activities. Prior thereto, on March 2, 1995,
Howard Stern, RVSI's Senior Vice President and technical director, met with John
E. Agapakis, Acuity's Vice President for Research and Development, to gain
further insight into Acuity's technology. Mr. Walker also visited Acuity on
March 9, 1995 to meet with Mr. Rogers to discuss certain issues raised in the
course of due diligence activities.
In February several Acuity officers and advisors visited RVSI to conduct due
diligence. On February 14, 1995, Mr. Gneezy, accompanied by Noel Coletti,
Acuity's Director of Marketing, and Mr. Agapakis, visited RVSI for this purpose.
On February 23 and 24, 1995, John A. Rogers, Acuity's Chief Financial Officer,
visited RVSI to conduct management and accounting due diligence.
Towards the end of the due diligence period, it became progressively clear
to RVSI that Acuity was going to fall short of its revenues and bookings
forecast for the quarter ending April 1, 1995 furnished by Acuity to RVSI.
Following the end of that fiscal quarter, Acuity advised RVSI that its revenues
for the quarter would be under $5.0 million and that Acuity expected a then
unquantifiable loss for the quarter.
Mr. Kramer and Mr. Gneezy were invited to attend RVSI's regularly scheduled
Board meeting in New York City on April 13, 1995. At that meeting, they advised
RVSI that Acuity's revenues for its first quarter of 1995 were approximately
$4.85 million and that the loss for the quarter was approximately $140,000. Mr.
Costa thereupon advised Messrs. Kramer and Gneezy on behalf of the RVSI Board
that RVSI wished to renegotiate the Exchange Ratio.
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On April 18, 1995, Mr. Costa offered Acuity a transaction valued at
approximately $22.1 million, premised on a per share value of RVSI Common Stock
at $8 3/8 per share with no "collars." This resulted in a revised Exchange Ratio
of 1.072 shares of RVSI Common Stock for each share of Acuity Common Stock. Mr.
Costa and Mr. Gneezy discussed the revised proposed Exchange Ratio on April 19,
1995 and again on April 20, 1995. At such time Fechtor, Detwiler had not
formally concluded to the Acuity Board that the 1.823336 exchange ratio was fair
to Acuity Stockholders from a financial point of view.
On April 24, 1995, the Acuity Board authorized Mr. Gneezy, subject to
certain conditions, to sign an extension of the Letter of Intent giving effect
to the new Exchange Ratio and other new terms, including the absence of
"collars", and also authorized Mr. Gneezy to execute a definitive Merger
Agreement incorporating these provisions. An amendment to the Letter of Intent
was signed on April 24, 1995 and announced by a joint press release on the same
day.
Subsequently, counsel for RVSI distributed a revised draft of the Merger
Agreement to counsel for Acuity. On April 26, 1995, the RVSI Board authorized
execution of the definitive Merger Agreement. The final terms of the definitive
Merger Agreement were agreed upon that evening and the Merger Agreement was
signed on the morning of April 27, 1995, at which time a joint press release
announcing its execution was issued.
Following execution of the Merger Agreement, RVSI management and Acuity
management periodically exchanged information regarding their respective
operations. Towards the end of Acuity's second calendar quarter of 1995, it
became progressively clear to RVSI that Acuity was going to fall short of its
revised revenues and bookings forecast for that quarter furnished by Acuity to
RVSI.
Messrs. Gneezy and Rogers were invited to attend RVSI's regularly scheduled
board meeting on June 22, 1995. At that meeting, they advised RVSI that Acuity
contemplated incurring an operating loss of approximately $500,000 for the
quarter ending July 1, 1995. Following the departure of Messrs. Gneezy and
Rogers, the RVSI Board determined that the Exchange Ratio should be
renegotiated, but deferred making any decision on the terms of a renegotiation
proposal in view of recent increases in the market price of RVSI Common Stock.
At a regularly scheduled Acuity Board meeting on June 28, 1995, the Acuity
Board, as a result of Acuity's projected operating results for the second
quarter and in anticipation of a possible proposal from RVSI to renegotiate the
terms of the Merger, discussed the kind of package of revised terms of the
Merger that would be acceptable, including (1) some reduction in the Exchange
Ratio, (2) elimination of the material adverse change termination provisions,
(3) an extension of the "drop dead" date to September 30, 1995, (4) an increase
in the break-up fees to $750,000 and (5) price adjustment "collars." Pursuant to
such instructions, the Board authorized Messrs. Kramer and Gneezy to discuss any
proposals from RVSI relating to renegotiation of the Merger terms.
On July 3, 1995, the RVSI Board authorized Mr. Costa to present a proposal
to Acuity which, based on the then trading price of RVSI Common Stock, would
involve an aggregate consideration of approximately $30,000,000. Such proposal
would also reduce the Acuity Board's designees for election as RVSI directors
from two to one, and would also reduce such designee director's term from a
period of two years to one year. Upon receipt of such authorization, Mr. Costa
offered Acuity a transaction valued at approximately $30 million, with "no
collars." The proposal was made by Mr. Costa by telephone in separate
conversations first with Mr. Gneezy and then with Mr. Kramer.
Later that day, Mr. Kramer offered to Mr. Costa and Mr. Walker a
counter-proposal providing an additional $1 million in the Merger valuation, an
increase in break-up fees to $750,000, elimination of material adverse change
termination provisions and price adjustment "collars" of $14.50 and $12.00,
respectively.
Thereafter, also on July 3, 1995, Mr. Costa and Mr. Walker advised Messrs.
Gneezy and Rogers by telephone that they would not accept the increased
valuation and increased break-up fees provisions of Mr. Kramer's
counter-proposal, but were agreeable to excluding from the material adverse
change
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termination provisions an operating loss or projected operating loss of up to
$500,000 for Acuity for the quarter ending September 30, 1995. Mr. Gneezy was
also advised that price adjustment "collars" of $14.50 and $9.00, would be
acceptable to RVSI.
There was no contact between Acuity and RVSI on July 4 or 5, 1995. On July
6, 1995, the Acuity Board held a telephonic Board Meeting and authorized Mr.
Gneezy to accept the latest RVSI Merger terms if he could obtain an increase in
the Minimum Collar. Later that day Mr. Costa and Mr. Gneezy agreed verbally to
revised price adjustment "collars" of $14.50 and $10.00, respectively. Final
agreement was predicated upon mutually acceptable documentation, respective
Board approvals and receipt of fairness opinions from RVSI's and Acuity's
respective investment advisors.
Counsel for RVSI distributed a draft of an amendment to the Merger Agreement
to Acuity and its counsel on July 7, 1995.
A revised draft of the Merger Agreement amendment was distributed by RVSI's
counsel on July 10, 1995, after receipt of comments from Acuity's counsel.
RVSI's counsel and Acuity's counsel thereafter exchanged comments on the draft
amendment and effected revisions thereto. A final draft was agreed to in the
evening of July 11, 1995, and signed on the morning of July 12, 1995, at which
time a joint press release announcing its execution was issued.
On July 10, 1995, Mr. Gneezy individually polled the Acuity Board members
and each of such Board members indicated that they were in favor of execution of
the amendment pursuant to the Board's authorizing resolutions of July 6, 1995.
RVSI's Board authorized the signing of the amendment on July 11, 1995.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
RVSI. At a meeting held on July 11, 1995 the RVSI Board unanimously
approved the Merger Agreement and the transactions contemplated thereby and
concluded that the Merger was fair to, and in the best interests of, the RVSI
Stockholders. Accordingly the RVSI Board recommends that the RVSI Stockholders
vote "FOR" the approval and adoption of the Merger Agreement and the
transactions contemplated thereby. In reaching its determination, the RVSI Board
consulted with its financial advisor, Janney Montgomery Scott Inc. ("JMS"), its
counsel and its management, and considered the following material factors:
consolidation trends in the machine vision industry, the current status of the
respective operations and financial prospects of RVSI and Acuity, RVSI's and
Acuity's capital requirements for growth, the current and historical trading
volume and price of both the RVSI Common Stock and the Acuity Common Stock and
the detailed financial analysis of the proposed transaction as performed by its
financial advisor and as more fully described herein. See "-- Opinions of
Financial Advisors -- Janney Montgomery Scott Inc." and Exhibit C. The RVSI
Board concluded that the Merger would provide important benefits to the RVSI
Stockholders, including:
- The reduction in the number of participants in the machine vision industry
that has taken place since the mid-1980s may accelerate in the next few
years. The combination of the technology and products of RVSI with those
of Acuity, and the market position and access to capital that RVSI
currently enjoys, should permit RVSI to survive as an industry leader in
any such consolidation.
- A combination of RVSI's 3-D laser-based machine vision products with
Acuity's diversified 2-D machine vision products could be expected to
result in a diverse, technologically advanced and industry leading product
line, thereby strengthening the competitive position of both companies.
- Increased financial industry visibility may also result in higher daily
trading volume for RVSI Common Stock, thereby increasing RVSI Stockholder
liquidity.
- Expanded marketing opportunities for both RVSI and Acuity as RVSI's
semi-conductor manufacturing customers have informed RVSI of their desire
for increased 2-D machine vision
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inspection of packaging materials. Further, RVSI's increasing volume of
sales outside the United States could be expected to enhance Acuity's
level of international sales (62% of RVSI's 1994 sales, and 19% of
Acuity's 1994 sales, were international).
- With a skilled and technologically proficient management team in place,
Acuity could operate in substantial part as an autonomous company,
cooperating with RVSI in the development and marketing of new products.
- The larger and more diversified nature of RVSI would increase the
likelihood that RVSI would achieve greater financial industry visibility,
thereby enhancing its access to capital markets, if required to fund
future growth.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the RVSI Board did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weight to the specific
factors considered in reaching its determination.
ACUITY. At a meeting held on July 6, 1995, the Acuity Board unanimously
approved the Merger Agreement and the transactions contemplated thereby and
concluded that the Merger was fair to, and in the best interests of, the Acuity
Stockholders. Accordingly, the Acuity Board recommends that the Acuity
Stockholders vote "FOR" the approval and adoption of the Merger Agreement and
the transactions contemplated thereby. In reaching its determination, the Acuity
Board consulted with its financial advisor, Fechtor, Detwiler, its counsel and
its management, and considered the following material factors: potential
operating synergies between the two companies, consolidation trends in the
machine vision industry, the current status of the respective operations and
financial prospects of Acuity and RVSI, their respective capital needs and the
projected capital needs of the combined companies, the perceived compatibility
of the management cultures of the two companies, the strategic alternatives
available to Acuity, the current and historical trading volume and price of both
the Acuity Common Stock and the RVSI Common Stock, and the detailed financial
analysis of the proposed transaction as performed by its financial advisor and
as more fully described herein. See "Opinions of Financial Advisors -- Fechtor,
Detwiler & Co., Inc." and Exhibit D.
Among the matters considered by the Board in relation to the status of
operations of the two companies and their respective financial prospects were
the following:
- Acuity's financial results for its quarter ended July 1, 1995 were
substantially below expectations, with revenues of $4.1 million and a loss
of approximately $500,000. Acuity's financial results for its immediately
preceding quarter, ended April 1, 1995, had also been disappointing, with
revenues of $4.9 million and a loss of $141,000. Throughout these two
quarters, Acuity had not been able to secure a large contract to replace
the single large contract that had accounted for a large proportion of its
shipments during the second half of 1994. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Acuity." By
contrast, RVSI had revenues of approximately $9,000,000 and income before
tax benefit of $1,857,000 for the three months ended March 31, 1995 and
record bookings for the three months ended June 30, 1995.
- Acuity was and is in default of certain covenants under its long-term bank
line of credit. While Acuity had obtained forbearance from such defaults
from its bank until the earlier of August 15, 1995 (more recently extended
to September 30, 1995) or any abandonment of the Merger, Acuity had no
concrete plan for curing the defaults -- other than further negotiation
with its bank -- in the absence of the Merger. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
of Acuity -- Liquidity, Capital Resources and Financial Condition."
- Even apart from the defaults just referenced, Acuity was and is relatively
highly leveraged for a high-technology company, whereas RVSI had and has a
very strong balance sheet with several million dollars of cash and cash
equivalents.
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- RVSI's product distribution is heavily into the semiconductor industry,
which was enjoying a boom of major proportions that industry projections
expected to continue, and where RVSI has been able to realize high gross
margins. While the Board believes that Acuity has strong product offerings
for the long term, it also believes that market perceptions of Acuity's
products are such that their penetration of major new markets is not
likely to be achieved quickly. By contrast, once Acuity is a part of RVSI
the Board believes that the combination with RVSI offers Acuity greater
potential to penetrate the semiconductor industry with its products.
With reference to available strategic alternatives, the Acuity Board
concluded that, based on extensive exploration by management and the Acuity
Board over a long period, it was highly unlikely any strategic transaction on
terms more favorable to Acuity's shareholders than the terms of the Merger was
available with a different partner or acquiring party.
The Acuity Board concluded that the Merger would provide important benefits
to the Acuity Stockholders, and would be more beneficial to them than remaining
in a standalone Acuity. The benefits that the Board believed the Merger would
provide to the Acuity Stockholders include the following:
- Potential operating synergies between the two companies could include
those in applications, market segments, distribution channels, geography
and productivity. Specifically and by way of example, the Acuity Board
believes that the customer base in the machine vision marketplace is very
important because of the relative difficulty of breaking into competitive
accounts, and that the combination of Acuity's diversified 2-D machine
vision products with RVSI's 3-D laser-based machine vision products could
be expected to result in a diverse, technologically advanced and industry
leading product line with considerable potential for cross-selling between
the two customer bases. Moreover, the Acuity Board believes that the
combined direct sales coverage and distribution channels of the two
companies can provide a fuller coverage of the market both domestically
and internationally than either company has now, and that the increased
size of the combined operation should increase the diversification of the
customer base and reduce reliance on a few very large customers.
- The reduction in the number of participants in the machine vision industry
that has taken place since the mid-1980s may accelerate in the next few
years. The combination of the technology and products of RVSI with those
of Acuity, and the market position and access to capital that RVSI
currently enjoys, should permit RVSI to survive as an industry leader in
any such consolidation.
- The expectation of the parties that the continuing Acuity operation be run
in large part in its present location by its own management after the
Merger should enable Acuity to continue to pursue its particular lines of
business with the necessary focus and expertise to build them within the
combined operation of RVSI.
- Historically, the Acuity Common Stock has been thinly traded and,
therefore, subject to greater volatility. The historically greater daily
trading volume for RVSI's Common Stock than Acuity's, combined with the
still greater financial industry visibility that should accrue to the
larger, combined operation, may well enhance both the liquidity of the
Acuity Stockholders and the access of RVSI after the Merger to capital
markets if required to fund further growth.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Acuity Board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weight to the specific
factors considered in reaching its determination.
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OPINIONS OF FINANCIAL ADVISORS
JANNEY MONTGOMERY SCOTT INC.
In its role as financial advisor to RVSI, JMS was asked by RVSI to render
its opinion to the RVSI Board as to the fairness to the public stockholders of
RVSI, from a financial point of view, of the Exchange Ratio.
On July 20, 1995, JMS orally advised the RVSI Board that, as of such date,
the Exchange Ratio was fair, from a financial point-of-view, to the holders of
outstanding shares of RVSI Common Stock. JMS subsequently confirmed its oral
opinion by delivery of a written opinion dated July 20, 1995.
A COPY OF THE JMS OPINION IS ATTACHED HERETO AS EXHIBIT C. RVSI STOCKHOLDERS
ARE URGED TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY FOR ASSUMPTIONS
MADE, MATTERS CONSIDERED, PROCEDURES FOLLOWED AND LIMITS OF THE REVIEW
UNDERTAKEN BY JMS. THE SUMMARY OF THE JMS OPINION SET FORTH IN THIS PROXY
STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION. THE JMS OPINION WAS PREPARED FOR THE RVSI BOARD, IS DIRECTED
ONLY TO THE FAIRNESS TO THE RVSI STOCKHOLDERS AS OF JULY 20, 1995, FROM A
FINANCIAL-POINT-OF-VIEW, OF THE EXCHANGE RATIO PURSUANT TO THE MERGER AGREEMENT
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE AT
THE RVSI SPECIAL MEETING. ADDITIONALLY, JMS' OPINION DOES NOT EXPRESS AN OPINION
AS TO THE PRICE OR TRADING RANGE AT WHICH THE RVSI COMMON STOCK WILL TRADE
SUBSEQUENT TO THE DATE OF ITS OPINION.
In connection with its opinion, JMS (i) reviewed the Merger Agreement; (ii)
reviewed and analyzed certain publicly available information concerning Acuity
and RVSI; (iii) reviewed and analyzed certain internal financial and operating
information with respect to the business, operations and prospects of Acuity
furnished to JMS by Acuity; (iv) reviewed and analyzed certain internal
financial and operating information with respect to the business, operations and
prospects of RVSI furnished to JMS by RVSI; (v) reviewed and analyzed certain
financial forecasts of Acuity and RVSI prepared by their respective managements;
(vi) discussed the past and current operations and financial condition and the
prospects of Acuity with senior management of Acuity; (vii) discussed with
senior management of RVSI the strategic and operating benefits anticipated from
the Merger; (viii) reviewed the price and trading histories of Acuity Common
Stock and RVSI Common Stock; (ix) compared the financial positions and operating
results of Acuity and RVSI with those of publicly traded companies it deemed
relevant; (x) compared certain financial terms of the Merger to certain
financial terms of selected other business combinations it deemed relevant; and
(xi) analyzed the pro forma financial effect of the Merger.
JMS assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by it for purposes of its opinion.
With respect to financial projections, JMS assumed that they had been reasonably
prepared on bases reflecting the best currently available information and
judgments of the future financial performance of Acuity and RVSI. JMS has not
made an independent valuation or appraisal of the assets or liabilities of
Acuity, nor has it been furnished with any such valuations or appraisals. JMS
has also assumed the Merger will be accounted for as a pooling of interests. The
JMS Opinion is necessarily based on financial, economic, market and other
conditions as they existed on, and information made available to it as of, the
date of the opinion.
The following is a brief summary of certain of the financial analyses
utilized by JMS in connection with providing its opinion to the RVSI Board on
July 20, 1995.
COMPARATIVE STOCK PRICE PERFORMANCE: As part of its analysis, JMS reviewed
the history of the trading prices and their relative relationships for both
Acuity and RVSI since May 20, 1994. The review indicated that since May 20, 1994
Acuity Common Stock traded between $6.00 and $10.25 and averaged approximately
$8.39, and in the period ending April 24, 1995 between $6.00 and $10.25 and
averaged approximately $8.39. The ratios of closing stock prices of Acuity and
RVSI for various periods ending April 24, 1995 were: 0.94 to 2.28 and averaged
approximately 1.33 for the period ended April 24, 1995, 0.94 to 2.28 and
averaged approximately 1.34 for the six months ended April 24, 1995, 0.94 to
1.59 and averaged approximately 1.40 for the three months ended April 24, 1995,
0.94 to 1.45
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and averaged approximately 1.24 for the 30 days ended April 24, 1995 and
approximately 1.00 for April 24, 1995. This stock price study was then compared
to the exchange ratio as of the date of the Merger Agreement.
CONTRIBUTION ANALYSIS: JMS analyzed the pro forma contribution of each of
RVSI and Acuity to the combined company if the Merger were to be consummated.
The pro forma figures reflect the adjusted contribution levels of each company
for the 12 months ended March 31, 1995. JMS calculated that each of RVSI and
Acuity contributes 57% and 43% to pro forma revenues, 78% and 22% to pro forma
operating income, 80% and 20% to pro forma pre-tax income, 84% and 16% to pro
forma net income and 86% and 14% to pro forma book value, respectively. This
contribution analysis was then compared to the pro forma ownership percentage of
RVSI stockholders in the combined company of 88%. The results of these
contribution analyses are not necessarily indicative of the future contributions
of each company.
PRO FORMA ANALYSIS: JMS analyzed certain pro forma effects of the Merger on
the combined companies' earnings per share, consolidated capitalization and
financial ratios. JMS found changes in earnings per share from $0.46 to $0.48,
book value per share from $1.06 to $1.08 and debt to equity from 0.49 to 0.67
for the 12 month period ended March 31, 1995. Furthermore, such analysis
indicated that based on the realization of potential synergies estimated by the
managements of RVSI and Acuity, earnings per share for fiscal 1995, 1996 and
1997 may be reduced by 15%, may be unchanged and may increase by 8%,
respectively.
SELECTED COMPANIES ANALYSIS: JMS compared certain financial information of
Acuity with a group of publicly traded companies in the machine vision industry
that, in JMS' judgment, were comparable to Acuity (the "Acuity Comparable
Companies"). The Acuity Comparable Companies were chosen by JMS as companies
that possess general business, operational and financial characteristics
representative of companies in the industry in which Acuity operates, although
JMS recognized that each of the Acuity Comparable Companies is distinguishable
from Acuity in certain respects. The Acuity Comparable Companies consists of
Cognex Corp., Perceptron, Inc., Medar, Inc., KLA Instruments Corporation,
Electroglas, Inc. and Tencor Instruments.
The financial information considered by JMS included, among other items,
selected balance sheet data, operating statement data and earnings per share
estimates made by research analysts. JMS calculated several market multiples for
the Acuity Comparable Companies which include price ranges of 2.36 to 12.62
times sales, 11.71 to 34.49 times operating income, 18.81 to 53.85 times pro
forma earnings and 2.70 to 7.83 times book value. These figures were then used
to calculate an implied common stock price range for Acuity of $20.78 to $111.11
based on Acuity's sales, $6.33 to $18.64 based on operating income, $9.05 to
$25.90 based on pro forma earnings and $2.50 to $7.26 based on book value. JMS
found that the price per share of Acuity Common Stock contemplated by the
Exchange Ratio is within this range of values.
COMPARABLE TRANSACTION ANALYSIS: JMS examined certain completed merger and
acquisition transactions of machine vision-related companies. To the extent
information was available, JMS calculated a range of market multiples which
ranged from 1.11 to 1.30 times revenues, 19.50 to 46.42 times operating income,
22.98 to 48.17 times earnings per share and 2.95 to 3.50 times book value. These
figures were then used to calculate an implied common stock price range for
Acuity of $9.78 to $11.43 per share based on Acuity's sales, $10.54 to $25.09
per share based on operating income, $11.05 to $23.17 per share based on net
income and $2.73 to $3.24 per share based on book value. JMS found the price per
share of Acuity Common Stock contemplated by the Exchange Ratio is within this
range.
DISCOUNTED CASH FLOW ANALYSIS: JMS performed a discounted cash flow
analysis of Acuity based on fiscal 1995 to 1997 projections provided by the
management of Acuity. In performing its analysis, JMS applied discount rates
ranging from 15% to 25% and terminal value multiples of 13 to 18 times operating
income. The resulting range of values, from $8.23 to $14.37 per share, was then
compared to the implied purchase price per share of Acuity. JMS found the price
per share of Acuity Common Stock contemplated by the Exchange Ratio is within
this range.
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The summary set forth above does not purport to be a complete description of
the analyses performed by JMS in arriving at its opinion. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. JMS believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or of the above
summary, without considering all factors and analyses, could create an
incomplete view of the process underlying the analyses performed by JMS in
connection with the preparation of its opinion letter. In performing its
analyses, JMS made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Acuity and RVSI. The analyses performed by JMS are not
necessarily indications of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. In
addition, analyses relating to value of a business do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.
JMS is a nationally recognized investment banking firm and is continually
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements, and valuations for corporate and
other purposes. JMS has not provided investment banking services to RVSI prior
to its services related to the Merger. JMS does not make a market in either
Acuity or RVSI Common Stock, however, as a full service securities firm, JMS may
from time-to-time effect transactions for its own account or the accounts of
customers and hold positions in securities of Acuity and RVSI. JMS has been paid
a fee of $130,000 for its services regarding the merger plus the reimbursement
of its accountable out-of-pocket expenses. JMS' fee was not contingent on the
conclusion reached in its opinion.
FECHTOR, DETWILER & CO., INC.
In its role as financial advisor to Acuity, Fechtor, Detwiler was asked by
Acuity to render its opinion to the Acuity Board as to the fairness to the
public stockholders of Acuity, from a financial point of view, of the Exchange
Ratio.
On July 7, 1995, Fechtor, Detwiler orally advised Acuity that, as of such
date, the Exchange Ratio was fair, from a financial point of view, to the Acuity
Stockholders. Fechtor, Detwiler subsequently confirmed its oral opinion by
delivery of a written opinion dated July 17, 1995.
In rendering such opinion in regard to the Merger, Fechtor, Detwiler (1)
reviewed the Agreement and Plan of Merger and Reorganization dated April 27,
1995, and the Amendment to Agreement and Plan of Merger and Reorganization dated
July 11, 1995, (2) reviewed historical financial and business information about
Acuity, (3) met with management of Acuity to discuss its operations, financial
condition and future prospects, (4) visited Acuity's Nashua, New Hampshire
facility, (5) reviewed historical financial and business information about RVSI,
(6) met with the management of RVSI to discuss its operations, financial
condition and future prospects, (7) visited RVSI's Hauppauge, New York facility,
(8) reviewed the trading histories of Acuity and RVSI common stock, (9) compared
the market valuations, financial condition and performance of Acuity and RVSI
with those of other publicly traded companies (the "Comparable Companies"), (10)
compared certain financial terms of the Merger to certain financial terms of
selected other business combinations deemed relevant, (11) considered the
potential for accretion in operating earnings and earnings per share for the
Acuity Stockholders which may result from the Merger, (12) analyzed the pro
forma contribution of each of Acuity and RVSI to the combined company's
revenues, operating income, tax-adjusted earnings and book value if the Merger
were to be consummated, (13) calculated the pro forma financial effect of the
Merger on the combined company's financial ratios and compared these with the
financial ratios of both Acuity and RVSI prior to the Merger, and (14) compared
the valuation of the Acuity shares in the Merger to the closing price of Acuity
shares prior to the announcement of the Merger.
Acuity and RVSI furnished certain material non-public information to
Fechtor, Detwiler including projected income statements through December 1996 by
Acuity and September 1995 by RVSI. In
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rendering its opinion, Fechtor, Detwiler has assumed and relied upon the
accuracy and completeness of all information provided to them by Acuity and
RVSI, and has not assumed any responsibility for independent verification of
such information or any independent valuation or appraisal of any of the assets
of Acuity or RVSI.
Acuity did not place any limitations on Fechtor, Detwiler's report. Acuity
did not ask Fechtor, Detwiler to render any opinion as to the fairness, from a
financial point of view, of the Merger, but only as to the fairness, from a
financial point of view, of the Exchange Ratio.
The following is a summary of the financial analyses performed by Fechtor,
Detwiler in connection with providing its written opinion to Acuity on July 17,
1995.
COMPARATIVE TRADING HISTORY: Fechtor, Detwiler examined trading volumes in
the Common Stock of Acuity and RVSI to determine whether an open and active
market existed for both stocks prior to the announcement of the Merger on
February 1, 1995. Trading volume on the Nasdaq National Market for RVSI Common
Stock exceeded 530,000 shares in December 1994 and 795,000 shares in January
1995. Trading volume on the NASDAQ Small Capitalization Market for Acuity Common
Stock exceeded 160,000 shares in December 1994 and 90,000 shares in January
1995. In Fechtor, Detwiler's opinion, these volumes were sufficient to
constitute an open and active market for the shares of RVSI and Acuity.
Fechtor, Detwiler also observed that in December 1994 and January 1995,
trading volume in shares of RVSI was 3.3 times and 8.8 times higher,
respectively, than trading volume in Acuity shares. Based on this history,
Fechtor, Detwiler concluded that the Acuity Stockholders may experience
improvement in the liquidity of the market for their shares as a result of the
Merger.
COMPARABLE COMPANIES ANALYSIS: Fechtor, Detwiler compared certain financial
information of RVSI and Acuity with a group of publicly traded comparable
companies in the machine vision and related industries that, in Fechtor,
Detwiler's judgment, were comparable to RVSI and Acuity. The Comparable
Companies were chosen by Fechtor, Detwiler as companies which possess general
business, operational and financial characteristics representative of companies
in the industry in which RVSI and Acuity operate, although Fechtor, Detwiler
recognized that each of the Comparable Companies differs from RVSI and Acuity in
certain respects. The Comparable Companies consist of Cognex, Medar, Pattern
Processing, Perceptron, Orbotech, KLA Instruments, Electromagnetic Sciences,
Metrologic Instruments, and Computer Identics.
The financial information Fechtor, Detwiler considered was the most recent
information available to it as of the date of the opinion. The financial
measures considered and the median values for each of these measures for the
Comparable Companies were as follows: the multiple of firm value to revenues
(1.39x), the multiple of firm value to operating income (15.43x), the multiple
of the stock price to trailing earnings per share (24x), the multiple of the
stock price to the estimated earnings per share for the current fiscal year
(19x), and the multiple of the stock price to the estimated earnings per share
for the next fiscal year (13x).
Fechtor, Detwiler compared RVSI's and Acuity's valuation multiples on a
trailing four quarters basis ended in March 31, 1995 to those of the Comparable
Companies. Based upon RVSI's Common Stock price of $14.50 on July 14, 1995,
Fechtor, Detwiler calculated the following values for RVSI: the multiple of firm
value to revenues (7.30x), the multiple of firm value to operating income
(45.01x), the multiple of the stock price to trailing earnings per share (32x),
the multiple of the stock price to the estimated earnings per share for the
current fiscal year (21x), and the multiple of the stock price to the estimated
earnings per share for the next fiscal year (16x).
Fechtor, Detwiler noted that for the period examined, RVSI traded at
valuation multiples that were generally higher than the median valuation
multiples for the Comparable Companies. Fechtor, Detwiler attributed the
variation in part to differences in operating performance. RVSI's average annual
growth rate in revenues for the three fiscal years ended September 1994 and its
gross and operating margins for the four quarters ended March 1995 exceeded the
median of the Comparable
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Companies as a group. Companies with comparable growth rates and profit margins
to RVSI include Cognex, Perceptron and KLA Instruments. For these three
companies, the median and average valuation multiples were as follows: the
multiple of firm value to revenues (4.97x) and (7.66x), the multiple of firm
value to operating income (29.41x) and (24.97x), the multiple of the stock price
to the trailing earnings per share (45x) and (40x), the multiple of the stock
price to the estimated earnings per share for the current fiscal year (31x) and
(27x), and the multiple of the stock price to the estimated earnings per share
for the next fiscal year (23x) and (22x). Fechtor, Detwiler concluded that the
multiples for RVSI were in line with those of Cognex, Perceptron and KLA
Instruments.
For the Acuity Common Stock, Fechtor, Detwiler calculated an effective
merger price of $10.55 per share based upon the Exchange Ratio of 0.766 and an
average closing price for RVSI Common Stock for the twenty trading days ending
on (and including) July 14, 1995 of $13.77 per share. Based upon this effective
merger price, Fechtor, Detwiler calculated the multiple of merger value to
revenues (1.30x), the multiple of merger value to operating income (21.15x), the
multiple of the effective merger price per share to trailing earnings per share
(23x), the multiple of the effective merger price per share to the estimated
earnings per share for the current fiscal year (not meaningful), and the
multiple of the effective merger price per share to the estimated earnings per
share for the next fiscal year (14x). For the period examined, Acuity's merger
value to revenues multiple was lower than the median of the Comparable
Companies. Fechtor, Detwiler attributed the variation in part to differences in
the three year average revenue growth rate and differences in operating margins.
Acuity's three year average revenue growth rate was 13% compared with the median
of the Comparable Companies at 26%. Acuity's operating profit margin for the
period examined was 6% while the median for the Comparable Companies was 20%.
COMPARABLE TRANSACTION ANALYSIS: Fechtor, Detwiler examined certain
completed or announced merger and acquisition transactions of machine-vision
related companies. Fechtor, Detwiler calculated the multiple of revenues paid by
the acquiring firm in each transaction and compared it with the multiple of
revenue being offered to Acuity by RVSI. The comparable transactions examined
and the multiple of revenues paid in each transaction were as follows: Fairey
Group's acquisition of Imaging Technology (1.17x), PSC's acquisition of Lazer
Data (0.90x), Medar's acquisition of Integral Vision (1.00x), and Cognex's
acquisition of Acumen (2.80x). Fechtor, Detwiler concluded that these multiples
were in line with RVSI's offer to merge with Acuity at an effective valuation
multiple of 1.3 times revenues.
DILUTION ANALYSIS: Fechtor, Detwiler also considered the potential for
accretion in operating earnings and earnings per share for the Acuity
Stockholders which may result from the Merger. Fechtor, Detwiler took into
account each company's reported performance through March 31, 1995 and
management's internal estimates of performance in the quarter ended June 30,
1995. RVSI and Acuity provided Fechtor, Detwiler with projected income
statements for their fiscal years ending in September 1995 and December 1996
respectively. Estimates for RVSI's earnings in the fiscal year ending September
1996 were available from a research report prepared by Barrington Research
Associates dated June 19, 1995. Based upon this information, Fechtor, Detwiler
determined that the Merger would be accretive to the Acuity Stockholders for the
four quarters ending in September 1995 and September 1996.
CONTRIBUTION ANALYSIS: Using financial information supplied to it by Acuity
and RVSI, Fechtor, Detwiler analyzed the pro forma contribution of each of
Acuity and RVSI to the combined company's revenues, operating income, tax
adjusted income and tangible book value if the Merger were to be consummated.
Based upon the average closing price of $13.77 for RVSI shares for the twenty
trading days ending on (and including) July 14, 1995 and an exchange ratio of
0.766, Acuity shareholders would own 12% of the combined companies after the
Merger. Fechtor, Detwiler determined that on a trailing four quarters basis
ended June 30, 1995, Acuity would have contributed 37% of revenue, 7% of
operating income, and 6% of tax adjusted income for the combined companies. On a
pro forma basis, as of March 31, 1995, Acuity would have contributed 15% of
tangible book value for the combined companies. Fechtor, Detwiler calculated
that Acuity, over the three year period ended December 31,
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1994, had an average annual revenue growth rate of 13% while RVSI, over the
three year period ending September 30, 1994, had an average annual revenue
growth rate of 42%. Based upon information provided to Fechtor, Detwiler by RVSI
and Acuity, as well as the Barrington Research Associates research report dated
June 19, 1995, Fechtor, Detwiler concluded that Acuity's percentage contribution
to the revenues and operating income of the combined company would be 32% and
12%, respectively, for the period ending September 30, 1996.
FINANCIAL AND LIQUIDITY RATIO ANALYSIS: Fechtor, Detwiler analyzed certain
pro forma effects of the Merger on the combined company's financial and
liquidity ratios. Fechtor, Detwiler noted that, as of March 31, 1995, RVSI had a
current ratio of 2.2 and an acid test ratio of 1.7 while Acuity had a current
ratio of 1.3 and an acid test ratio of 0.8. The pro forma effect of the Merger
would result in a current ratio of 1.9 and an acid test ratio of 1.6. This would
represent an increase of 0.6 in the current ratio and an increase of 0.2 in the
acid test ratio to the benefit of the Acuity Stockholders. Additionally,
Fechtor, Detwiler noted that, as of March 31, 1995, RVSI had a debt to equity
ratio of 0.5 while Acuity had a debt to equity ratio of 1.8. The pro forma
effect of the Merger would result in a debt to equity ratio of 0.7 representing
a benefit to the Acuity Stockholders.
MERGER PRICING ANALYSIS: Fechtor, Detwiler considered the Exchange Ratio
relative to the closing price of Acuity Common Stock on January 31, 1995, one
day prior to the announcement of the Merger, and relative to the average closing
price of RVSI shares for the twenty trading days ending on (and including) July
14, 1995. Fechtor, Detwiler noted that on January 31, 1995, the closing price
for Acuity Common Stock on the NASDAQ Small Capitalization Market was $8.25.
Fechtor, Detwiler determined that the average closing price of RVSI Common Stock
for the twenty trading days ending on (and including) July 14, 1995 on the
NASDAQ National Market was $13.77. Based on these prices, Fechtor, Detwiler
determined that the Acuity Stockholders would receive a premium of approximately
28% in the exchange of shares.
In light of these considerations, Fechtor, Detwiler concluded that the
Exchange Ratio is fair, from a financial point of view, to the Acuity
Stockholders.
See Exhibit D of this Proxy Statement/Prospectus for the Fechtor, Detwiler
Opinion.
Fechtor, Detwiler is an investment banking firm founded in 1962 and engaged
in research and brokerage services, public offerings, private placements,
valuations, mergers, acquisitions and divestitures. Prior to being retained in
March 1995 Fechtor, Detwiler acted as financial advisor to the Board of
Directors of Automatix, Inc. with respect to the merger of Automatix, Inc. and
Itran Corporation. Fechtor, Detwiler's role was limited to passing upon the
fairness to Automatix's Stockholders, from a financial point of view, of the
proposed merger. Fechtor, Detwiler currently makes a market in the Common Stock
of both Acuity and RVSI. In the course of its market making activities, Fechtor,
Detwiler may from time to time have a long or short position in, buy or sell
securities in Acuity or RVSI. In addition, Fechtor, Detwiler directors,
officers, employees and clients may, from time to time, have a long or short
position in, buy or sell securities in Acuity or RVSI.
For its work in formulating its opinion, Acuity will pay Fechtor, Detwiler a
fee of $105,000 of which $75,000 has been paid to date. Additionally, Acuity
will reimburse Fechtor, Detwiler for its out-of-pocket expenses incurred in
connection with this engagement. Acuity has agreed to indemnify Fechtor,
Detwiler against certain losses, expenses, liabilities or claims, including
claims under the securities laws, which may be incurred by Fechtor, Detwiler in
connection with its engagement by Acuity.
THE MERGER AGREEMENT
GENERAL. The following is a brief summary of certain provisions of the
Merger Agreement and their effect. This summary is not intended to be a complete
statement of all material provisions of the Merger Agreement and is qualified in
its entirety by reference to the full text of the Merger Agreement, a copy of
which is attached hereto as Exhibit A and incorporated by reference.
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The Merger Agreement provides that, at the Effective Time, each then
outstanding share of Acuity Common Stock will be converted into the right to
receive, and become exchangeable for, 0.766 of a share of RVSI Common Stock;
provided, however, that if the average of the closing prices of RVSI Common
Stock on The Nasdaq National Market for the 20 trading days ending on (and
including) the third trading day immediately prior to the RVSI Special Meeting
(the "Average Closing Price") is greater than $14.50, then the Exchange Ratio
shall be equal to the quotient of $11.107 divided by the Average Closing Price
(provided that in no event shall the Exchange Ratio be less than 0.555375); and
if the Average Closing Price is less than $10.00, then the Exchange Ratio shall
be equal to the quotient of $7.66 divided by the Average Closing Price (provided
that in no event shall the Exchange Ratio be more than 0.925626). Such exchange
ratio was established through arms-length negotiations between RVSI and Acuity.
None of the shares of RVSI Common Stock issued and outstanding immediately prior
to the Effective Time will be converted or otherwise modified in the Merger and
all of such shares will continue to be outstanding capital stock of RVSI after
the Merger.
As soon as practicable after the Effective Time, the Exchange Agent will
mail transmittal instructions and a form of letter of transmittal to each Acuity
Stockholder to be used in forwarding his or her Acuity Certificates for
surrender and exchange for RVSI Certificates and, if applicable, cash in lieu of
a fractional share of RVSI Common Stock. After receipt of such transmittal
instructions and form of transmittal letter, each former Acuity Stockholder
should surrender his or her Acuity Certificates to the Exchange Agent in
accordance with the transmittal instructions. See "-- Exchange of Stock
Certificates" and "-- No Fractional Shares."
After the Effective Time, each Acuity Certificate, until so surrendered and
exchanged, will be deemed to evidence the right to receive the number of shares
of RVSI Common Stock that the former Acuity Stockholder is entitled to receive
pursuant to the Merger Agreement and the right to receive any cash payment in
lieu of a fractional share of RVSI Common Stock. The holder of such unexchanged
Acuity Certificates will not be entitled to receive any dividends or other
distributions payable by RVSI until such Acuity Certificates are surrendered.
Subject to applicable laws, any such dividends and distributions after the
Effective Time, if any, will be accumulated and, at the time a former Acuity
Stockholder surrenders his or her Acuity Certificates to the Exchange Agent, all
such accrued and unpaid dividends and distributions, together with any cash
payment in lieu of a fractional share of RVSI Common Stock, will be paid without
interest.
None of the shares of RVSI Common Stock will be converted or otherwise
modified in the Merger and all of such shares will continue to be outstanding
capital stock of RVSI after the Effective Time.
CONVERSION OF OPTIONS. As a consequence of the Merger, options to purchase
up to 205,646 shares of Acuity Common Stock ("Acuity Options") at various
exercise prices will be converted at the Effective Time into options to purchase
up to 157,524 shares of RVSI Common Stock ("Conversion Options") at exercise
prices determined by dividing the exercise price per share of Acuity Common
Stock provided for in such Acuity Option by the Exchange Ratio.
STOCK PURCHASE RIGHTS. As a consequence of the Merger, rights under
Acuity's 1994 Employee Qualified Stock Purchase Plan ("ESPP") to purchase shares
of Acuity Common Stock will be converted into rights to purchase up to an
estimated 19,150 shares of RVSI Common Stock. Under the ESPP, an Acuity employee
may elect to have amounts withheld from his salary which, at the end of the
applicable twelve-month withholding period, are applied to the purchase of stock
at a price equal to 85% of the lesser of the fair market value per share of
Acuity's Common Stock on (i) the first business day of the withholding period or
(ii) on the last business day of the withholding period. ESPP participants will
have the right to purchase shares of RVSI Common Stock based upon the Exchange
Ratio.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
representations and warranties of RVSI and Acuity, respectively, relating to,
among other things, its respective: (i) due organization, corporate power, good
standing and similar corporate matters; (ii) capital structure; (iii)
subsidiaries; (iv) authorization, execution, delivery, performance and
enforceability of the Merger
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Agreement and related matters; (v) absence of conflicts under its Certificate of
Incorporation or Bylaws, absence of violations of any instruments or law and
required governmental or regulatory authorizations, consents or approvals; (vi)
documents filed with the Commission and the accuracy of the information
contained or incorporated therein, including, without limitation, the
preparation of the financial statements contained therein in accordance with
generally accepted accounting principles applied on a consistent basis; (vii)
absence of undisclosed liabilities; (viii) absence of certain material adverse
events or changes; (ix) litigation; (x) accuracy of the information to be
provided by it with respect to the Registration Statement filed with the
Commission, of which this Proxy Statement/ Prospectus is a part; (xi) compliance
with requirements of law; (xii) compliance with its Certificate of Incorporation
and Bylaws; (xiii) taxes; (xiv) retirement and other employee benefit plans;
(xv) absence of certain employment agreements, change-in-control provisions and
agreements with affiliates; (xvi) labor matters; (xvii) environmental matters;
(xviii) absence of appraisal rights in connection with the Merger; (xix) status
of material contracts; (xx) intellectual property; (xxi) customers; (xxii)
insurance; (xxiii) accuracy of books and records; (xxiv) accounting matters;
(xxv) brokers' and finders' fees with respect to the Merger; and (xxvi) accuracy
of the information contained in the Merger Agreement and schedules thereto.
The Merger Agreement also contains various representations and warranties of
RVSI relating to: (i) organization, activities, ownership and assets of
Subsidiary; and (ii) absence of violations of any instruments or law by
Subsidiary and absence of required governmental or regulatory authorizations,
consents or approvals on part of Subsidiary.
CERTAIN COVENANTS AND AGREEMENTS. Pursuant to the Merger Agreement, Acuity
and RVSI have each agreed that, during the period from the date of the Merger
Agreement until the Effective Time or the earlier termination of the Merger
Agreement, each will, among other things (except as permitted by the Merger
Agreement or as consented to in writing by the other): (i) conduct its business
in the ordinary and usual course of business and consistent with past practice;
(ii) not split, combine or reclassify its outstanding capital stock, declare or
pay any dividends or engage in any transaction for the purpose of effecting a
recapitalization or any transaction or series of transactions which has a
similar effect to any of the foregoing; (iii) not spin-off any assets or
business; (iv) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of its capital stock or any debt or
equity securities convertible into or exchangeable for such capital stock or
amend or modify the terms and conditions of any of the foregoing; (v) not
redeem, purchase, acquire or offer to purchase or acquire any shares of its
capital stock; (vi) not take any action which would jeopardize the treatment of
the Merger as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), or as a "pooling of
interests" transaction; (vii) not take or fail to take any action which would
cause Acuity or its stockholders (except to the extent that any Acuity
Stockholders receive cash in lieu of fractional shares) to recognize gain or
loss for federal income tax purposes as a result of the Merger; (viii) not make
any acquisition of any material assets (other than in the ordinary course of
business or businesses); (ix) not sell any material assets (other than in the
ordinary course of business) or businesses; (x) use reasonable efforts to
preserve intact its business organization and goodwill, keep available the
services of its present officers and key employees and preserve the goodwill and
business relationships with its suppliers, distributors, customers and others
having business relations with it and not engage in any action directly or
indirectly, with the intent to impact adversely the transactions contemplated by
the Merger Agreement; (xi) confer on a regular basis with one or more
representatives of the other to report on material operational matters and the
general status of ongoing operations; (xii) file with the Commission all forms,
statements, reports and documents (including all exhibits, amendments and
supplements thereto) required to be filed by it pursuant to the Exchange Act;
(xiii) afford to the other and the other's accountants, counsel, financial
advisors and other representatives full access during normal business hours
throughout the period prior to the Effective Time to all of its properties,
books, contracts, commitments and records, and, during such time, furnish a copy
of each report, schedule or other document filed or received by it pursuant to
the requirements of the federal or state securities laws or filed by it with the
Commission
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in connection with the transactions contemplated by the Merger Agreement or
which may have a material effect on its business, properties or personnel or
such other information as the other may reasonably request; (xiv) prepare and
file with the Commission the Proxy Statement/Prospectus and use all reasonable
efforts to have the Registration Statement of which this Proxy Statement/
Prospectus forms a part declared effective by the Commission; (xv) cooperate and
use its best efforts to take all actions, make all filings, registrations and
submissions, and do all things necessary and advisable to consummate the Merger,
including, but not limited to, obtaining all required consents, waivers and
approvals from the Commission, and any other applicable governmental entity;
(xvi) use its best efforts to obtain its stockholders approval and adoption of
the Merger Agreement and the transactions contemplated thereby; (xvii) use its
best commercially reasonable efforts to obtain and deliver to the other certain
letters from its "affiliates" as defined under Rule 145 under the Securities
Act, or used in Commission Accounting Service Releases 130 and 135, agreeing, in
the case of affiliates of Acuity, to certain restrictions on dispositions of
Acuity and RVSI Common Stock prior to the Merger, and on resale of RVSI Common
Stock received in the Merger in exchange for Acuity Common Stock and, in the
case of affiliates of RVSI, to certain restrictions on dispositions of Acuity
and RVSI Common Stock prior to and after the Merger; and (xviii) subject to the
fiduciary duties of its Board of Directors, recommend to the holders of its
Common Stock approval of the Merger Agreement and the Merger.
Pursuant to the Merger Agreement, Acuity has further agreed that it will,
among other things: (i) not amend or propose to amend the Acuity Certificate of
Incorporation or Acuity Bylaws; (ii) not incur or become contingently liable
with respect to any indebtedness for borrowed money (other than in the ordinary
course of business or pursuant to the revolving credit arrangements referred to
in the Merger Agreement); (iii) not enter into or amend in any material respect
any material employment, severance, or special pay arrangement with respect to
termination of employment or other similar material arrangements or agreements
with any directors, officers or key employees; (iv) not increase the rate of
remuneration payable to any of its directors or key officers or, except in the
ordinary course of business consistent with past practices, to any other
employees or other representatives, or agree to do so; (v) not adopt, enter into
or amend any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, health care, employment or other employee
benefit plan, agreement, trust, fund or arrangement for the benefit or welfare
of any employee or retiree, except as required to comply with changes in
applicable law; and (vi) use its best efforts to maintain in force its existing
insurance coverage.
Pursuant to the Merger Agreement, RVSI has also agreed to (i) use its best
efforts to effect a listing on The Nasdaq National Market, upon official notice
of issuance, of the shares of RVSI Common Stock to be issued pursuant to the
Merger; (ii) take any action required to be taken under applicable state blue
sky or securities laws in connection with the issuance of shares of RVSI Common
Stock to be issued pursuant to the Merger; (iii) as soon as practicable
following the Effective Time, file with the Commission a registration statement
on Form S-8 covering the issuance of shares of RVSI Common Stock issuable upon
exercise of the Conversion Options; and (iv) exert its best efforts, as soon as
practicable, subsequent to the Effective Time, subject to then prevailing market
conditions, to arrange for a managed offering of all shares of RVSI Common Stock
received by affiliates of Acuity as a result of the Merger through an
underwriter to be selected by RVSI and reasonably satisfactory to a majority in
interest of Acuity's affiliates so receiving RVSI Common Stock. RVSI has also
agreed that at the Effective Time one designee of Acuity's current directors,
reasonably acceptable to RVSI, shall be appointed a director of RVSI to serve
until RVSI's first annual meeting of stockholders next following the Effective
Time. At the sole discretion of RVSI, an additional designee of Acuity's current
directors may be appointed as a director of RVSI.
NO SOLICITATION OF OTHER TRANSACTIONS. The Merger Agreement provides that,
prior to the Effective Time or the earlier of (i) termination of the Merger
Agreement or (ii) September 30, 1995, Acuity will not, unless RVSI consents in
writing, initiate, solicit, negotiate or encourage, or provide any confidential
information to facilitate any proposal or offer to acquire all or any
substantial part of the business and properties or capital stock of Acuity,
whether by merger, purchase of assets, tender offer
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or otherwise (an "Acquisition Transaction"), except as otherwise provided below.
Acuity also has agreed to cause its executive officers, directors and employees,
and any attorney, accountant, investment banker or other agent retained by it to
refrain from such activities.
Pursuant to the Merger Agreement, Acuity may furnish confidential
information concerning its business, properties or assets to a potential
acquiror if the Acuity Board: (i) receives from its financial advisor advice
that such person has the financial wherewithal to consummate an Acquisition
Transaction that would yield a higher value to Acuity's stockholders than the
Merger; (ii) determines that such person is reasonably likely to submit a bona
fide offer to consummate an Acquisition Transaction on terms that would yield a
higher value to Acuity's stockholders if such information is provided to the
potential acquiror; and (iii) after consultation with counsel, determines that
the failure to provide such confidential information would constitute a breach
of its fiduciary duty to Acuity's stockholders. After receipt of a bona fide
offer which the Acuity Board determines would likely yield a higher value to the
Acuity stockholders than the Merger, Acuity may, with respect to such acquiror,
negotiate such bona fide offer if in the opinion of the Acuity Board, after
consultation with counsel, the failure to negotiate would constitute a breach of
its fiduciary duty to the Acuity stockholders. Acuity must give prompt notice to
RVSI that Acuity has determined to provide confidential information to a
potential acquiror or that it has received an offer from a potential acquiror.
In addition, Acuity must identify the recipient of any information and describe
the material terms of the offer. Acuity may enter into a definitive agreement
with a potential acquiror with which it is permitted to negotiate as set forth
above, provided that Acuity furnishes to RVSI a description in writing of the
material terms of such agreement and Acuity's intention to enter into such
agreement at least one business day prior to the execution thereof by Acuity.
Concurrently with Acuity's execution of such definitive agreement, RVSI or
Acuity may terminate the Merger Agreement subject to the fee and expense
reimbursement provisions set forth below. See "-- Termination and Breakup Fees."
CONDITIONS TO THE MERGER. The respective obligations of RVSI and Acuity to
effect the Merger are subject to fulfillment of a number of conditions,
including among others: (i) the Merger Agreement and the transactions
contemplated thereby shall have been approved and adopted by the respective
holders of Acuity Common Stock, and of RVSI Common Stock; (ii) the Registration
Statement shall have become effective and no stop order suspending such
effectiveness shall have been issued and remain in effect; (iii) no preliminary
or permanent injunction or other order or decree by any federal or state court
which prevents the consummation of the Merger shall have been issued or taken
and remain in effect (each party agreeing to use its reasonable efforts to have
any such injunction, order or decree lifted); (iv) no action shall have been
taken, and no statute, rule or regulation shall have been enacted, by any state
or federal government or governmental agency in the United States that would
prevent the consummation of the Merger; (v) all governmental and third party
consents, orders and approvals legally required for the consummation of the
Merger and the transactions contemplated thereby (including, without limitation,
all Required Statutory Approvals, as defined in the Merger Agreement), shall
have been obtained and be in effect at the Effective Time without any material
limitations and conditions; and (vi) all blue sky filings as may be required in
order for the offer, issuance and sale of all of the shares of RVSI Common
Stock, options and stock purchase rights to be issued pursuant to the Merger
Agreement, and all of the shares of RVSI Common Stock issuable upon exercise of
such options and stock purchase rights, respectively, to be in full compliance
with all applicable state securities laws and regulations shall have been made
and shall be in effect and not subject to any suspension, revocation, or stop
order, as may be required in order for the offer, issuance and sale of all such
securities to be legally permitted under all such laws and regulations.
In addition to the conditions set forth above, the obligations of Acuity to
effect the Merger are subject to the following conditions: (i) RVSI and
Subsidiary shall have performed in all material respects their agreements
contained in the Merger Agreement required to be performed on or prior to the
Closing Date and all representations and warranties of RVSI and Subsidiary
contained in the Merger Agreement, with certain exceptions, shall be true and
correct in all material respects on and as of the date made and the Closing Date
and Acuity shall have received a certificate from an executive
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officer of RVSI and Subsidiary to such effect; (ii) the receipt of a written
legal opinion from Parker Duryee Rosoff & Haft, counsel to RVSI and Subsidiary,
as to certain legal matters; (iii) the receipt of an opinion from each of
Deloitte & Touche LLP and Arthur Andersen LLP, Acuity's independent public
accountants, stating that the Merger will qualify as a "pooling of interests"
transaction under generally accepted accounting principles; (iv) the receipt by
Acuity of letters from the "affiliates" of RVSI relating to restrictions on the
transferability of their shares of RVSI Common Stock; (v) the receipt of an
opinion of Fechtor, Detwiler, or another nationally recognized investment
banking firm, that the Exchange Ratio is fair from a financial point of view to
Acuity's public stockholders; (vi) the RVSI Common Stock to be issued in
connection with the Merger shall have been authorized for listing on The Nasdaq
National Market upon official notice of issuance; (vii) the receipt of a written
legal opinion from Bingham, Dana & Gould, counsel to Acuity, dated the Effective
Time, with respect to certain tax matters; and (viii) the receipt of a
certificate from RVSI as to certain tax matters.
In addition to the conditions set forth in the first paragraph of this
subsection, the obligations of RVSI to effect the Merger are subject to the
following conditions: (i) Acuity shall have performed in all material respects
its agreements contained in the Merger Agreement required to be performed on or
prior to the Closing Date and all representations and warranties of Acuity
contained in the Merger Agreement, with certain exceptions, shall be true and
correct in all material respects on and as of the date made and the Closing Date
and RVSI shall have received a certificate from an executive officer of Acuity
to such effect; (ii) the receipt of a written legal opinion from Bingham, Dana &
Gould, counsel to Acuity, as to certain legal matters; (iii) RVSI shall have
received an opinion from each of Deloitte & Touche LLP and Arthur Andersen LLP,
dated the Closing Date, each stating that, as it relates to RVSI or Acuity,
respectively, the Merger will qualify as a "pooling of interests" transaction
under generally accepted accounting principles; (iv) the receipt by RVSI of
letters from affiliates of Acuity relating to the restrictions on the
transferability of the shares of RVSI Common Stock to be received in the Merger
pursuant to Rule 145 promulgated under the Securities Act; (v) RVSI shall have
received an opinion of JMS, or another nationally recognized investment banking
firm, dated as of the Closing Date, that the Exchange Ratio is fair, from a
financial point of view, to Parent's public stockholders; (vi) RVSI shall have
received an opinion of Parker Duryee Rosoff & Haft, counsel to RVSI, dated the
Effective Time, with respect to certain tax matters; and (vii) RVSI shall have
received a certificate of Acuity as to certain tax matters.
TERMINATION AND EXPENSE REIMBURSEMENT. The Merger Agreement may be
terminated at any time prior to the Closing Date: (i) by mutual consent of RVSI
and Acuity; (ii) unilaterally by either RVSI or Acuity upon the occurrence of a
Material Adverse Effect (as defined in the Merger Agreement, which specifically
excludes losses of up to $700,000 by Acuity in the first six months of 1995 and
a loss or projected loss of up to $500,000 by Acuity for the quarter ending
September 30, 1995) with respect to the other, the likelihood of which was not
previously disclosed prior to the date of the Merger Agreement (absent fraud or
gross negligence on the part of the party failing to make disclosure prior to
the date of the Merger Agreement, neither party shall have any liability to the
other for Transaction Expenses); (iii) unilaterally by RVSI: (a) if Acuity
materially breaches any material representation or warranty of Acuity set forth
in the Merger Agreement, (b) upon Acuity's willful failure to comply with or
satisfy any material covenant or condition of Acuity contained in the Merger
Agreement or (c) if Acuity's stockholders at the Acuity Special Meeting fail to
approve the Merger Transaction; (iv) unilaterally by Acuity: (a) if RVSI
materially breaches any material representation or warranty of RVSI set forth in
the Merger Agreement, (b) upon RVSI's willful failure to comply with or satisfy
any material covenant or condition of RVSI contained in the Merger Agreement or
(c) if RVSI's stockholders at the RVSI Annual Meeting fail to approve the Merger
Transaction; (v) unilaterally by either RVSI or Acuity upon notification to the
other that the notifying party elects not to proceed with the Merger Transaction
(other than by reason of a Material Adverse Effect or Breach (as defined in the
Merger Agreement) by the other or the notifying party's failure to obtain its
stockholders approval of the Merger Transaction), in which event the notifying
party shall promptly pay the other party $500,000 together with the other
party's Transaction Expenses (not in excess of $450,000); and (vi) by
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either RVSI or Acuity after September 30, 1995, if the Merger has not been
consummated on or before such date, whereupon, subject to certain provisions of
the Merger Agreement, neither party shall have any obligation to the other for
Transaction Expenses.
In the event of termination of the Merger Agreement by either RVSI or Acuity
as provided above, the Merger Agreement will become void and, except as set
forth above in the preceding paragraph, and under "-- Break-up Fees and Expense
Reimbursement" in the following paragraph, there will be no further obligation
on the part of either RVSI or Acuity or the Subsidiary.
BREAK-UP FEES AND EXPENSE REIMBURSEMENT. The Merger Agreement provides
that, upon the occurrence of certain events, Acuity will pay to RVSI a break-up
fee, and reimburse RVSI for certain transaction expenses. If (1) Acuity fails to
effect the Merger within 156 days of the date of the Merger Agreement (i.e.
September 30, 1995), other than as a result of a Notification from RVSI, an
Adverse Change of RVSI or a Breach by RVSI (each as defined in the Merger
Agreement), or any other condition set forth in the Merger Agreement required to
be satisfied by RVSI to effect the Merger set forth in Article VIII of the
Merger Agreement, and (2) a proposal for an Acquisition Transaction from other
than RVSI is accepted by the Board of Directors of Acuity or, if applicable, by
the holders of 51% or more of the outstanding Acuity Common Stock (irrespective
of whether or not such acceptance is then binding upon the initiator of the
Acquisition Transaction so long as it is ultimately so binding), in each case
prior to or within 90 days of the termination of the Merger Agreement, or if
earlier, 246 days after the date of the Merger Agreement (i.e. December 29,
1995), or if such a proposal is so accepted after the expiration of such 90 or
246-day period, but resulted from Acuity commencing to seek offers for an
Acquisition Transaction within 20 calendar days after the date of termination of
the Merger Agreement, then Acuity shall promptly (i) issue to RVSI a six-month
option, which shall be immediately exercisable, to acquire such number of shares
of Acuity Common Stock as shall equal 10% of the outstanding Acuity Common Stock
as of the date of such acceptance, after giving effect to the exercise of such
option, at an exercise price of $8.978 per share (subject to proportionate
adjustment in the event of any stock dividend, stock split, reverse stock split,
or other recapitalization or similar change with respect to Acuity Common Stock)
(the "Topping Option"), and (ii) giving credit to Acuity for any other payments
to RVSI made pursuant to the termination article of the Merger Agreement
(referred in the preceding paragraph) and/or this provision, pay RVSI the sum of
$500,000 (the "Break-up Fee"), together with up to $450,000 of the reasonable
outside legal, accounting and investment banking fees and disbursements and
printing expenses incurred in connection with the preparation, execution and
delivery of the Merger Agreement and the transactions contemplated thereby
(subject to such $450,000 maximum, "Transaction Expenses") by RVSI; provided,
however, that if the aggregate value of the accepted Acquisition Transaction
proposal does not exceed $30,000,000, then, in such event, the Break-up Fee
shall be $750,000 rather than $500,000. In the event a proposal for an
Acquisition Transaction is so accepted within such time periods by the holders
of 30% or more but less than 51% of the shares of Acuity Common Stock (the
"Tender Acceptance"), then, should RVSI elect not to proceed with the Merger,
giving credit for any other payments to RVSI made pursuant to the termination
article of the Merger Agreement and/or this provision, Acuity shall promptly pay
RVSI the Break-up Fee (but in no event more than $500,000) and RVSI's
Transaction Expenses; provided, however, that if within 12 months of the Tender
Acceptance, the person who initiated such Acquisition Transaction shall acquire
such additional number of shares of Acuity Common Stock as shall increase such
person's equity interest in Acuity to at least 51% or shall effectuate a
transaction which, directly or indirectly, will afford such person ownership or
control of all or substantially all of the assets or business of Acuity, then
Acuity shall promptly (i) issue to RVSI the Topping Option (the number of shares
covered by which shall be computed as of the date of the Tender Acceptance), and
(ii) if the aggregate value of all consideration paid by such person for all
assets and interests of and in Acuity acquired by it does not exceed
$30,000,000, pay to RVSI an additional $250,000 of Break-up Fee.
AMENDMENT AND WAIVER. At any time prior to the Effective Time, RVSI and
Acuity may (i) extend the time for the performance of any of the obligations or
other acts to be performed by the other party pursuant to the Merger Agreement,
(ii) waive any inaccuracies in the representations and
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warranties by the other party contained in the Merger Agreement or in any
document delivered pursuant to the Merger Agreement and (iii) waive compliance
with any of the agreements or conditions of the other party contained in the
Merger Agreement.
Subject to applicable law, the Merger Agreement may be amended by the
written agreement of RVSI and Acuity. Under applicable law, neither RVSI nor
Acuity may amend the Merger Agreement subsequent to obtaining approval of the
Acuity stockholders if such amendments would (i) alter or change the amount or
kind of shares, securities, cash, property and/or rights to be received in
exchange for shares of Acuity Common Stock, (ii) alter or change any term of the
certificate of incorporation of the surviving corporation to be affected by the
Merger or (iii) alter or change any of the terms or conditions of the Merger
Agreement if such alteration or change would adversely affect the Acuity
Stockholders.
CONFLICTS OF INTEREST
Upon effectiveness of the Merger, and assuming a favorable vote by a
majority of the RVSI Stockholders, both Donald J. Kramer and Ofer Gneezy, each
presently a director of Acuity, will become directors of RVSI. See "Management
of Acuity" for additional information regarding Messrs. Kramer and Gneezy. Also
see "Election of Directors."
EXPENSES
The Merger Agreement provides that, whether or not the Merger is
consummated, all expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses, except as set forth above under "-- Break-up Fees and Expense
Reimbursement" and "-- Termination and Expense Reimbursement." In no event,
shall either party be required to pay Transaction Expenses of the other party in
excess of $450,000.
ABSENCE OF REGULATORY FILINGS AND APPROVALS
The Merger is not subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, and the rules and regulations thereunder,
which provide that certain merger transactions may not be consummated until
required information and materials have been furnished to the Antitrust Division
of the Department of Justice and the Federal Trade Commission and certain
waiting periods have expired or been terminated.
RESTRICTIONS ON SALES BY AFFILIATES
The shares of RVSI Common Stock to be issued in the Merger are being
registered pursuant to the Registration Statement. Such shares will be freely
transferable under the Securities Act, except for shares issued to any person
who may be deemed to be an affiliate (as such term is defined for purposes of
Rule 145 under the Securities Act, an "Affiliate") of Acuity. Affiliates may not
sell their shares of RVSI Common Stock acquired in connection with the Merger
until after the results covering 30 days of post-merger combined operations of
RVSI and Acuity have been filed with the Commission, sent to stockholders of
RVSI or otherwise publicly disclosed ("Publication"), Acuity has agreed to use
its best efforts to procure written agreements ("Affiliate Agreements") from its
executive officers, directors and other Affiliates containing appropriate
representations and commitments intended to ensure compliance with these
requirements. It is a condition of RVSI's obligations to consummate the Merger
that RVSI shall have received such Affiliate Agreements from each Affiliate of
Acuity. RVSI has agreed to use its best efforts to procure Affiliate Agreements
from its executive officers, directors and other Affiliates containing
appropriate representations and commitments prohibiting their sale of shares of
RVSI Common Stock until Publication. It is a condition of Acuity's obligations
to consummate the Merger that Acuity shall have received such Affiliate
Agreements from each Affiliate of RVSI.
The Registration Statement of which this Proxy Statement/Prospectus forms a
part includes a resale prospectus which covers the resale by Affiliates of
Acuity of shares of RVSI Common Stock issued to such Affiliates pursuant to the
Merger.
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<PAGE>
ACCOUNTING TREATMENT
The Merger will be accounted for as a "pooling of interests" transaction in
accordance with generally accepted accounting principles. It is a condition of
RVSI's obligations to consummate the Merger that RVSI shall have received an
opinion from each of Deloitte & Touche LLP, independent public accountants for
RVSI, and Arthur Andersen LLP, independent certified public accountants for
Acuity, each stating that, as it relates to RVSI or Acuity, respectively, the
Merger will qualify as a "pooling of interests" transaction under generally
accepted accounting principles.
LISTING ON THE NASDAQ NATIONAL MARKET
RVSI has agreed to use its best efforts to list the shares of RVSI Common
Stock to be issued in the Merger on The Nasdaq National Market. The obligations
of the parties to the Merger Agreement to consummate the Merger are subject to
authorization for listing by The Nasdaq National Market upon notice of issuance
of such shares. See "-- The Merger Agreement -- Conditions to the Merger." If
the Merger is consummated, the Acuity Common Stock will be delisted from The
Nasdaq Small-Cap Market and will be deregistered under the Exchange Act.
APPRAISAL RIGHTS
Acuity Stockholders and RVSI Stockholders will not be entitled to appraisal
rights under the DGCL in connection with the Merger. See Exhibit B attached
hereto.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
It is a condition to the obligation of Acuity to consummate the Merger that
Acuity receive an opinion from Bingham, Dana & Gould, counsel for Acuity, to the
effect that (i) the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, (ii) no gain or
loss will be recognized by Acuity as a result of the Merger and (iii) no gain or
loss will be recognized by an Acuity Stockholder as a result of the Merger with
respect to shares of Acuity Common Stock exchanged solely for shares of RVSI
Common Stock. It is a condition to the obligation of RVSI to consummate the
Merger that RVSI receive an opinion from Parker Duryee Rosoff & Haft, counsel
for RVSI, to the effect that (i) the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, (ii) no gain or loss will be recognized by RVSI or Subsidiary as a result
of the Merger and (iii) no gain or loss will be recognized by an RVSI
Stockholder as a result of the Merger. In rendering their respective opinions,
each counsel will be entitled to rely upon certain representations of Acuity,
RVSI and Subsidiary. The effects for federal income tax purposes of any cash
received in the Merger in lieu of any fractional share of RVSI Common Stock and
of any RVSI Exchange Options received in exchange for Acuity's options are
referred to or discussed below.
Assuming due delivery of the foregoing opinions, Acuity and RVSI expect that
the Merger will qualify as a reorganization under the Code with the consequences
set forth above. Assuming that the Merger so qualifies, the federal tax basis of
the shares of RVSI Common Stock received by Acuity Stockholders in the Merger
will be the same, in each instance, as the adjusted tax basis of the Acuity
Common Stock surrendered in exchange therefor, excluding any basis allocable to
fractional shares of RVSI Common Stock for which cash is received. In addition,
the holding period of the shares of RVSI Common Stock received in the Merger by
Acuity Stockholders will include the period during which the shares of Acuity
Common Stock surrendered in exchange therefor were held, provided that such
shares of Acuity Common Stock were held as capital assets at the Effective Time.
Acuity Stockholders who receive cash in the Merger in lieu of fractional
shares of RVSI Common Stock will be treated, in each instance, as having
received the fractional share and then as having sold such fractional share for
the cash received. This sale will result in the recognition of gain or loss for
federal income tax purposes, measured by the difference between the amount of
cash received and the portion of the basis of the share of Acuity Common Stock
allocable to such fractional share. Such gain
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<PAGE>
or loss will be capital gain or loss, provided that such share of Acuity Common
Stock was held as a capital asset at the Effective Time, and will be long-term
capital gain or loss if such share of Acuity Common Stock has been held for more
than one year.
Should the Merger fail to qualify for any reason as a reorganization for
federal income tax purposes, no gain or loss would be recognized by Acuity, RVSI
or Subsidiary. However, in that event exchanges of Acuity Common Stock for
shares of RVSI Common Stock pursuant to the Merger would be taxable transactions
for federal income tax purposes. Each exchanging holder of Acuity Common Stock
would therefore recognize gain or loss for federal income tax purposes equal to
the difference between such holder's adjusted basis in the Acuity Common Stock
exchanged and the amount of cash (if any) plus the fair market value of RVSI
Common Stock received by such holder in the Merger. Such gain or loss would be
capital gain or loss if the shares of Acuity Common Stock were held as a capital
asset and would be long-term capital gain or loss if such shares had been held
for more than one year at the time of the consummation of the exchanges.
IN THE OPINION OF COUNSEL TO ACUITY AND RVSI, THE FOREGOING DISCUSSION
ACCURATELY SUMMARIZES THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER. HOWEVER, NO RULINGS HAVE BEEN OR WILL BE REQUESTED FROM THE INTERNAL
REVENUE SERVICE WITH RESPECT TO ANY OF THE MATTERS ADDRESSED HEREIN. MOREOVER,
THIS DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL
POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE IN FAVOR OF
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. THE DISCUSSION
DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR
ACUITY STOCKHOLDER SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX
LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS, NON-UNITED STATES PERSONS AND STOCKHOLDERS WHO ACQUIRED THEIR
SHARES OF ACUITY COMMON STOCK AS COMPENSATION, NOR ANY CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. THE DISCUSSION
ALSO DOES NOT ADDRESS TAX CONSEQUENCES TO HOLDERS OF OUTSTANDING ACUITY STOCK
OPTIONS (INCLUDING OPTIONS ISSUED UNDER ACUITY'S 1991 STOCK OPTION PLAN, AS
AMENDED). THE DISCUSSION IS BASED UPON THE CODE, TREASURY REGULATIONS THEREUNDER
AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE HEREOF. ALL OF THE
FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING
VALIDITY OF THIS DISCUSSION. ACUITY STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE FEDERAL AND ANY STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE MERGER TO THEM.
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ELECTION OF DIRECTORS
Nine directors are to be elected at the RVSI Special Meeting to serve for a
term of one year or until their respective successors are elected and qualified.
INFORMATION CONCERNING NOMINEES
The following table sets forth the positions and offices presently held with
RVSI by each nominee, his age, his tenure as a director and the number of shares
of RVSI Common Stock beneficially owned as of July 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE
SHARES PERCENTAGE
POSITIONS AND OFFICES DIRECTOR BENEFICIALLY OF
NAME AGE PRESENTLY HELD WITH THE RVSI SINCE OWNED (1) CLASS (1)
- --------------------- --- ------------------------------ -------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Pat V. Costa 51 Chairman of Board, President 1984 326,647(2) 2.4%
and Chief Executive Officer
Frank A. DiPietro 68 Director 1992 45,000(3) (10)
Donald F. Domnick 73 Director 1988 25,500(4) (10)
Jay M. Haft 59 Director 1977 516,546(5) 3.8%
Mark J. Lerner 42 Director 1994 100,411(6) (10)
Howard Stern 57 Senior Vice President and 1981 109,222(7) (10)
Director
Robert H. Walker 59 Executive Vice President, 1990 69,983(8) (10)
Secretary, Treasurer and
Director
Donald J. Kramer (9) 62 -- -- 0 (10)
Ofer Gneezy (9) 43 -- -- 0 (10)
<FN>
- ------------------------
(1) Includes shares issuable pursuant to currently exercisable options and
warrants as well as those options and warrants which will become
exercisable within 60 days of July 31, 1995. Except as otherwise indicated,
the persons named herein have sole voting and dispositive power with
respect to the shares beneficially owned.
(2) Includes (i) 295,326 shares issuable to Mr. Costa upon exercise of
outstanding options and (ii) 1,321 vested shares held under RVSI's Stock
Ownership Plan over which shares Mr. Costa has voting power, but does not
have dispositive control.
(3) Includes (i) 12,000 shares issuable to Mr. DiPietro upon exercise of
outstanding options and (ii) 28,000 shares owned of record by his spouse.
(4) Includes 12,000 shares issuable to Mr. Domnick upon exercise of outstanding
options.
(5) Includes (i) 52,000 shares issuable to Mr. Haft upon exercise of
outstanding options, (ii) 305,600 shares issuable upon exercise of
outstanding warrants, of which 286,100 are held by his spouse, (iii)
142,000 shares owned of record by his spouse and (iv) 7,666 shares held
indirectly in a retirement trust.
(6) Includes (i) 5,000 shares issuable to Mr. Lerner upon exercise of
outstanding options and (ii) 95,411 shares issuable to Morgen, Evan &
Company, Inc. of which Mr. Lerner is the principal owner, upon exercise of
outstanding warrants.
(7) Includes (i) 103,330 shares issuable to Mr. Stern upon exercise of
outstanding options and (ii) 5,892 vested shares held under RVSI's Stock
Ownership Plan over which shares Mr. Stern has voting power, but does not
have dispositive control.
(8) Includes (i) 64,636 shares issuable to Mr. Walker upon exercise of
outstanding options and (ii) 5,347 vested shares held under RVSI's Stock
Ownership Plan over which shares Mr. Walker has voting power, but does not
have dispositive control.
(9) To assume office only if the Merger is consummated and each of Mr. Kramer
and Mr. Gneezy is elected. Upon consummation of the Merger, Mr. Kramer will
beneficially own 4,946 shares of RVSI Common Stock and Mr. Gneezy will own
28,303 shares of RVSI Common Stock. See "The Proposed Merger -- Conflicts
of Interest."
(10) Less than one percent.
</TABLE>
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PAT V. COSTA has served as President, Chief Executive Officer and Chairman
of the Board of Directors of RVSI since July 1984. Prior thereto and from 1977,
Mr. Costa was employed by GCA Corporation, most recently in the capacity of
Executive Vice President. GCA is engaged in the manufacture of various
electronic instrumentation equipment and systems.
FRANK A. DIPIETRO began his career with General Motors Corporation ("GM") in
1944. During his forty-five year career with GM, he was actively involved in
automobile assembly and manufacturing engineering systems. He retired in 1990
and continues as a consultant in laser systems in several industries. At the
time of his retirement, Mr. DiPietro held the position of Director of
Manufacturing Engineering, Chevrolet-Pontiac-Canada Car Group, for GM.
DONALD F. DOMNICK served as Vice President of Caterpillar, Inc. from 1977
through 1985. Mr. Domnick, who has been retired since 1985, is a fellow of the
Society of Manufacturing Engineers, is a Director of Midstate College in Peoria,
Illinois and is on the Board of Advisors of St. Francis Medical Center.
JAY M. HAFT has been interim Chief Executive Officer of Noise Cancellation
Technologies Inc., a company engaged in the development of noise cancellation
technology and products ("NCT"), since November 1994. Since January 1994, Mr.
Haft has been of counsel to the law firms of Ruden, Barnett, McClosky, Smith,
Schuster & Russell, P.A. in Fort Lauderdale, Florida and Parker, Duryee, Rosoff
& Haft, RVSI's counsel, in New York, New York. Prior thereto, Mr. Haft was a
partner of Parker, Duryee, Rosoff & Haft from September 1991 through December
1994 and a partner in the New York law firm of Rivkin, Radler, Dunne and Bayh
from 1988 to August 1991. Mr. Haft currently serves as a member of the board of
driectors of NCT, Extech Inc., a hotel management company, CAS Medical Systems,
a medical devices company, Nova Technologies, Inc., a patient care equipment
company, Viragen, Inc., a proprietary drug company, and Oryx Technology
Corporation, a materials sciences company.
MARK J. LERNER has been President of Morgen, Evan & Company, Inc., an
investment banking firm which focuses on Japanese-U.S. transactions, since 1992.
Prior thereto and from 1990, he was a managing director at Chase Manhattan Bank
where he headed the Japan corporate finance group. From 1982 to 1990 Mr. Lerner
worked in the Investment Banking Division of Merrill Lynch as head of its Japan
Group, coordinating its New York-based Japanese activities with professionals in
Tokyo and London.
HOWARD STERN has been Senior Vice President and Technical Director of RVSI
since December 1984. Prior thereto and from 1981, he was Vice President of RVSI.
ROBERT H. WALKER is and has been Executive Vice President and
Secretary/Treasurer of RVSI since December 1986. Prior thereto and from December
1984 he was Senior Vice President of RVSI. From 1983 to 1985 he also served as
Treasurer. Mr. Walker is also a Director of Tel Instrument Electronics
Corporation, a publicly-owned company.
See pps. 71-72 for certain information as to Messrs. Kramer and Gneezy who
will only serve as Directors if the Merger is consummated and they are elected
as Directors.
As long as it is the beneficial owner of at least 5% of the outstanding
shares of RVSI Common Stock, GM has the right to designate a representative for
nomination to serve on the RVSI Board. GM has not yet designated such
representative for the current year.
INFORMATION CONCERNING THE BOARD
The RVSI Board held six meetings during the year ended September 30, 1994.
All then incumbent directors attended at least 75% of such meetings.
The Stock Option Committee of the RVSI Board reviews and implements
appropriate action with respect to all matters pertaining to stock options
granted under RVSI's 1991 Plan and 1987 Incentive Stock Option Plan (the "1987
Plan"). The Committee is presently composed of Messrs. Costa, Haft and Stern.
Such Committee met 15 times during fiscal 1994.
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<PAGE>
The Audit Committee of the RVSI Board is charged with the review of the
activities of RVSI's independent auditors, (including, but not limited to, fees,
services and scope of audit). The Audit Committee is presently composed of
Messrs. Costa, Haft and Domnick, of which Mr. Costa is an ex-officio, non-voting
member thereof. The Audit Committee met once during the period of performance of
the 1994 fiscal year end audit.
RVSI does not have a nominating committee, charged with the search for and
recommendation to the RVSI Board of potential nominees for Board positions, nor
does RVSI have a compensation committee, charged with reviewing and recommending
to the RVSI Board compensation programs for RVSI's officers. These functions are
performed by the RVSI Board as a whole.
REPORTING DELINQUENCIES
Section 16(a) of the Exchange Act requires RVSI's officers and directors,
and persons who own more than 10% of RVSI Common Stock, to file reports of
ownership and changes in ownership with the Commission. Officers, directors and
greater than 10% stockholders are required by the Commission's regulations to
furnish RVSI with copies of all Section 16(a) forms 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, RVSI believes that during the fiscal year ended
September 30, 1994, all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with except that
Mr. DiPietro was not timely in his filing of one monthly report of one
transaction.
PROPOSAL TO APPROVE RVSI
AMENDED AND RESTATED 1991 STOCK OPTION PLAN
BACKGROUND
RVSI's 1991 Stock Option Plan was adopted by the RVSI Board and a majority
in interest of the RVSI Stockholders on December 12, 1991 and March 26, 1992,
respectively. On April 26, 1995, the RVSI Board approved, subject to the
approval of the RVSI Stockholders, the RVSI Amended and Restated 1991 Stock
Option Plan (as amended and restated, the "1991 Option Plan"). The primary
purposes of adopting the 1991 Option Plan was to increase the number of shares
of RVSI Common Stock available for grant thereunder from 1,425,000 shares to
2,200,000 shares, and, if the Alternative Administration referred to on the
following page is elected by the RVSI Board, to establish a mechanism to afford
RVSI the ability subsequent to the Merger to award formula grants of options to
certain non-employee directors, thereby permitting the recipients of any such
grants to serve as "disinterested" administrators of the 1991 Option Plan for
the purposes of Rule 16b-3, promulgated under the Exchange Act, and to also
provide that certain transactions relating to the 1991 Option Plan by executive
officers and directors of RVSI subsequent to the Merger may be exempt from
Section 16(b) of the Exchange Act. See "Limitation of Section 16(b) Liability
Upon Approval of the 1991 Option Plan."
The 1991 Option Plan is intended to recognize the contributions made to RVSI
or its subsidiaries by employees and directors of, and certain consultants and
advisors to, RVSI or its subsidiaries, to provide such persons with additional
incentive to devote themselves to the future success of RVSI and its
subsidiaries, and to improve the ability of RVSI or its subsidiaries to attract,
retain and motivate individuals upon whom the sustained growth and financial
success of RVSI and its subsidiaries depend, by providing such persons with an
opportunity to acquire or increase their proprietary interest in RVSI through
receipt of options to acquire RVSI Common Stock. Options granted under the 1991
Option Plan to employees may be designated as "incentive stock options" ("ISOs")
within the meaning of Section 422 of the Code, or may be designated as options
not intended to be ISOs ("non-qualified stock options"). Options granted to
directors who are not employees of RVSI or its subsidiaries and to consultants
and advisors will be non-qualified stock options.
34
<PAGE>
The 1991 Option Plan will amend and restate in its entirety RVSI's 1991
Stock Option Plan. At March 31, 1995, options to acquire an aggregate of
1,279,082 shares of RVSI Common Stock were issued and outstanding under the 1991
Option Plan, held by 107 persons, at exercise prices ranging from $.75 to $7.56
per share (including options covering an aggregate of 899,623 shares, held by 12
present or former executive officers and directors). With the exception of those
Acuity Options which are to be converted at the Effective Time into options
under the 1991 Option Plan to acquire an aggregate of 157,524 shares of RVSI
Common Stock, no post-Merger grants are presently contemplated with any degree
of specificity as to individual recipients.
KEY PROVISIONS
The following summary of the provisions of the 1991 Option Plan is qualified
in its entirety by express reference to the text of the 1991 Option Plan
attached as Exhibit E hereto:
- NUMBER OF SHARES. The aggregate maximum number of shares for which
options may be granted under the 1991 Option Plan will be 2,200,000 shares of
RVSI Common Stock if the amendment and restatement is approved, subject to
adjustment upon the occurrence of a stock dividend, stock split,
recapitalization or certain other capital adjustments.
- ADMINISTRATION. The 1991 Option Plan will be administered by a committee
composed of two or more directors. The RVSI Board in its sole discretion may
elect ("Alternative Administration") to have the 1991 Plan administered by
either (i) providing that the committee be composed of directors who are not
eligible to receive options under the Plan or (ii) designating two committees to
operate and administer the Plan, one of such committees composed of two or more
directors who are not eligible to receive options under the Plan to operate and
administer the Plan with respect to each person who is a "Principal Officer,"
and the other such committee composed of two or more directors to operate and
administer the Plan with respect to each person other than a "Principal
Officer." Any of such committees administering the 1991 Option Plan is referred
to herein as the "Committee." Among other things, the Committee determines the
persons to whom, the times at which and the price at which options will be
granted, the vesting period, the number of shares subject to the option and
whether the option is an ISO or a non-qualified stock option.
- ELIGIBILITY. All employees, directors, consultants and advisors of RVSI
and its subsidiaries are eligible to receive options under the 1991 Option Plan.
At June 30, 1995, there were approximately 156 employees (including six
executive officers) eligible to participate in the 1991 Option Plan; in
addition, ten non-employee directors and consultants are also eligible
participants. Upon consummation of the Merger, approximately 115 additional
persons are expected to be eligible to participate in the 1991 Option Plan.
- TERM OF 1991 OPTION PLAN. No option may be granted under the 1991 Option
Plan after December 11, 2001.
- TERM OF OPTIONS. All options terminate on the earliest of: (a) the
expiration of the term specified in the option document, which may not exceed
ten years from the date of grant; (b) the expiration of three months from the
date an option holder's employment or service with RVSI or its subsidiaries
terminates for any reason other than disability, death or as set forth in clause
(d) below); (c) the expiration of one year from the date an option holder's
employment or service with RVSI or its subsidiaries terminates by reason of such
option holder's disability or death; or (d) the date upon which a determination
is made by the Committee that the option holder has breached his employment or
service contract with RVSI or its subsidiaries, has been engaged in disloyalty
to RVSI or its subsidiaries including, without limitations, fraud, embezzlement,
theft, commission of a felony or proven dishonesty or has disclosed trade
secrets or confidential information of RVSI or its subsidiaries. The Committee,
in its discretion, may provide for additional limitations on the term of any
option.
35
<PAGE>
- OPTION PRICE. The option price for non-qualified options may be less
than, equal to or greater than the fair market value of the shares subject to
the option on the date that the option is granted, and for ISOs will be at least
100% of the fair market value of the shares subject to the option on the date
that the option is granted.
- CERTAIN RULES FOR CERTAIN STOCKHOLDERS. If an ISO is granted to an
employee who then owns, directly or by attribution under the Code, shares
possessing more than 10% of the total combined voting power of all classes of
shares of RVSI capital stock, the term of the option may not exceed five years
and the option price must be at least 110% of the fair market value of the
shares on the date that the option is granted.
- PAYMENT. An option holder may pay for shares covered by an option in
cash or by certified or cashier's check payable to the order of RVSI, by payment
through a broker in accordance with Regulation T of the Federal Reserve Board or
by such other mode of payment as the Committee may approve, including payment in
whole or in part in shares of RVSI Common Stock, based on the fair market value
of such Common Stock at the time of payment.
- OPTION DOCUMENT; RESTRICTION ON TRANSFERABILITY. All options will be
evidenced by a written option document containing provisions consistent with the
1991 Option Plan and such other provisions as the Committee deems appropriate.
No option granted under the 1991 Option Plan may be transferred, except by will,
the laws of descent and distribution or pursuant to a qualified domestic
relations order, as defined by the Code or in Title I of ERISA.
- AMENDMENTS TO THE OPTION DOCUMENT AND THE 1991 OPTION PLAN. Subject to
the provisions of the 1991 Option Plan, the Committee may amend an option
document, subject to the option holder's consent if the amendment is not
favorable to the option holder or is not being made pursuant to provisions of
the 1991 Option Plan relating to acceleration of the expiration date in the
event of liquidation or dissolution of RVSI. The RVSI Board may amend the 1991
Option Plan from time to time in such manner as it may deem advisable.
Nevertheless, the RVSI Board may not, without obtaining stockholder approval
within twelve months before or after such action, change the class of
individuals eligible to receive an ISO or increase the maximum number of shares
as to which options may be granted.
- TAX ASPECTS OF THE 1991 OPTION PLAN. The following discussion is
intended to briefly summarize the general principles of federal income tax law
applicable to options granted under the 1991 Option Plan. A recipient of an ISO
will not recognize taxable income upon either the grant or exercise of an ISO.
The option holder will recognize long-term capital gain or loss on a disposition
of the shares acquired upon exercise of an ISO, provided the option holder does
not dispose of those shares within two years from the date the ISO was granted
or within one year after the shares were transferred to such option holder.
Currently, for regular federal income tax purposes, long-term capital gain is
taxed at a maximum rate of 28%, while ordinary income may be subject to an
effective maximum rate of 39.6%. If the option holder satisfies both of the
foregoing holding periods, then RVSI will not be allowed a deduction by reason
of the grant or exercise of an ISO.
As a general rule, if the option holder disposes of the shares before
satisfying both holding period requirements (a "disqualifying disposition"), the
gain recognized by the option holder on the disqualifying disposition will be
taxed as ordinary income to the extent of the difference between (i) the lesser
of the fair market value of the shares on the date of exercise or the amount
received for the shares in the disqualifying disposition, and (ii) the adjusted
basis of the shares, and RVSI will be entitled to a deduction in that amount.
The gain (if any) in excess of the amount recognized as ordinary income on a
disqualifying disposition will be long-term or short-term capital gain,
depending on the length of time the option holder held the shares prior to the
disposition.
The amount by which the fair market value of a share at the time of exercise
exceeds the option price will be included in the computation of such option
holder's "alternative minimum taxable
36
<PAGE>
income" in the year the option holder exercises the ISO. Currently, the maximum
alternative minimum tax rate for individuals is 28%. If an option holder pays
alternative minimum tax with respect to the exercise of an ISO, then the amount
of such tax paid will be allowed as a credit against regular tax liability in
subsequent years. The option holder's basis in the shares for purposes of the
alternative minimum tax will be adjusted when income is included in alternative
minimum taxable income.
A recipient of a non-qualified stock option will not recognize taxable
income at the time of grant, and RVSI will not be allowed a deduction by reason
of the grant. Such an option holder will recognize ordinary income in the
taxable year in which the option holder exercises the non-qualified stock
option, in an amount equal to the excess of the fair market value of the shares
received upon exercise, at the time of exercise of such options, over the
exercise price of the option, and RVSI will be allowed a deduction in that
amount. Upon disposition of the shares subject to the option, an option holder
will recognize long-term or short-term capital gain or loss, depending upon the
length of time the shares were held prior to disposition, equal to the
difference between the amount realized on disposition and the option holder's
basis in a share subject to the option (which basis ordinarily is the fair
market value of the shares subject to the option on the date the option was
exercised).
RECOMMENDATION AND VOTE
The affirmative vote of the holders of a majority of the shares of RVSI
Common Stock present in person or by proxy at the RVSI Special Meeting is
required to adopt the 1991 Option Plan. The RVSI Board unanimously recommends a
vote FOR this proposal.
LIMITATION OF SECTION 16(B) LIABILITY
UPON APPROVAL OF THE 1991 OPTION PLAN
Section 16(b) of the Exchange Act provides, among other things, that any
profit (a "Short-swing Profit Liability") realized from the purchase and sale or
sale and purchase of any class of equity security registered under the Exchange
Act, within any period of less than six months, by an officer or director, or
any person who owns, directly or indirectly, in excess of 10% of such class of
equity security (a "10% Stockholder") is recoverable by the issuer of such
equity security. Absent an appropriate exemption under the Exchange Act, a grant
of an option under the 1991 Option Plan to a director, officer, or 10%
stockholder would be deemed to be a purchase of the underlying RVSI Common Stock
which may be matched with a sale of RVSI Common Stock within the six months
before or after such grant and may result in Short-swing Profit Liability. Rule
16b-3, promulgated under the Exchange Act, provides relief from Short-swing
Profit Liability in connection with the grant of options when certain conditions
are met.
The availability of the provisions of Rule 16b-3 is predicated, among other
things, upon the mandatory administration of the 1991 Option Plan with respect
to matters involving directors and executive officers of RVSI by a committee
consisting of at least two members, all of whom must be "disinterested" as
defined under Rule 16b-3. Such Rule further provides that formula grants of
options may be used in tandem with disinterested administration. Stockholder
approval pursuant to a solicitation conducted in accordance with the provisions
of Section 14 of the Exchange Act is also a pre-condition to the availability of
the exemption from Short-swing Profit Liability. If the 1991 Option Plan is
approved by the RVSI Stockholders and, if Alternative Administration is elected
by the RVSI Board, the grant of options thereunder will be exempt from
Short-swing Profit Liability to the extent provided under Rule 16b-3. In the
event such approval is not secured, RVSI's officers, directors and 10%
Stockholders who receive option grants under the 1991 Option Plan will not be
able to avail themselves of the exemption from Short-swing Profit Liability
otherwise permitted pursuant to Rule 16b-3.
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<PAGE>
PROPOSAL TO AMEND RVSI'S CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED CAPITALIZATION
The RVSI Board has approved an amendment to the RVSI Certificate of
Incorporation to increase the number of shares of RVSI Common Stock which RVSI
shall be authorized to issue from 20,000,000 to 30,000,000. The RVSI Board
believes such action to be in the best interest of RVSI so as to make additional
shares available for future employee benefit programs, possible acquisitions and
financings and other corporate purposes. The additional shares of RVSI Common
Stock may be issued from time to time as the RVSI Board may determine without
further action by the RVSI Stockholders. With the exception of the issuance of
RVSI Common Stock upon the consummation of the Merger and upon the exercise of
options granted pursuant to RVSI's 1982 Stock Option Plan, options granted and
to be granted pursuant to RVSI's 1987 Stock Option Plan and 1991 Option Plan
(collectively, the "Stock Option Plans") and options to be granted pursuant to
the Merger Agreement in exchange for Acuity Options, the issuance of any other
additional shares of RVSI Common Stock authorized by the proposed amendment is
not presently contemplated. Except for the Merger Agreement, RVSI does not
currently have any agreements, arrangements or understandings with respect to
any acquisition, financing, stock split or dividend.
RVSI Stockholders do not currently possess, nor upon the adoption of the
proposed amendment will they acquire, preemptive rights which would entitle such
persons, as a matter of right, to subscribe for the purchase of any securities
of RVSI.
The affirmative vote of a majority of all of the outstanding shares of RVSI
Common Stock is required for approval of this proposal. The RVSI Board
unanimously recommends a vote FOR this proposal.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board has selected Deloitte & Touche LLP to audit RVSI's accounts for
the fiscal year ending September 30, 1995. Such firm, which has served as RVSI's
independent auditor since 1986, has reported to RVSI that none of its members
has any direct financial interest or material indirect financial interest in the
Company.
Unless instructed to the contrary, the persons named in the enclosed proxy
intend to vote the same in favor of the ratification of Deloitte & Touche LLP as
RVSI's independent auditors.
A representative of Deloitte & Touche LLP is expected to attend the meeting
and will be afforded the opportunity to make a statement and/or respond to
appropriate questions from stockholders.
38
<PAGE>
COMPARATIVE PER SHARE PRICES AND DIVIDENDS
OF RVSI COMMON STOCK AND ACUITY COMMON STOCK
RVSI Common Stock is quoted on The Nasdaq National Market. Acuity Common
Stock is quoted on The Nasdaq Small-Cap Market. The following table sets forth,
for the calendar periods indicated, the high and low bid prices of RVSI Common
Stock and Acuity Common Stock, as reported by National Quotation Bureau
Incorporated. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
RVSI COMMON STOCK(1) ACUITY COMMON
STOCK (2)(3)
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1992:
Fourth Quarter (ended December 31).................. $ 1.44 $ .75 $ 5.60 $ 3.00
1993:
First Quarter....................................... 3.03 1.25 3.60 3.00
Second Quarter...................................... 2.88 1.88 3.40 2.60
Third Quarter....................................... 4.63 2.00 8.80 2.60
Fourth Quarter...................................... 5.63 3.50 8.80 5.00
1994:
First Quarter....................................... 7.13 4.63 11.25 5.64
Second Quarter...................................... 6.75 4.75 10.00 6.50
Third Quarter....................................... 6.25 4.38 7.75 5.75
Fourth Quarter...................................... 8.13 5.50 9.25 7.00
1995:
First Quarter....................................... 7.63 5.50 10.50 6.75
Second Quarter...................................... 15.25 6.63 13.13 7.25
Third Quarter (through August 4).................... 17.88 12.55 11.75 7.75
<FN>
- ------------------------
(1) Quotations for RVSI Common Stock commenced on The Nasdaq National Market on
January 5, 1994. The bid prices shown prior to such date represent
quotations on The Nasdaq Small-Cap Market.
(2) Acuity share prices have been adjusted to reflect a 1 for 20 reverse stock
split which was effectuated on January 26, 1994.
(3) Quotations for Acuity Common Stock commenced on The Nasdaq Small-Cap Market
on May 17, 1994. The bid prices shown prior to such date represent
quotations on the OTC Bulletin Board.
</TABLE>
On January 31, 1995 (the last trading day prior to the public announcement
that RVSI and Acuity had entered into a letter of intent), the closing bid
prices of RVSI Common Stock and Acuity Common Stock were $6.75 and $8.25,
respectively. On April 21, 1995 (the last trading day prior to the public
announcement that RVSI and Acuity had agreed to change the Exchange Ratio set
forth in the Letter of Intent), the closing bid prices of RVSI Common Stock and
Acuity Common Stock were $8.38 and $8.38, respectively. On April 26, 1995 (the
last trading day prior to the public announcement that RVSI and Acuity had
entered into the Merger Agreement), the closing bid prices of RVSI Common Stock
and Acuity Common Stock were $8.88 and $8.06, respectively. On July 11, 1995
(the last trading day prior to the public announcement that RVSI and Acuity had
agreed to change the Exchange Ratio to its current value), the closing bid
prices of RVSI Common Stock and Acuity Common Stock were $13.75 and $10.125,
respectively. Stockholders are urged to obtain current market quotations.
39
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF ACUITY
The following selected historical data of Acuity should be read in
conjunction with the historical financial statements of Acuity and the notes
thereto appearing elsewhere in the Proxy Statement/ Prospectus. The selected
financial data of Acuity as of December 31, 1994, 1993 and 1992 and for the
years then ended have been derived from the financial statements of Acuity,
which have been audited by Arthur Andersen LLP, independent public accountants.
The selected financial data of Acuity as of December 31, 1991 and 1990 and for
the years then ended have been derived from unaudited statements.
STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------- YEAR ENDED DECEMBER 31,
APRIL 1 APRIL 2 -----------------------------------------------------
1995 (A) 1994 (A) 1994 1993 1992 1991 (A) 1990 (A)
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 4,895 $ 5,189 $ 22,168 $ 18,734 $ 16,610 $ 15,230 $ 14,038
Income (Loss) from Continuing
Operations Before Income Taxes...... $ (141) $ 454 $ 1,416 $ 67 $ 499 $ 642 $ 67
Provision for Income Taxes........... -- $ 44 $ 110 $ 97 $ 48 $ 37 --
Income (Loss) from Continuing
Operations.......................... $ (141) $ 410 $ 1,306 $ (30) $ 451 $ 605 $ 67
Income (Loss) from Discontinued
Operations(b)....................... -- -- -- -- $ 1,214 $ (333) $ (1,188)
Income (Loss) before Extraordinary
Item................................ $ (141) $ 410 $ 1,306 $ (30) $ 1,665 $ 272 $ (1,121)
Extraordinary Item(c)................ -- -- -- -- $ 46 -- --
Net Income (Loss).................... $ (141) $ 410 $ 1,306 $ (30) $ 1,711 $ 272 $ (1,121)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) Per Share from
Continuing Operations.............. $ (0.06) $ 0.16 $ 0.51 $ (0.01) $ 0.19 $ 0.25 $ 0.03
Discontinued Operations............ -- -- -- -- $ 0.51 $ (0.14) $ (0.50)
Extraordinary Item(c).............. -- -- -- -- $ 0.02 -- --
Net Income (Loss) Per Share.......... $ (0.06) $ 0.16 $ 0.51 $ (0.01) $ 0.72 $ 0.11 $ (0.47)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted Average Number of Common
Shares and Equivalents.............. 2,417 2,579 2,569 2,380 2,383 2,383 2,383
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<FN>
- ------------------------
(a) Derived from unaudited data.
(b) Discontinued operations related to SuperCads, Inc., which was sold on July
15, 1992. See Note 3 of Notes to Financial Statements of Acuity.
(c) Extraordinary item represents a gain of $46 (net of income taxes of $3) for
extinguishment of debt in 1992.
</TABLE>
BALANCE SHEET DATA (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
APRIL 1, -----------------------------------------------------
1995 (A) 1994 1993 1992 1991 (A) 1990 (A)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Assets....................................... $ 6,470 $ 6,720 $ 7,622 $ 6,409 $ 5,855 $ 6,043
Current Liabilities................................ $ 4,166 $ 3,357 $ 6,597 $ 2,326 $ 1,934 $ 2,822
Total Liabilities.................................. $ 4,166 $ 4,372 $ 6,597 $ 5,351 $ 6,357 $ 6,663
Stockholders' Equity (Deficiency).................. $ 2,304 $ 2,348 $ 1,025 $ 1,058 $ (502) $ (620)
Working Capital.................................... $ 1,296 $ 2,470 $ 353 $ 3,467 $ 3,269 $ 2,463
<FN>
- ------------------------
(a) Derived from unaudited financial statements.
</TABLE>
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Acuity" and Notes to Consolidated
Financial Statements of Acuity.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ACUITY
On January 26, 1994 Itran Corp. ("Itran"), a privately held corporation, was
merged with and into Acuity. In connection with such merger, Acuity effected a 1
for 20 reverse stock split. Such merger has been accounted for as a pooling of
interests; accordingly, Acuity has restated its historical consolidated
financial statements and financial information to reflect the combined financial
condition and results of operations of Acuity and Itran. See Note 2 to Acuity's
Consolidated Financial Statements.
RESULTS OF OPERATIONS
RECENT LOSSES
Acuity estimates it has incurred a loss of approximately $500,000 on
revenues of approximately $4,100,000 in its second quarter ended July 1, 1995.
For the six months ended July 1, 1995, Acuity estimates that it incurred a loss
of $640,000 on revenues of $9,000,000. This compares with earnings of $669,000
on revenues of $10,575,000 for the six months ended July 2, 1994.
Acuity's estimated losses in the second quarter ended July 1, 1995 and the
six months then ended were primarily the result of Acuity's lack of securing any
one or two customers which have traditionally accounted for a significant
percentage of Acuity's revenues. In addition, the estimated losses were also
attributable to an increased percentage of total revenues generated through
Acuity's distribution network, which purchase Acuity's products at a discount
from its standard list prices. To a lesser extent, Acuity's estimated losses
were also attributable to a somewhat changing product line, which included
certain newly introduced products that did not achieve their projected sales
level and products with a slightly lower gross margin.
Acuity believes that the trends that resulted in its estimated losses could
continue for the foreseeable future. Acuity's future profitability will be
dependent upon its ability to effectively market and manufacture its products,
to develop new products to meet changing customer demands and to expand its
market share through a more diversified customer base.
THIRTEEN WEEKS ENDED APRIL 1, 1995 AND APRIL 2, 1994
Total revenues decreased approximately 6% in the first quarter of 1995 as
compared to the first quarter of 1994. The decrease consisted of a 12% decrease
in the core business of machine vision systems and software revenues partially
offset by an 8% increase in Customer Service revenues combined with a 77%
increase in Engineering Service revenues. The decrease in total revenues was
primarily a result of Acuity's lack of securing any one or two customers which
have traditionally accounted for a significant percentage of Acuity's revenues,
combined with a somewhat changing product line which included certain newly
introduced products which did not achieve their projected sales level during the
quarter. In addition, the decrease in total revenues was also a result of
increased sales through Acuity's distribution network, as a percentage of total
revenues, to which Acuity sells at a percentage off of its standard list prices.
Revenues by product line are summarized in the following table:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------------------------
APRIL 1, 1995 APRIL 2, 1994
---------------------- ----------------------
$ % $ %
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Vision Systems and Software............................ 3,915 80 4,452 86
Customer Service and Training.......................... 501 10 466 9
Engineering Services................................... 479 10 271 5
--------- --- --------- ---
Total.............................................. $ 4,895 100% $ 5,189 100%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
Vision Systems and Software include vision product and application
engineering revenues. Customer Service and Training represents revenues from the
sale of spare parts, training and maintenance agreements. Engineering Services
include both vision and robotic software development contracts, robotic hardware
sales, and U.S. government sponsored SBIR (Small Business Innovation Research)
revenues.
41
<PAGE>
Vision systems designed for the general purpose market comprise the largest
portion of Acuity's revenues. In the first quarter of 1995 and also in the first
quarter of 1994 general purpose vision revenues accounted for 62% of total
Acuity revenues for each of such quarters. In 1994 general purpose vision
revenues represented 69% of total Acuity revenues. Acuity believes that this
market will be its fastest growing market although quarterly fluctuations are
possible. Fluctuations in revenues from vision systems and software for the
general purpose market were, and are expected to continue to be, primarily due
to fluctuations in sales volume and to a lesser extent to price fluctuations
caused by competitive pricing pressures. Acuity's products for the general
purpose market include the PV60-Registered Trademark-
(Powervision60-Registered Trademark-), PV90-Registered Trademark-(Powervision
90-Registered Trademark-), AV100-Registered Trademark- (Autovision
100-Registered Trademark-), IVS-Registered Trademark- (Intelligent Visual
Sensors), the MVP-Registered Trademark- (Modular Vision Processor) and the newly
introduced Mentorvision-TM-.
Vision systems designed for niche (application specific) markets accounted
for 18% of total Acuity revenues in the first quarter of 1995 as compared to 24%
in the first quarter of 1994. In 1994 such revenues represented 17% of total
Acuity revenues. Acuity believes that this market will continue to be an
important part of its business but its growth is not expected to keep pace with
the anticipated growth in the general purpose market, although quarterly
fluctuations are possible. Fluctuations in revenues, from vision systems for the
niche market were, and are expected to continue to be, primarily due to
fluctuations in sales volume and to a lesser extent to price fluctuations caused
by competitive pricing pressures. Acuity's products for the niche markets
include the I-Pak-Registered Trademark-, a pharmaceutical label inspection
product; DMR (Data Matrix Reader-TM-), a reader of matrix-coded information;
ICIS-TM- (Integrated Circuit Inspection System), primarily a semiconductor
package inspection product; BP-100-TM- (Blister Pak Inspection System), and
CLS-500-TM-.
Customer Service revenue including spare parts, training and maintenance
agreements increased 8% in the first quarter of 1995 as compared to the first
quarter of 1994 while it accounted for 10% of total Acuity revenues in the 1995
period as compared to 9% in the 1994 period. While the newer generation machine
vision product lines require much less repair, maintenance and general customer
support than the previous models, revenues from other types of services,
including maintenance contracts, training and field support, are expected to
offset the decline in the demand for the spare parts of the older product lines.
Engineering Service revenue increased 77% and accounted for 10% of total
revenues in the 1995 quarterly period as compared to 5% of total revenues in the
1994 quarterly period. The increase in revenues was primarily a result of
increased billings of vision related Engineering Service contracts under the
U.S. Government sponsored SBIR program. This included billings on both ongoing
and newly obtained contracts. These increases were partially offset by declining
revenues from sales of robotic hardware and from robotic software development
contracts. Acuity plans to continue work on its several SBIR contracts and to
bid on new SBIR contracts in the future.
Historically, Acuity has had one or two customers which have accounted for a
significant percentage of its total revenues for a given year. In 1994 Brown &
Williamson was Acuity's largest customer, accounting for 16% of total revenues.
These revenues were a result of a $3.6 million contract completed in December
1994. In 1993 Acuity's largest customer, Motorola, accounted for 12% of Acuity's
total revenues. As of the end of the first quarter of 1995, Acuity did not have
any order or contract in its backlog that would compare with the size of the
Brown & Williamson contract which was booked in March 1994 and which accounted
for a significant part of Acuity's total 1994 revenues. There can be no
assurance that Acuity will be able to secure and complete a similar contract in
the future. Acuity recognizes the potential effects of reliance upon a few
significant customers and therefore continues to attempt to expand its market
share through a diversified customer base.
International revenues (non-North American) increased approximately 70% in
the first quarter of 1995 from the comparable quarter in 1994. The increase was
a result of a 78% increase in European revenues combined with a 50% increase in
Asian revenues. The increase in international revenues was a result of what
Acuity believes were slightly improved economic conditions in Europe and Asia
with regard to Acuity's products while Acuity believes that the 22% decrease in
North American revenues was primarily a result of Acuity's lack of securing any
one or two North American customers which
42
<PAGE>
traditionally account for a significant percentage of Acuity's revenues. Sales
to all foreign countries were made in United States dollars with the exception
of the United Kingdom in which sales are denominated in Pound Sterling and are
transacted by Acuity's wholly-owned subsidiary located in the United Kingdom.
Acuity believes that a weak U.S. dollar may have contributed to the increase in
foreign revenues in the periods presented and that any future strengthening of
the U.S. dollar may negatively impact the growth of foreign revenues. Acuity
believes that its foreign exchange exposure from its U.K. subsidiary is not
significant because revenues and a majority of the costs incurred are
denominated in Pound Sterling.
The following table summarizes total revenues by geographic region:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------------------------
APRIL 1, 1995 APRIL 2, 1994
---------------------- ----------------------
$ % $ %
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
North America.......................................... 3,347 68 4,279 83
Europe................................................. 1,151 24 646 12
Asia................................................... 397 8 264 5
--------- --- --------- ---
Total.............................................. $ 4,895 100% $ 5,189 100%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
Total costs and expenses, as a percentage of revenue, increased to
approximately 103% of revenue in the first quarter of 1995 from approximately
90% of revenue in the first quarter of 1994. As a percentage of revenue, the
increase in total costs and expenses consisted of an approximate 3 percentage
point increase in the cost of goods sold and an approximate 10 percentage point
increase in other costs and expenses. In the first quarter of 1995 other costs
and expenses included costs associated with Acuity's reduction in force which
occurred at the end of the first quarter. The December 31, 1994 headcount was
117 full-time employees. After the personnel reduction, which consisted of 6
full-time employees and 4 sub-contractors, headcount totaled 113 at the end of
the first quarter of 1995 as compared to 112 at the end of the first quarter of
1994.
Cost of goods sold, as a percentage of revenue, increased approximately 3
percentage points to approximately 43% in the first quarter of 1995 from
approximately 40% in the first quarter of 1994. The increase was primarily
attributable to a product mix change to lower gross margin products in the 1995
period. In addition, increased sales through distribution, as a percentage of
total revenues, and somewhat higher manufacturing labor costs in 1995 also
contributed to the increased cost of goods sold. Future gross margins will be
impacted by the product mix of future revenues, the overall level of revenues
and the level of revenues generated through Acuity's distribution network which
Acuity is attempting to increase. Because a significant percentage of Acuity's
quarterly revenues are for products booked and shipped in the same quarter, it
is difficult for Acuity to accurately predict the flow and product mix of
shipments. Acuity believes that its margins may slightly further decrease due to
an increased percentage of sales of lower gross margin products, pricing
pressures, and an increased percentage of sales through distribution. This trend
continued throughout the second quarter of 1995 and Acuity believes that it may
continue for the foreseeable future. Acuity continues to monitor and react to
market events and developments in an attempt to improve its gross margin levels.
However, Acuity's future profitability will be dependent upon Acuity's ability
to effectively market and manufacture its products, to develop new products to
changing customer demands and to expand its market share through a more
diversified customer base.
Research and development expenses increased 16% in the thirteen weeks ended
April 1, 1995 as compared to the similar period of 1994. The expense increase
reflects a higher average R&D headcount in 1995 which increased salary, travel,
and employee development expenses. Acuity expects to expend additional resources
in the future to improve and expand its product lines and to respond to its
customers' needs.
Marketing and selling expenses increased approximately 18% in the first
quarter of 1995 as compared to the comparable quarter in 1994. The increase was
partially attributable to increased trade show, advertising, salary and travel
expenses. Other expenses also increased as a result of the
43
<PAGE>
higher average headcount in the 1995 period. The decrease in revenues in the
1995 quarter as compared to the 1994 quarter produced a corresponding decrease
in commission expense which partially offset the other expense increases. As
Acuity attempts to expand its marketing and sales programs, in an effort to
increase its market share and subsequently its revenues, additional expenditures
in marketing and sales are planned.
General and administrative expenses decreased 10% in the 1995 quarter as
compared to the 1994 quarter. The decrease was primarily attributable to a lower
average headcount which decreased salary and other employee related expenses.
Additional resources will be invested in the general and administrative areas as
required by the future growth of Acuity.
Net interest expense decreased 73% in the first quarter of 1995 as compared
to the first quarter of 1994. This was primarily a result of the retirement of
Acuity's 10% subordinated notes (See Note 8 to Acuity's Consolidated Financial
Statements). Given current market interest rates and Acuity's intention to
reduce its outstanding borrowings under its bank line of credit whenever
possible, Acuity believes that its net interest expense in 1995 should decline
from its 1994 level.
A provision for income taxes was not made in the 1995 period since Acuity
had an operating loss. The first quarter of 1994 tax rate of approximately 10%
reflects federal and state taxes, and the use of tax loss and tax credit
carryovers. The 10% rate is the approximate rate estimated for Acuity during
1995. Acuity has significant tax loss and tax credit carryovers both in the
United States and the United Kingdom, but these have certain limitations on
their use. See Note 11 to Acuity's Consolidated Financial Statements.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Total revenues increased approximately 18% in 1994 as compared to 1993. The
increase was primarily a result of increased vision revenues which included a
$3.6 million contract from Brown & Williamson for 60 machine vision-based
integrated package inspection systems which Acuity performed during 1994.
Revenues from this contract accounted for 16% of total 1994 revenues. The
increase in total yearly revenues was also partially a result of increased
vision related Engineering Service contracts combined with increased customer
service revenue including spare parts, training and maintenance agreements.
Revenues by product line are summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------- ----------------------
$ % $ %
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Vision Systems and Software......................... 18,950 86 16,083 86
Customer Service and Training....................... 1,807 8 1,481 8
Engineering Services................................ 1,411 6 1,170 6
--------- --- --------- ---
Total........................................... $ 22,168 100% $ 18,734 100%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
Vision Systems and Software include vision product and application
engineering revenues. Customer Service and Training represents the total of such
revenues for both vision and robotic systems. Engineering Services include both
vision and robotic commercial software development contracts, robotic hardware
sales, and U.S. government sponsored SBIR revenues.
Vision systems and software revenue increased 18% in 1994 from the 1993
level. This increase resulted from a 27% increase in general purpose vision
revenues partially offset by a 10% decrease in niche market vision revenues.
Vision systems designed for the general purpose market comprise the largest
portion of Acuity's revenues. In 1994 general purpose vision revenues accounted
for 81% of total vision revenues and 69% of total Acuity revenues as compared to
75% and 64%, respectively, in 1993. Acuity believes that this market will
continue to be its largest market. Acuity's products for the general purpose
market include the PV60 (Powervision 60), PV90 (Powervision 90), AV100
(Autovision 100), IVS (Intelligent
44
<PAGE>
Visual Sensors), MVP (Modular Vision Processor) and the newly introduced
Mentorvision. Revenues from the Brown & Williamson contract (essentially IVS
systems and associated handling equipment) were also included in the 1994
general purpose market total.
Vision systems designed for niche (application specific) markets accounted
for 19% of total vision revenues and 17% of total Acuity revenues in 1994 as
compared to 25% and 22%, respectively, in 1993. Acuity believes that this market
will continue to be a part of Acuity's business but its percentage of Acuity's
total revenue is expected to decrease as compared to the general purpose market
percentage of Acuity's total revenue, as was the case in 1994 as compared to
1993. Acuity's products for the niche markets include the I-Pak, a
pharmaceutical label inspection product; DMR (Data Matrix Reader), a reader of
matrix-coded information; ICIS (Integrated Circuit Inspection System), primarily
a semiconductor package inspection product; BP-100 (Blister Pak Inspection
System), and CLS-500.
Customer service and training revenue including spare parts, training and
maintenance agreements increased 22% in 1994 as compared to 1993 while it
accounted for 8% of total Acuity revenues in both 1994 and 1993. A portion of
this service revenue is related to the installed base of robotic and older
vision systems. The newer generation machine vision product lines require much
less repair, maintenance and general customer support. Revenues from other types
of services, including maintenance, training and field support, are expected to
offset the decline in the demand for the spare parts of the older product lines.
Engineering Services revenue increased 21% in 1994 and accounted for 6% of
total revenues in both 1994 and 1993. The increase in yearly revenues was mainly
a result of increased Engineering Service contracts, mostly under the U.S.
Government sponsored SBIR program. These increases were partially offset by
declining revenues from sales of robotic hardware and revenues from robotic
software development contracts. Acuity plans to continue to bid on new SBIR
contracts in the future.
In 1994 Brown & Williamson was Acuity's largest customer accounting for 16%
of total revenues. These revenues were a result of the aforementioned $3.6
million contract completed in December 1994. In 1993 Motorola, Inc. was Acuity's
largest customer, accounting for 12% of total revenues. Historically, Acuity has
had one or two customers which have accounted for a large percentage of its
total revenues for a given year. Acuity recognizes the potential effects of
reliance upon a few significant customers and therefore continues to attempt to
expand its market share through a diversified customer base. As of year-end 1994
Acuity did not have any order or contract in its backlog that would compare with
the size of the Brown & Williamson contract which was booked in March 1994 and
which accounted for a significant part of Acuity's total 1994 revenues.
International revenues decreased 14% in 1994 from the 1993 total. The
decrease was primarily due to the significant 50% decrease in Asian revenues in
1994, as compared to 1993, partially offset by a 10% increase in European
revenues. The decrease in Asian revenues was a result of a downturn in the
business of Acuity's relatively new Japanese distributorships which were signed
during 1992. Acuity continues to foster these new distributorships with the
intent of increasing its presence, which it believes could lead to an increased
market share, in Asia. European revenues increased partially as a result of what
Acuity believes were slightly improved European economic conditions with regard
to Acuity's products during 1994, as compared to 1993. The 30% increase in North
American revenues in 1994 as compared to 1993 was primarily a result of
increased sales of Acuity's core machine vision products, including revenues
from the Brown & Williamson contract.
The following table summarizes total revenues by geographic region:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------- ----------------------
$ % $ %
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
North America....................................... 17,980 81 $ 13,848 74
Europe.............................................. 3,197 14 2,898 15
Asia................................................ 991 5 1,988 11
--------- --- --------- ---
Total........................................... $ 22,168 100% $ 18,734 100%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
45
<PAGE>
Total costs and expenses (excluding restructuring costs in 1994 and merger
related costs in 1993), as a percentage of revenue, decreased to 91% of revenue
in 1994 from 92% of revenue in 1993. As a percentage of revenue, the decrease in
total costs and expenses consisted of an approximate 1 percentage point increase
in the cost of goods sold and a 2 percentage point decrease in the other costs
and expenses in 1994 as compared to 1993. The increase in the percentage of cost
of goods sold was the result of factors discussed below. As part of the overall
growth of Acuity during 1994 the headcount grew by 6% which contributed to the
increase, in absolute dollars, in other costs and expenses. Headcount totaled
117 at the end of 1994 as compared to 110 at the end of 1993.
Cost of goods sold, as a percentage of revenue, increased 1 percentage point
to approximately 42% in 1994 from approximately 41% in 1993. The increase was
primarily attributable to an overall product mix change to somewhat lower gross
margin products in 1994 including revenues from the Brown & Williamson contract
which included non-Acuity manufactured handling equipment. In addition, somewhat
higher manufacturing labor costs in 1994 also contributed to the increased cost
of goods sold. Future gross margins will be impacted by the product mix of
future revenues, the level of revenues generated through Acuity's distribution
network, and also by sales volume, which would have a tendency to increase gross
margin as sales volumes increase due to economies of scale in the manufacturing
and purchasing processes. Acuity continues to monitor and react to market events
in an attempt to improve its gross margin levels.
Research and development expenses increased 12% in 1994 as compared to 1993.
The expense increase reflects an increased average R&D headcount during 1994
which contributed to increased salary, travel and employee development expenses.
In addition, 1994 included expenses associated with several product
introductions and enhancements which were completed during the year. Acuity
expects to expend additional resources in the future to improve and expand its
product lines and to respond to its customers' needs.
Marketing and selling expenses increased 15% in 1994 as compared to 1993.
The increase is partially attributable to increased trade show, public relations
and advertising expenses in 1994 as compared to 1993. In addition, the headcount
in marketing and sales increased 6% by the end of 1994 as compared to the end of
1993 and this contributed to increased expenses such as salary and travel costs.
The increase in revenues in 1994 as compared to 1993 also produced an increase
in total commission expense. As Acuity attempts to expand its marketing and
sales programs, in an effort to increase its market share and subsequently its
revenues, additional expenditures in marketing and sales are planned.
General and administrative expenses increased 9% in 1994 as compared to
1993. The increase is mainly attributable to higher professional fees and
personnel costs in 1994. These increases were partially offset by ongoing cost
control programs in other expense categories. Additional resources will be
invested in the general and administrative areas as required by the future
growth of Acuity.
Restructuring charges in 1994 totaled $440,000. These expenses included
charges for the abandonment of a leased facility as well as personnel related
expenses. In 1993 merger related costs totaled $1,091,000. This amount primarily
consisted of fees to investment bankers, auditors, attorneys and transfer agents
to complete the merger. See Note 2 to Acuity's Consolidated Financial
Statements.
Acuity had net interest expense in both 1994 and 1993. Net interest expense
decreased 51% in 1994 as compared to 1993 primarily as a result of Acuity's
retirement of its subordinated notes. By utilizing its cash resources and its
bank line of credit, which carried a lower interest rate than the subordinated
notes, Acuity was able to decrease its overall interest expense. See Notes 7 and
8 to Acuity's Consolidated Financial Statements. Given current market interest
rates and Acuity's intention to reduce its outstanding borrowings under its bank
line of credit whenever possible, Acuity believes that its net interest expense
in 1995 should decline from its 1994 level.
A provision for income taxes was made in both 1994 and 1993. As more fully
described in Note 11 to Acuity's Consolidated Financial Statements, Acuity has
significant tax loss and tax credit carryovers both in the United States and the
United Kingdom, but these have certain limitations on their use.
46
<PAGE>
The 1994 net income of $1,306,000, or $.51 per share, included a
restructuring charge of $440,000. This compares with the 1993 net loss of
$30,000, or $.01 per share, which included a charge of $1,091,000 of merger
related costs.
YEARS ENDED DECEMBER 31, 1993 AND 1992
Total revenues increased 13% in 1993 as compared to 1992. The increase was
primarily a result of a 15% increase in the core business of machine vision
systems and software revenues which was attributable to a continued successful
sales effort in 1993, combined with an effective marketing strategy during the
year, which Acuity believes contributed to an increased demand for its products,
as compared to 1992. The increase in total revenues was also partially a result
of increased vision related Engineering Service contracts. However, the
aforementioned increases in revenues were partially offset by declining revenues
in the older robotic product lines including robot controllers, spare parts and
robot related engineering service contracts. In addition, customer service
revenue including spare parts, training and maintenance agreements declined 4%
in 1993 as compared to 1992.
Revenues by product line are summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1992
---------------------- ----------------------
$ % $ %
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Vision Systems and Software......................... 16,083 86 13,937 84
Customer Service and Training....................... 1,481 8 1,543 9
Engineering Services................................ 1,170 6 1,130 7
--------- --- --------- ---
Total........................................... $ 18,734 100% $ 16,610 100%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
Vision Systems and Software include vision product and application
engineering revenues. Customer Service and Training represents the total of such
revenues for both vision and robotic systems. Engineering Services include both
vision and robotic software development contracts, robotic hardware sales, and
U.S. government sponsored SBIR (small business innovation research) revenues.
Vision systems and software revenue increased 15% in 1993 to $16,083,000
from the 1992 level of $13,937,000. This increase resulted from a 23% increase
in general purpose vision revenues partially offset by a 5% decrease in niche
market vision revenues.
Vision systems designed for the general purpose market comprise the largest
portion of Acuity's revenues. In 1993 general purpose vision revenues accounted
for 75% of total vision revenues and 64% of total Acuity revenues as compared to
71% and 60%, respectively, in 1992. Acuity believes that this market will
continue to be its fastest growing market. Acuity's products for the general
purpose market include the AV60 (Autovision 60), AV90 (Autovision 90), AV100
(Autovision 100), IVS (Intelligent Visual Sensors) and the MVP (Modular Vision
Processor).
Vision systems designed for niche (application specific) markets accounted
for 25% of total vision revenues and 22% of total Acuity revenues in 1993 as
compared to 29% and 24%, respectively, in 1992. Acuity believes that this market
will continue to be an important part of Acuity's business but its growth is not
expected to keep pace with the anticipated growth in the general purpose market.
Acuity's products for application specific markets include the ICIS (Integrated
Circuit Inspection System), primarily a semiconductor package inspection
product, and the I-Pak, a pharmaceutical label inspection product whose revenues
are expected to increase as a result of recently adopted U.S. federal
regulations requiring electronic inspection of certain types of pharmaceutical
labels. During 1993 Acuity also introduced three new niche products.
Customer service revenue, including spare parts, training and maintenance
agreements, declined 4% in 1993 as compared to 1992 while it accounted for 8% of
total Acuity revenues in 1993 as compared to 9% in 1992.
Engineering Services revenues increased 4% in 1993 and accounted for 6% of
total revenues in 1993 as compared to 7% in 1992. The increase in yearly
revenues was mainly a result of increased Engineering Service contracts, mostly
under the U.S. Government sponsored SBIR program. These increases were partially
offset by declining revenues from sales of robotic hardware and revenues from
robotic software development contracts.
47
<PAGE>
Acuity's largest customer in 1993 and 1992 was Motorola, Inc. which
accounted for 12% and 15%, respectively, of total revenues. Historically, Acuity
has had one or two customers which account for a significant percentage of its
total revenues for a given year. Furthermore, in March, 1994 Acuity received a
$3.6 million contract to be supplied approximately over the next two years.
International revenues increased 78% in 1993 from the 1992 total. The
increase was primarily due to the significant 220% increase in Asian revenues in
1993, as compared to 1992, combined with a 37% increase in European revenues.
The increase in Asian revenues was a result of the success of the relatively new
Japanese distributorships which were signed during 1992 and 1993. International
revenues also increased as a result of what Acuity believes were slightly
improved international economic conditions with regard to Acuity's products
during 1993, as compared to 1992.
The following table summarizes total revenues by geographic region:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1992
---------------------- ----------------------
$ % $ %
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
North America....................................... 13,848 74 $ 13,872 83
Europe.............................................. 2,898 15 2,117 13
Asia................................................ 1,988 11 621 4
--------- --- --------- ---
Total........................................... $ 18,734 100% $ 16,610 100%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
Total costs and expenses (excluding merger related costs), as a percentage
of revenue, decreased to 92% of revenue in 1993 from 95% of revenue in 1992. As
a percentage of revenue, the decrease in total costs and expenses consisted of
an approximate 6 percentage point decrease in the cost of goods sold and an
approximate 3 percentage point increase in the other costs and expenses in 1993
as compared to 1992. The decrease in the percentage of cost of goods sold was
the result of several factors as discussed below. As part of the overall growth
of Acuity during 1993 the headcount grew by 7% which contributed to the increase
in other costs and expenses. Headcount totaled 110 at the end of 1993 as
compared to 103 at the end of 1992.
Cost of goods sold, as a percentage of revenue, decreased 6 percentage
points to approximately 41% in 1993 from approximately 47% in 1992. The decrease
is attributable to a product mix change to higher gross margin products in 1993
as well as to cost reductions on many of the system components. In addition, in
1993, as compared to 1992, Acuity had decreased revenues from the relatively
lower margin robot related engineering service contracts including those for the
manufacture of robot controllers. Partially offsetting these decreases in cost
of goods sold was the decline in Customer Service and Training revenue, which
historically carries a higher gross margin than other product lines.
Research and development expenses increased 22% in 1993 as compared to 1992.
The expense increase reflects the increased headcount, up 14% at the end of 1993
as compared with the end of 1992. Salary, travel and employee development
expenses all increased in 1993 as compared to 1992. These increases were
partially offset by ongoing expense reduction programs in other expense
categories.
Marketing and selling expenses increased 16% in 1993 as compared to 1992.
The increase is partially attributable to increased trade show and advertising
expenses in 1993 as compared to 1992. In addition, the headcount in marketing
and sales increased 15% by the end of 1993 as compared to the end of 1992 and
this contributed to increased expenses such as salary and travel costs. The
increase in revenues in 1993 as compared to 1992 also produced increased
commission expense.
General and administrative expenses increased 21% in 1993 as compared to
1992. The increase is attributable to an increased average headcount during 1993
as compared to 1992 and to slightly higher professional fees in 1993 as compared
to 1992. These increases were partially offset by ongoing cost control programs
in other expense categories and also to foreign exchange gains during 1992 as
compared to no gains during 1993.
48
<PAGE>
Merger related costs totaled $1,091,000 and were expensed in the fourth
quarter of 1993 and are included under "Other expenses." This amount primarily
consisted of fees to investment bankers, auditors, attorneys and transfer agents
to complete the merger.
Net interest expense increased 4% in 1993 as compared to 1992. This was
primarily a result of the continuing of the compounding of interest due on the
outstanding 10% subordinated notes. See Note 8 to Acuity's Consolidated
Financial Statements.
A provision for income taxes was made in 1993 as it was in 1992. Since
merger related costs are not deductible for tax purposes, the 1993 effective tax
rate is significantly greater than the 1992 rate. As more fully described in
Note 11 to Acuity's Consolidated Financial Statements, Acuity has significant
tax loss and tax credit carryovers both in the United States and the United
Kingdom, but these have certain limitations on their use.
"Discontinued Operations" represent the financial results for Cognition. See
Note 3 to Acuity's Consolidated Financial Statements. In 1992 Cognition had
revenues of $608,000 (through its date of sale) and a loss of $147,000 (through
its date of sale). On July 15, 1992 Acuity sold this 71% owned subsidiary. The
gain from the sale was $1,361,000 and is included in the 1992 statements of
operations under the caption "Discontinued Operations, Gain on Disposal." There
were no activities from this discontinued operation in 1993.
On August 14, 1992 Acuity retired its 12% subordinated notes (see Note 8 to
Acuity's Consolidated Financial Statements) which resulted in a gain on
extraordinary item of $46,000, net of taxes, for 1992. There was no such
extraordinary item in 1993.
The $30,000 net loss, or $.01 per share, for Acuity in 1993 consisted of a
loss from continuing operations, which included a charge of $1,091,000 of merger
related costs, with no activity from discontinued operations. This compares with
Acuity's 1992 net income of $1,711,000, or $.72 per share, which consisted of
income of $451,000 from continuing operations, income of $1,214,000 from
discontinued operations and income of $46,000 from an extraordinary item.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
For the twenty-six weeks ended July 1, 1995, Acuity estimates that it
incurred a loss of $640,000 on revenues of approximately $9,000,000. This loss
has resulted in a reduction of Acuity's liquidity, including reducing the
availability of funds under Acuity's line of credit.
For the year ended December 31, 1994, cash and cash equivalents decreased
77% from the 1993 year end amount. At the year end 1994 working capital totaled
$2,470,000 as compared to $353,000 at year end 1993.
For the twenty-six weeks ended July 1, 1995, cash and cash equivalents
decreased 27% from the 1994 year end amount. As of July 1, 1995, working capital
totaled $929,000 as compared to $2,470,000 at year end 1994. The significant
decline was primarily a result of Acuity's line of credit becoming a short term
liability as of April 1, 1995 and Acuity's six month estimated loss of $640,000.
In March 1995 Acuity secured, from a commercial bank, a long term $3.5
million line of credit carrying more favorable terms than its previous line from
another commercial bank. See Notes 7 and 8 to Acuity's Consolidated Financial
Statements. Acuity borrowed against this new line and immediately paid off and
terminated its previous line of credit which was scheduled to expire in May
1995. Since the new line of credit was for a long term commitment (expiration of
June 1, 1997) Acuity's December 31, 1994 loan payable on its bank line of credit
was classified as a long term liability in Acuity's audited December 31, 1994
Balance Sheet. However, since Acuity was in default of certain covenants under
this line of credit as of April 1, 1995, the then borrowings of $1,250,000 are
classified as a short term liability in Acuity's unaudited April 1, 1995 Balance
Sheet. Acuity continued to be in default as of July 1, 1995. Acuity has obtained
forbearance from such defaults from its bank until the earlier of (i) September
30, 1995 or (ii) any termination of Acuity's arrangement for its contemplated
merger with RVSI without such merger having been consummated. In the event that
either of the two
49
<PAGE>
events occurs, Acuity would need to enter into negotiations with its bank in an
attempt to resolve the termination of such forbearance. See Note 7 to Acuity's
Consolidated Financial Statements. As of August 4, 1995 borrowings of $1,375,000
were outstanding and Acuity had approximately another $48,000 in available
borrowings against its line of credit.
During the first quarter of 1995 Acuity received $81,000 from the exercise
of stock options and borrowed an additional $235,000 on its line of credit.
During the first quarter of 1995 Acuity invested $246,000 in the purchase of
property and equipment. These costs were primarily for assets required for
product development and enhancement. As of April 1, 1995 Acuity had capitalized
$106,000 of merger related costs associated with the proposed RVSI merger and
such costs are classified in Acuity's April 1, 1995 Balance Sheet as other
assets. Such costs, combined with future merger related costs, are expected to
be expensed in the quarter in which the merger is consummated.
Commencing in the second quarter of 1995, in order to conserve its cash
resources and in an effort to improve its operating results, Acuity has reduced
previously planned purchases of capital assets, closely monitored its non-fixed
expenses, and offered discounts and otherwise endeavored to accelerate the
payment of its receivables.
If the Merger is not consummated, the forbearance of Acuity's bank lender
would terminate and Acuity would need to either renegotiate the terms of its
line of credit or obtain additional funds to repay its bank lender. In view of
Acuity's recent losses, no assurance can be given that Acuity could renegotiate
such line of credit or obtain additional funds on terms acceptable to Acuity. In
such event, Acuity would need to re-evaluate its business plan and expenditures
in order to significantly reduce its cash outflows.
Due to recent losses in 1995, Acuity revised downward its plans to purchase
capital assets during the current fiscal year. These costs are not expected to
have a material effect on Acuity's operations. Acuity presently has no material
commitments for capital expenditures. Inventory levels should remain somewhat
consistent with levels maintained during the past two years, other than possible
fluctuations caused by the timing of large orders.
Acuity has incurred significant operating losses during its history and has
an accumulated deficit of approximately $60,000,000. In the past, Acuity
attempted to address the primary issues which led to its significant operating
losses in past years by changing its product lines, restructuring and merging
with Itran in January 1994. While Acuity completed four profitable quarters
during 1994 since the merger, each with increasing revenues, the first and
second quarters of 1995 showed a decline in revenues and a net loss. Acuity
reduced its headcount at the end of March 1995 in an attempt to bring its
expense level in line with its projected revenue levels. Such measures may again
be required if the booking and revenue trends experienced during the first and
second quarters of 1995 continue. There can be no assurance that these measures,
or any further measures Acuity may employ, will cause Acuity to experience
revenue growth or have profitable operations in the future. Acuity's future
liquidity and profitability are dependent upon Acuity's ability to effectively
market and manufacture its products, to develop new products to meet changing
customer demands and to expand its market share through a more diversified
customer base.
SELECTED HISTORICAL FINANCIAL DATA OF RVSI
The following selected historical financial data should be read in
conjunction with the historical financial statements of RVSI and the notes
thereto appearing elsewhere in this Proxy Statement/ Prospectus. The selected
financial data of RVSI as of September 30, 1994 and 1993 and for each of the
three years in the period ended September 30, 1994 have been derived from the
financial statements of RVSI, which have been audited by Deloitte & Touche LLP,
independent public accountants, which are included elsewhere herein. The
selected financial data of RVSI as of September 30, 1992, 1991 and 1990 and for
each of the two years in the period ended September 30, 1991 have been derived
from the audited financial statements of RVSI, which are not included herein.
50
<PAGE>
STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH
31, YEAR ENDED SEPTEMBER 30,
---------------------- ----------------------------------------------------------
1995 (E) 1994 (E) 1994 1993 1992 1991 1990
-------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 16,600 $ 11,790 $24,613 $19,943 $13,335 $ 8,519 $11,256
Income (loss) before Benefit
from Income Taxes and
Extraordinary Items.......... $ 3,222 $ 1,006 $ 2,710 $ 1,104 $ (983) $(2,428) $(5,523)(a)
Benefit from Income Taxes..... $ 2,060 $ 1,093 $ 401 $ 495 -- -- --
Income (Loss) before
Extraordinary Items.......... $ 5,282 $ 2,099 $ 3,111 $ 1,599 $ (983) $(2,428) $(5,523)(a)
Extraordinary Items........... -- -- -- -- $ 1,210(b)(c) -- --
Net Income (Loss)............. $ 5,282 $ 2,099 $ 3,111 $ 1,599 $ 227(b)(c) $(2,428) $(5,523)(a)
Income (Loss) Per Share before
Extraordinary Items.......... $ .38 $ .16 $ .24 $ .14 $ ( .13) $ (.38) $ (.87)
Net Income (Loss) Per Share... $ .38 $ .16 $ .24 $ .14 $ .03 $ (.38) $ (.87)
Weighted Average Number of
Common Shares and
Equivalents.................. 13,765(d) 12,830(d) 13,057(d) 12,534(d) 7,783 6,354 6,337
<FN>
- ------------------------
(a) Includes restructuring charges of $2,526,000.
(b) Includes an extraordinary credit of $1,138,000 (net of income tax provision
of $97,000) relating to an agreement with General Motors Corporation. See
Note 12 of Notes to Financial Statements of RVSI.
(c) Includes extraordinary credits of $72,000 resulting from utilization of net
operating loss carryforwards.
(d) Weighted average number of common shares and common share equivalents
calculated using the modified treasury stock method. See Note 1i of Notes
to Financial Statements of RVSI.
(e) Derived from unaudited financial statements.
</TABLE>
BALANCE SHEET DATA (IN THOUSANDS):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------
MARCH 31, 1995 (A) 1994 1993 1992 1991 1990
------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Assets........................... $ 21,710 $ 14,988 $ 7,889 $ 4,515 $ 4,296 $ 5,963
Current Liabilities.................... $ 6,936 $ 5,742 $ 6,215 $ 4,463 $ 5,899 $ 5,140
Total Liabilities...................... $ 7,149 $ 5,952 $ 6,460 $ 4,798 $ 6,297 $ 5,564
Stockholders' Equity (Deficiency)...... $ 14,561 $ 9,036 $ 1,429 $ (283) $ (2,001) $ 399
Working Capital (Deficiency)........... $ 8,311 $ 4,664 $ (766) $ (1,326) $ (2,474) $ (530)
<FN>
- ------------------------
(a) Derived from unaudited financial statements.
</TABLE>
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations of RVSI" and the Notes to Financial
Statements of RVSI.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF RVSI
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1995 AND 1994
Revenues of $16,600,000 for the six months ended March 31, 1995 represent an
increase of $4,810,000, or 41%, in comparison to revenues of $11,790,000 for the
six months ended March 31, 1994. The increase in revenues was a result of
substantially increased shipments of RVSI's LS-2000 and LS-3000 Series
semiconductor lead inspection systems. Revenues relating to the LS-3000 Series,
which was introduced in July 1994, were $14,944,000 for the six-month period
ended March 31, 1995.
Gross profit margins for the six months ended March 31, 1995 and March 31,
1994 were 54% and 45%, respectively. The increase in gross profit margins was
primarily due to the improved profitability of the LS-2000 and LS-3000 Series
product lines.
RVSI-funded research and development expenditures for the six months ended
March 31, 1995 increased by $591,000 over the comparable 1994 level. The
increase is attributable to continued development of RVSI's lead scanning
systems and, in addition, research and development associated with RVSI's
aircraft wing ice detection product. Certain software development costs are
capitalized in accordance with the provisions of Statement of Financial
Accounting Standards No. 86. For the six months ended March 31, 1995, $274,000
of these costs were capitalized as compared to $247,000 for the comparable 1994
period.
RVSI's selling, general and administrative costs increased by $920,000, or
36% for the six months ended March 31, 1995 as compared to the six months ended
March 31, 1994. The increase is primarily as a result of increased marketing and
distribution costs associated with the lead scanning systems product line.
Net income for the six months ended March 31, 1995 was $5,282,000, or $.38
per share as compared to net income of $2,099,000, or $.16 per share for the six
months ended March 31, 1994. During the six months ended March 31, 1995 and
1994, RVSI recorded benefits from income taxes in the amounts of $2,060,000 and
$1,093,000, respectively. Such benefits were primarily the result of decreases
to the valuation allowances against deferred tax assets, totaling $3,302,000 and
$1,143,000 during the six month periods ended March 31, 1995 and 1994,
respectively. These decreases in the valuation allowances emanated from RVSI's
profitable operations and the extent to which RVSI can substantiate projected
future earnings. Had these valuation allowances not been decreased, net income
for the six month periods ended March 31, 1995 and 1994 would have been
approximately $1,980,000 and $956,000, respectively.
The deferred tax assets (net of valuation allowances) at March 31, 1995 and
September 30, 1994 of $3,429,000 and $1,163,000, respectively, are equivalent to
the benefit to be derived from net operating loss carryforwards that were
expected to be utilized to offset future taxable income projected as of the
respective balance sheet dates. The deferred tax assets at March 31, 1995 and
1994 have been limited to the benefit to be derived from projected future
income, due to RVSI's limited history of earnings and its projected future
profitability currently being primarily dependent on one existing product line.
The valuation allowance as of March 31, 1995 was approximately $4,863,000. RVSI
is not able to predict whether this valuation allowance will be changed in the
foreseeable future.
YEARS ENDED SEPTEMBER 30, 1994 AND 1993
Revenues of $24,613,000 for the year ended September 30, 1994 represent an
increase of $4,670,000, or 23%, in comparison to revenues of $19,943,000 for the
year ended September 30, 1993. The increase in revenues was a result of
substantially increased shipments of RVSI's LS-2000 and LS-3000 Series
semiconductor lead inspection systems. The LS-3000 Series system, a more
advanced, high performance machine, was introduced in July 1994, and represents
the next generation lead scanning system designed to replace the LS-2000 Series
system. Sales of the LS-2000 and LS-3000
52
<PAGE>
Series accounted for revenues of $23,411,000 for the year ended September 30,
1994, representing an increase of $5,095,000, or 28%, as contrasted with LS-2000
sales of $18,316,000 for the year ended September 30, 1993. Sales of the LS-3000
Series were $5,826,000 for the year ended September 30, 1994. Revenues related
to U.S. Government business during the fiscal year ended September 30, 1994
decreased by 32% from the prior fiscal year, from $1,595,000 to $1,080,000.
Gross profit margins for the fiscal years ended September 30, 1994 and 1993
were 48% and 43%, respectively. The increase in gross profit margins during
fiscal 1994 was primarily due to the improved profitability of the LS-2000 and
LS-3000 Series product lines.
Continued development of the LS-2000 Series and the new LS-3000 Series of
lead scanning systems and RVSI's ID-1 aircraft wing ice detection systems
primarily accounted for $3,718,000 in RVSI funded research and development
expense, net of capitalized software development costs, during the year ended
September 30, 1994, as contrasted with $2,526,000 during fiscal 1993. In its
fiscal year ended September 30, 1994, RVSI capitalized $433,000 of its software
development costs as compared to $476,000 over the comparable 1993 period in
accordance with the provisions of Statement of Financial Accounting Standards
No. 86. RVSI also contracts to perform certain customer-funded research and
development efforts. Revenues and cost of revenues related to such contracts
were $468,000 and $155,000, respectively, during fiscal 1994 as compared to
$342,000 and $271,000, respectively, for fiscal 1993.
RVSI's selling, general and administrative costs increased by $687,000, or
14%, for the year ended September 30, 1994 as compared to the prior fiscal year,
primarily as a result of increased marketing and distribution costs associated
with the LS-2000 and LS-3000 Series products. For the year ended September 30,
1994 net interest income was $58,000 compared to net interest expense of $25,000
in the comparable 1993 period.
Net income for the year ended September 30, 1994 was $3,111,000, or $.24 per
share, as compared to net income of $1,599,000, or $.14 per share for the year
ended September 30, 1993.
During the fiscal years ended September 30, 1994 and 1993, RVSI recorded
benefits from income taxes in the amounts of $401,000 and $495,000,
respectively. Such benefits were primarily the result of decreases in the
valuation allowances which emanated from RVSI's profitable operations in fiscal
1994 and 1993, respectively, and the extent to which RVSI can substantiate
projected future earnings.
The deferred tax assets at September 30, 1994 and 1993 of $1,163,000 and
$584,000, respectively, are equivalent to the benefit to be derived from net
operating loss carryforwards that were expected to be utilized to offset future
taxable income projected as of the respective balance sheet dates. The deferred
tax assets at September 30, 1994 and 1993 have been limited to the benefit to be
derived from projected future income, due to RVSI's limited history of earnings
and its projected future profitability currently being primarily dependent on
one existing product line.
YEARS ENDED SEPTEMBER 30, 1993 AND 1992
Revenues of $19,943,000 for the year ended September 30, 1993 represented an
increase of $6,608,000, or 50%, in comparison to revenues of $13,335,000 for the
year ended September 30, 1992. The increase in revenues was a result of
substantially increased shipments of RVSI's LS-2000 Series semiconductor lead
inspection systems. Sales of the LS-2000 Series accounted for revenues of
$18,316,000 for the year ended September 30, 1993, representing an increase of
$7,745,000 or 73%, as contrasted with LS-2000 sales of $10,571,000 for the year
ended September 30, 1992. Revenues related to U.S. Government business during
the fiscal year ended September 30, 1993 decreased by 47% from the prior fiscal
year, from $3,021,000 to $1,595,000.
Gross profit margins for the fiscal years ended September 30, 1993 and 1992
were 43% and 26%, respectively. The increase in gross profit margins during
fiscal 1993 was primarily due to the improved profitability of the LS-2000
Series product line.
53
<PAGE>
RVSI recorded an extraordinary item in the year ended September 30, 1992 in
the amount of $1,138,000 (net of income tax provision of $97,000) associated
with the satisfaction of approximately $1.3 million of indebtedness owed to
General Motors Corporation ("GM") at no significant cost to RVSI via the sale to
GM of certain inventory and spare parts previously utilized by RVSI in its
automotive robotic systems integration business which was discontinued by RVSI
during its fiscal year ended September 30, 1990. RVSI also executed a four year
service agreement with GM under which RVSI, upon request by GM, will provide
maintenance and repair services at RVSI's standard rates for certain automotive
systems previously sold to GM.
Continued development of the LS-2000 Series of lead scanning systems and
RVSI's ID-1 aircraft wing ice detection systems primarily accounted for
$2,526,000 in RVSI-funded research and development expense, net of capitalized
software development costs, during the year ended September 30, 1993 as
contrasted with $1,731,000 during the comparable 1992 period. In its fiscal year
ended September 30, 1993, RVSI capitalized $476,000 of its software development
costs as compared to $568,000 over the comparable 1992 period in accordance with
the provisions of Statement of Financial Accounting Standards No. 86. RVSI also
contracts to perform certain customer-funded research and development efforts.
Revenues and cost of revenues related to such contracts were $342,000 and
$271,000, respectively, during fiscal 1993 as compared to $107,000 and $133,000,
respectively, for fiscal 1992.
Selling, general and administrative expenses were $4,834,000 and $2,766,000
for fiscal 1993 and 1992, respectively, or 24.2% and 20.7% of total revenues,
respectively. The increase was primarily due to the expansion of sales efforts
in various international markets, increased consulting expenses relating to new
products and markets, and increased employees, salaries and related expenses to
support the growing market for RVSI's products. For the year ended September 30,
1993 interest expense net of interest income increased by $6,000 over the
comparable 1992 period.
Net income for the year ended September 30, 1993 was $1,599,000, or $.14 per
share, as compared to net income of $227,000, or $.03 per share, for the year
ended September 30, 1992. Fiscal 1992 net income reflects the effects of
extraordinary items of $1,210,000 attributable to an agreement with GM and
utilization of net operating loss carryforwards.
During the fiscal year ended 1993, RVSI adopted the provision of Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"), which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in RVSI's
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
accounting and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
The adoption of SFAS 109 was made as of the beginning of the fiscal year on
a prospective basis. This accounting change had no effect on RVSI's financial
statements as of the date of adoption. However, the adoption of SFAS 109
resulted in an increase in the income tax benefit recognized in fiscal 1993 and,
therefore, an increase in income before extraordinary items of $584,000.
The deferred tax benefit recognized during the fiscal year ended September
30, 1993 represents a decrease in the valuation allowance from the date of
adoption. This adjustment in the valuation allowance emanates from RVSI's
profitable operations in fiscal 1993 and the extent to which it could
substantiate projected future earnings. The adjustment in the valuation
allowance as of September 30, 1993 is equivalent to the benefit to be derived
from net operating loss carryforwards that are expected to be utilized to offset
projected future taxable income.
The deferred tax asset at September 30, 1993 has been limited to the benefit
to be derived from projected future income, due to RVSI's limited history of
earnings and its projected future profitability currently being primarily
dependent on one existing product line.
54
<PAGE>
Prior to fiscal 1993, the provision for income taxes was based on revenue
and expenses included in RVSI's statement of operations. Where appropriate RVSI
provided deferred income taxes for the tax effects of transactions which were
recorded for different periods for financial accounting purposes than for income
tax purposes. At September 30, 1992, no deferred taxes were recorded because of
the existence of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED MARCH 31, 1995
RVSI's operating, investing, and financing activities for the six months
ended March 31, 1995 utilized net cash and cash equivalents of $1,222,000 as
follows:
- Operating activities provided $216,000;
- $551,000 was used to purchase property and equipment, primarily computer
and demonstration equipment;
- $993,000 was invested primarily in U.S. Treasury Notes; and
- Financing activities provided $106,000 primarily through the issuance of
RVSI Common Stock upon the exercise of stock options and warrants.
RVSI's inventories at March 31, 1995 of $4,533,000 increased by $1,899,000
from $2,634,000 as of September 30, 1994 primarily to support higher production
volumes. Accounts receivable at March 31, 1995 of $5,691,000 increased by
$2,279,000 from $3,412,000 as of September 30, 1994 primarily due to higher
operating levels and increased sales to larger customers with longer payment
terms.
YEAR ENDED SEPTEMBER 30, 1994
RVSI's operating, investing and financing activities for the year ended
September 30, 1994 generated net cash and cash equivalents of $1,103,000 as
follows:
- Operating activities provided $566,000;
- $1,002,000 was used to purchase property and equipment, primarily computer
and demonstration equipment;
- $2,984,000 was invested primarily in U.S. Treasury Notes and U.S. Treasury
Bills; and
- Financing activities provided $4,523,000 primarily through the issuance of
RVSI Common Stock and warrants in a private equity placement and the
issuance of RVSI Common Stock upon the exercise of stock options and
warrants.
RVSI anticipates that its working capital needs for fiscal 1995 will be
satisfied by operating revenues and, if necessary, through borrowings under an
existing line of credit. RVSI, however, will consider the possibility of
additional debt and/or equity financing, if such financing can be arranged on
terms favorable to RVSI.
EXPORT SALES
Foreign export sales accounted for 62%, 74% and 54% of RVSI's revenues in
fiscal 1994, 1993 and 1992, respectively. RVSI's foreign export sales are
denominated in U.S. dollars and, therefore, RVSI's receivables are not exposed
to the risk of foreign currency fluctuations. However, to the extent foreign
currencies weaken relative to the U.S. dollar, RVSI's products could become more
expensive in these countries. This could affect both RVSI's sales volumes and
gross profitability.
EFFECT OF INFLATION
Management believes that the effect of inflation has not been material
during each of the years ended September 30, 1994, 1993 and 1992, respectively,
and the six months ended March 31, 1995.
55
<PAGE>
PROPOSED ACQUISITION
On April 27, 1995, RVSI announced that it had entered into the Merger
Agreement with Acuity pursuant to which Acuity is to become a wholly owned
subsidiary of RVSI. Acuity designs, develops, manufactures and supplies 2-D
machine vision systems to a diversity of markets.
The Merger Agreement calls for RVSI to issue 0.766 of a share of its common
stock for each Acuity share (subject to possible adjustments to the Exchange
Ratio as a result of implementation of the Collars), or approximately 1,883,000
shares, in exchange for all of Acuity's outstanding Common Stock as of March 31,
1995. If the price of shares of RVSI Common Stock averages more than $14.50 or
less than $10.00 per share during the 20 trading days ending on (and including)
the third day immediately prior to the RVSI Special Meeting, the number of
shares of RVSI Common Stock issuable to the Acuity Stockholders would be
proportionately adjusted. In no event, however, will the Exchange Ratio be more
than 0.925626 or less than 0.555375. In addition, Acuity's outstanding stock
options are to be exchanged for options upon RVSI's Common Stock in the same
0.766 to one ratio.
PRIVATE PLACEMENT
On June 28, 1995, RVSI consummated a private sale of an aggregate of
1,110,000 shares of its Common Stock, at a price of $9.00 from which RVSI
derived net proceeds of approximately $9,500,000. RVSI has agreed to file a
registration statement under the Securities Act covering these shares for the
respective accounts of the purchasers thereof no later than December 28, 1995.
Arnhold and S. Bleichroeder, Inc. acted as RVSI's agent in connection with
RVSI's sale of these shares.
56
<PAGE>
ACUITY AND RVSI
PRO FORMA COMBINED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma financial information sets forth the
combined financial position and the combined results of operations of RVSI and
Acuity assuming the Merger will be accounted for using the "pooling of
interests" method and that the Merger was consummated (i) on March 31, 1995, for
the pro forma combined balance sheets and (ii) as of the beginning of the
earliest period presented in the pro forma combined statements of operations.
For all prior periods presented in the pro forma combined statements of
operations, the weighted average number of common and common equivalent shares
gives effect to the proposed issuance of 0.766 of a share of RVSI Common Stock
in exchange for each outstanding share of Acuity Common Stock and the issuance
of 0.766 options to purchase RVSI common stock in exchange for each option to
purchase Acuity Common Stock (subject to possible adjustments to the Exchange
Ratio as a result of implementation of the Collars). If the price of the RVSI
Common Stock averages more than $14.50 or less than $10.00 per share during the
20 trading days ending on (and including) the third day immediately prior to the
RVSI Special Meeting, the number of shares of the RVSI Common Stock issuable to
the Acuity Stockholders would be proportionately adjusted. In no event, however,
will the Exchange Ratio be more than 0.925626 or less than 0.555375.
The unaudited pro forma information combines the historical balance sheets
of RVSI and Acuity at March 31, 1995 and April 1, 1995, respectively, and the
historical statements of operations of RVSI for the years ended September 30,
1994, 1993, and 1992, and for the six-months periods ended March 31, 1995 and
1994 with the historical statements of Acuity for the years ended December 31,
1994, 1993, and 1992, and for the six-month periods ended April 1, 1995 and
April 2, 1994, respectively.
The following pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the financial position or results of
operations which would actually have been reported had the Merger been in effect
during those periods or which may be reported in the future. No provision has
been reflected in the unaudited pro forma combined financial information for
direct expenses related to the Merger, which are expected to be expensed as
incurred in future periods. The statements should be read in conjunction with
the historical financial statements and notes thereto of RVSI and Acuity which
have been included elsewhere herein and incorporated by reference in this Proxy
Statement/Prospectus.
57
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
COMBINED SUMMARY OF STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
RVSI AND ACUITY
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------- FOR YEAR ENDED SEPTEMBER 30,
MARCH 31, MARCH 31, -------------------------------------
1995 1994 1994 1993 1992
------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
REVENUES................................... $ 27,330 $ 21,996 $ 46,781 $ 38,677 $ 29,945
COST OF REVENUES........................... 12,146 10,515 22,091 19,206 17,612
------------ ------------ ------------ ------------ ---------
GROSS PROFIT............................... 15,184 11,481 24,690 19,471 12,333
------------ ------------ ------------ ------------ ---------
OPERATING COSTS AND EXPENSES:
Selling, general, and administrative..... 7,074 5,797 12,418 10,900 7,940
Research and development................. 4,435 3,660 7,629 6,008 4,593
Non-recurring costs...................... 440 1,091 440 1,091 --
Interest expense (income), net........... (57) 143 77 301 284
------------ ------------ ------------ ------------ ---------
11,892 10,691 20,564 18,300 12,817
------------ ------------ ------------ ------------ ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES....................... 3,292 790 4,126 1,171 (484)
INCOME TAX BENEFIT (PROVISION) ON
CONTINUING OPERATIONS..................... 2,067 1,059 291 398 (48)
------------ ------------ ------------ ------------ ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS... 5,359 1,849 4,417 1,569 (532)
INCOME FROM DISCONTINUED OPERATIONS, NET... -- -- -- -- 1,214
------------ ------------ ------------ ------------ ---------
INCOME BEFORE EXTRAORDINARY ITEMS.......... 5,359 1,849 4,417 1,569 682
EXTRAORDINARY ITEMS, NET................... -- -- -- -- 1,256
------------ ------------ ------------ ------------ ---------
NET INCOME................................. $ 5,359 $ 1,849 $ 4,417 $ 1,569 $ 1,938
------------ ------------ ------------ ------------ ---------
------------ ------------ ------------ ------------ ---------
INCOME (LOSS) PER SHARE:
Primary:
Continued operations..................... $ .34 $ .13 $ .30 $ .13 $ (.06)
Discontinued operations.................. -- -- -- -- .13
------------ ------------ ------------ ------------ ---------
Income before extraordinary items........ $ .34 $ .13 $ .30 $ .13 $ .07
Extraordinary items...................... -- -- -- -- .13
------------ ------------ ------------ ------------ ---------
Net income............................... $ .34 $ .13 $ .30 $ .13 $ .20
------------ ------------ ------------ ------------ ---------
Fully diluted:
Continuing operations.................... $ .34 $ .13 $ .29 $ .12 $ (.06)
Discontinued operations.................. -- -- -- -- $ .13
------------ ------------ ------------ ------------ ---------
Income before extraordinary items........ $ .34 $ .13 $ .29 $ .12 $ .07
Extraordinary items...................... -- -- -- -- .13
------------ ------------ ------------ ------------ ---------
Net income............................... $ .34 $ .13 $ .29 $ .12 $ .20
------------ ------------ ------------ ------------ ---------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Primary: 15,615[a] 14,335[a] 14,858[a] 14,023[a] 9,608
Fully Diluted: 15,700[a] 14,450[a] 15,061[a] 14,023[a] 9,608
</TABLE>
See accompanying notes to unaudited pro forma financial information.
58
<PAGE>
PRO FORMA COMBINED BALANCE SHEETS
MARCH 31, 1995 -- UNAUDITED
(In thousands)
ASSETS
<TABLE>
<CAPTION>
RVSI ACUITY
MARCH 31, APRIL 1, COMBINED
1995 1995 MARCH 31,
HISTORICAL HISTORICAL ADJUSTMENTS 1995
---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $ 346 $ 279 $ 625
Investments................................................. 1,500 1,500
Accounts receivable, net.................................... 5,691 3,228 $ (47)[b] 8,872
Inventories................................................. 4,533 1,781 (37)[c] 6,277
Deferred income taxes....................................... 2,923 2,923
Prepaid expenses and other.................................. 254 174 428
---------- ---------- ------ ----------
Total current assets...................................... 15,247 5,462 (84) 20,625
FIXED ASSETS, Net............................................. 2,210 988 3,198
INVESTMENTS................................................... 2,487 2,487
OTHER ASSETS.................................................. 1,260 20 1,280
DEFERRED INCOME TAXES......................................... 506 506
---------- ---------- ------ ----------
TOTAL ASSETS.................................................. $ 21,710 $ 6,470 $ (84) $ 28,096
---------- ---------- ------ ----------
---------- ---------- ------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 4,503 $ 1,807 $ (47)[b] $ 6,263
Accrued expenses............................................ 2,330 1,010 730[e] 4,070
Advance contract payments................................... 103 99 202
Loan payable................................................ 1,250 1,250
---------- ---------- ------ ----------
Total current liabilities................................. 6,936 4,166 683 11,785
OTHER LIABILITIES............................................. 213 213
---------- ---------- ------ ----------
Total liabilities......................................... 7,149 4,166 683 11,998
---------- ---------- ------ ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock -- RVSI ($.01 par)............................. 117 19[d] 136
Common Stock -- Acuity ($.01 par)........................... 25 (25)[d]
Additional paid-in capital.................................. 33,047 61,161 6[d] 94,214
Accumulated deficit......................................... (18,603) (59,029) (37)(c) (78,399)
(730)[e]
Cumulative translation adjustment........................... 147 147
---------- ---------- ------ ----------
Total stockholders' equity................................ 14,561 2,304 (767) 16,098
---------- ---------- ------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................... $ 21,710 $ 6,470 $ (84) $ 28,096
---------- ---------- ------ ----------
---------- ---------- ------ ----------
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
59
<PAGE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1994 -- UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
RVSI ACUITY
SEPTEMBER 30, DECEMBER 31, COMBINED
1994 1994 SEPTEMBER 30,
HISTORICAL HISTORICAL 1994
------------- ------------ -------------
<S> <C> <C> <C>
REVENUES............................................................. $ 24,613 $ 22,168 $ 46,781
COST OF REVENUES..................................................... 12,722 9,369 22,091
------------- ------------ -------------
GROSS PROFIT......................................................... 11,891 12,799 24,690
------------- ------------ -------------
OPERATING COSTS AND EXPENSES:
Selling, general and administrative................................ 5,521 6,897 12,418
Research and development........................................... 3,718 3,911 7,629
Nonrecurring costs................................................. 440 440
Interest (income) expense, net..................................... (58) 135 77
------------- ------------ -------------
9,181 11,383 20,564
------------- ------------ -------------
INCOME BEFORE INCOME TAXES........................................... 2,710 1,416 4,126
INCOME TAX BENEFIT (PROVISION)....................................... 401 (110) 291
------------- ------------ -------------
NET INCOME........................................................... $ 3,111 $ 1,306 $ 4,417
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
60
<PAGE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1993 -- UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
RVSI ACUITY
SEPTEMBER 30, DECEMBER 31, COMBINED
1993 1993 SEPTEMBER 30,
HISTORICAL HISTORICAL 1993
------------- ------------ -------------
<S> <C> <C> <C>
REVENUES............................................................. $ 19,943 $ 18,734 $ 38,677
COST OF REVENUES..................................................... 11,454 7,752 19,206
------------- ------------ -------------
GROSS PROFIT......................................................... 8,489 10,982 19,471
------------- ------------ -------------
OPERATING COSTS AND EXPENSES:
Selling, general and administrative.................................. 4,834 6,066 10,900
Research and development............................................. 2,526 3,482 6,008
Nonrecurring costs................................................... 1,091 1,091
Interest expense, net................................................ 25 276 301
------------- ------------ -------------
7,385 10,915 18,300
------------- ------------ -------------
INCOME BEFORE INCOME TAXES........................................... 1,104 67 1,171
INCOME TAX BENEFIT (PROVISION)....................................... 495 (97) 398
------------- ------------ -------------
NET INCOME (LOSS).................................................... $ 1,599 $ (30) $ 1,569
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1992 -- UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
RVSI ACUITY
SEPTEMBER 30, DECEMBER 31, COMBINED
1992 1992 SEPTEMBER 30,
HISTORICAL HISTORICAL 1992
------------- ------------ -------------
<S> <C> <C> <C>
REVENUES............................................................. $ 13,335 $ 16,610 $ 29,945
COST OF REVENUES..................................................... 9,802 7,810 17,612
------------- ------------ -------------
GROSS PROFIT......................................................... 3,533 8,800 12,333
------------- ------------ -------------
OPERATING COSTS AND EXPENSES:
Selling, general and administrative.................................. 2,766 5,174 7,940
Research and development............................................. 1,731 2,862 4,593
Interest expense, net................................................ 19 265 284
------------- ------------ -------------
4,516 8,301 12,817
------------- ------------ -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES......... (983) 499 (484)
PROVISION FOR INCOME TAXES ON CONTINUING OPERATIONS.................. 48 48
------------- ------------ -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS............................. $ (983) $ 451 $ (532)
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes to unaudited pro forma financial information.
61
<PAGE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTHS ENDED MARCH 31, 1995 -- UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
RVSI ACUITY
SIX-MONTHS ENDED SIX-MONTHS ENDED COMBINED
MARCH 31, 1995 APRIL 1, 1995 SIX-MONTHS ENDED
HISTORICAL HISTORICAL ADJUSTMENTS MARCH 31, 1995
----------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
REVENUES................................... $ 16,600 $ 10,777 $ (47)[c] $ 27,330
COST OF REVENUES........................... 7,616 4,540 (10)[c] 12,146
-------- -------- --- --------
GROSS PROFIT............................... 8,984 6,237 (37) 15,184
-------- -------- --- --------
OPERATING COSTS AND EXPENSES:
Selling, general and administrative........ 3,469 3,605 7,074
Research and development................... 2,389 2,046 4,435
Nonrecurring costs......................... 440 440
Interest (income) expense, net............. (96) 39 (57)
-------- -------- --- --------
5,762 6,130 11,892
-------- -------- --- --------
INCOME BEFORE INCOME TAXES................. 3,222 107 (37) 3,292
INCOME TAX BENEFIT......................... 2,060 7 2,067
-------- -------- --- --------
NET INCOME................................. $ 5,282 $ 114 $ (37) $ 5,359
-------- -------- --- --------
-------- -------- --- --------
</TABLE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTHS ENDED MARCH 31, 1994 -- UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
RVSI ACUITY
SIX-MONTHS ENDED SIX-MONTHS ENDED COMBINED
MARCH 31, 1994 APRIL 2, 1994 SIX-MONTHS ENDED
HISTORICAL HISTORICAL MARCH 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES................................................. $ 11,790 $ 10,206 $ 21,996
COST OF REVENUES......................................... 6,439 4,076 10,515
-------- -------- --------
GROSS PROFIT............................................. 5,351 6,130 11,481
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Selling, general and administrative...................... 2,549 3,248 5,797
Research and development................................. 1,798 1,862 3,660
Nonrecurring costs....................................... 1,091 1,091
Interest (income) expense, net........................... (2) 145 143
-------- -------- --------
4,345 6,346 10,691
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................ 1,006 (216) 790
INCOME TAX (PROVISION) BENEFIT........................... 1,093 (34) 1,059
-------- -------- --------
NET INCOME (LOSS)........................................ $ 2,099 $ (250) $ 1,849
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
62
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
[a] Weighted average number of common shares and common share equivalents
calculated using the modified treasury stock method.
[b] The pro forma adjustment to accounts receivable, net and accounts payable
represents the elimination of intercompany balances.
[c] The pro forma adjustment to inventories, revenues and cost of revenues
represents the elimination of intercompany sales and the profit recorded on
such sales.
[d] The pro forma adjustment to common stock and additional paid-in capital
represents the exchange of Acuity common stock for RVSI common stock.
[e] The pro forma adjustment to accrued expenses and accumulated deficit
represents the estimated total expenses related to the Merger.
63
<PAGE>
BUSINESS OF ACUITY
GENERAL
Acuity designs, manufactures, markets and services machine vision systems
for use in industrial automation. These products emulate many of the functions
performed by the human eye and are used for image processing within the
industrial and manufacturing processes to perform such functions as measurement,
flaw detection, verification of the presence and correctness of parts and
subassemblies, and inspection of manufactured products. Typically, this
equipment is utilized in applications where human inspection is not practical or
where the use of machine vision systems is faster, more reliable and more
economical than human inspection. Acuity's products utilize a combination of
software, an image processing computer and electronic cameras to perform their
functions.
Vision systems designed for the general purpose market comprise the largest
segment of Acuity's revenues, representing 69% of total Acuity revenues in 1994,
as compared to 64% in 1993 and 60% in 1992. Acuity believes that this market
will continue to be its largest market and Acuity expects to concentrate its
efforts on this market. Acuity's primary products for the general purpose market
are the Powervision 90-Registered Trademark-, Powervision
60-Registered Trademark-, IVS-Registered Trademark- and Mentorvision-TM-. Vision
systems designed for niche (application specific) markets have comprised a
smaller share of Acuity's total revenue for the past several years.
Specifically, in 1994 revenues from niche market products represented 17% of
total Acuity revenues as compared to 22% in 1993 and 24% in 1992. Acuity
believes that this market will continue to be an important part of its business
but its percentage of total revenue is expected to decrease as compared to the
general purpose market percentage of total revenues. Acuity's primary products
for application specific markets are the I-Pak-Registered Trademark- and the
Data Matrix Reader-TM-.
The average sales price of a configured system is approximately $20,000.
System prices range from $7,500 to $40,000 or more depending on additional
cameras, other options and customized application engineering (basically
software). Acuity markets and sells its products through a combination of a
direct sales force, a distribution channel, OEM's (original equipment
manufacturers) and system integrators.
BUSINESS AND PRODUCTS
Acuity's main business is the general purpose machine vision market for
automatic inspection of manufactured products, with emphasis on harsh
environments such as manufacturing facilities that require computers specially
designed to allow for operation in hot, dusty or dirty environments, such as
those that may be found on a factory floor.
Machine vision systems generally consist of one or more video cameras and
associated microcomputers and software that analyze images and extract
information about objects and their location in the field of view of the camera.
Acuity's primary application areas include:
- Assembly verification
- Date and lot code reading
- Flaw detection
- Gauging and measurement
- Label verification
- Product identification
Industries most frequently choosing Acuity's products are:
- Electronics and Semiconductor
- Medical instrumentation
- Pharmaceutical
- Transportation and vehicles
64
<PAGE>
Acuity believes that the largest market for machine vision is found in
diverse automation applications arising in many manufacturing processes.
Acuity's products are designed to enable manufacturers to increase the quality
of their products. Acuity has focused on developing products that are easy to
use and provide superior performance and value for the markets served.
Acuity has developed many general purpose machine vision products that are
used in a wide variety of applications. In addition, Acuity has developed
specialized products with both vertical and horizontal applications. Vertical
application specific products such as Acuity's I-Pak-Registered Trademark- are
sold into specific industries to solve particular industry related problems (see
"I-PAK") while the horizontal application specific products such as Acuity's
Data Matrix Reader-TM- are designed to solve specific generic problems which are
not particular to any one industry (see "Data Matrix Reader").
Acuity's objective is to design products that continually improve the
productivity of its customers at a cost effective price. Acuity's use of
flexible product architecture allows it to offer products with a wide range of
price and performance characteristics so that its customers do not need to pay
for performance or features that are not required. Whatever the product or
application, Acuity's strategy in the field of factory floor automation
encompasses the following elements:
- COMPATIBILITY WITH FACTORY STANDARDS Acuity's products are designed for
direct integration into standard manufacturing systems. The use of factory
standards allows Acuity's products to be viewed by its customers as a
complementary component to standard products already familiar to the customer.
- FLEXIBLE PRODUCT ARCHITECTURE The software and hardware components of
most of Acuity's products are designed so that the basic core technology can be
easily adapted to meet specific product requirements. This allows Acuity to
package products to meet varying market requirements, to minimize time to market
and to leverage its development costs.
- EASY TO USE PRODUCTS Acuity's products are designed for ease of use and
implementation by manufacturing engineers, distributors and systems integrators.
Acuity's products are set up, or programmed, for a specific application
utilizing either a standard PC compatible computer running Microsoft Windows or
an Apple Computer environment using Acuity's proprietary language, or the
standard X Windows/Motif environment. Set-up is accomplished with the use of
pull down menus and icons using everyday language. The fact that little or no
specialized knowledge of machine vision is required to set up these products
improves their market acceptance.
Acuity supplies vision systems based on its software products running stand
alone or in conjunction with a standard computer platform. Acuity's products
utilize proprietary and third-party image processing, I/O, and motion control
boards. The main computer platforms are an industrially hardened
Apple-Registered Trademark- computer and PLC's that run Acuity and other
third-party hardware and software.
Acuity's products are sold across a broad segment of industrial markets
including to automotive, consumer, electronics, manufacturing and pharmaceutical
customers. Acuity has established relationships with certain key manufacturers
and distributors of factory automation equipment when it perceives such
equipment to be complementary to its products (see "Marketing Alliances").
Approximately 19% of Acuity's 1994 revenues were international (outside North
America) as compared to 26% in 1993 and 17% in 1992. Acuity's business is not
considered to be seasonal and Acuity believes that its product lines are broad
enough so that prevailing economic conditions in any one particular industry do
not materially affect Acuity's overall revenues. For the purpose of segment
reporting, management considers Acuity to operate in one industry, the machine
vision industry.
Acuity sells to four types of customers: the end user solving a specific
problem (sold through distribution or directly); the internal integrator, an
experienced vision engineer generally within a Fortune 500 company with the
skills and resources to apply the machine vision technology to various
application problems within the many operations of the engineer's company; the
external systems integrator who services the end-user market by providing
engineering, software, and integration services; and OEM's who embed Acuity's
products in the OEM's equipment.
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The average sales price of a configured system is approximately $20,000.
System prices range from $7,500 to $40,000 or more depending on additional
cameras, other options and customized application engineering (basically
software).
Acuity has concentrated, and expects to continue to concentrate, its
development and marketing efforts on the Powervision 90-Registered Trademark-,
Powervision 60-Registered Trademark-, IVS-Registered Trademark-, and
Mentorvision-TM- general purpose vision systems, and the Data Matrix Reader-TM-
and I-Pak-Registered Trademark- niche products. Acuity continues to support the
older Autovision-Registered Trademark- proprietary hardware/software vision
system, the MVP-Registered Trademark- general purpose vision system and several
niche products which collectively are not expected to represent a significant
part of Acuity's future revenue.
HARDWARE
Acuity supports and re-sells a wide variety of products that complement its
focus on machine vision and image analysis. As an authorized Value Added
Reseller, Acuity can recommend, sell, service and support certain Apple computer
products in addition to its own proprietary products. See "Materials and
Supply."
Acuity manufactures an industrially packaged version of various models of
computers sold by Apple-Registered Trademark- Computer and also resells certain
other standard Apple Computer products bundled with its software as
workstations. In addition, Acuity also sells proprietary equipment and other
third-party add-in hardware and software products.
SYSTEMS
Vision systems designed for the general purpose market comprise the largest
segment of Acuity's revenues, representing 69% of total Acuity revenues in 1994,
as compared to 64% in 1993 and 60% in 1992. Acuity believes that this market
will continue to be its largest market and Acuity expects to concentrate its
efforts on this market. Acuity's primary products for the general purpose market
are described below.
- POWERVISION 90 (PV90) is a high-resolution, gray scale machine vision
system featuring advanced image processing, analysis, and graphics tools to meet
demanding industrial vision needs. The Powervision 90 is an effective solution
for a wide range of measurement, inspection, assembly verification, and motion
guidance applications. The system's architecture, which is based on Apple's
Power Macintosh computer and Acuity's proprietary Image Analyst/Source software
package, offers performance and flexibility to meet the customers' requirements.
- POWERVISION 60 (PV60) is a more compact and lower cost version of the
Powervision 90 for applications that do not require options for expansion.
- IVS, an acronym for Intelligent Visual Sensors, is a high speed gray
scale machine vision system designed to address the broad general industrial
marketplace. Characteristics of IVS include high speed processing, ease of use
and high performance. Typical IVS system configurations address the low to
medium price ranges of the market. The system is designed on industry standards
including VME or ModBus Plus interfaces and standard 6U VME Eurocard format. It
is sold as either a board-level product or as a stand-alone unit with a
self-contained power supply and input/output control. IVS is also designed to be
easy to program and to appeal to the broad requirements of most industrial
customers who do not have machine vision expertise.
In recent years, Acuity has focused attention on the Powervision and IVS
product lines, including establishment of a worldwide distribution network.
Acuity believes that revenues from these product lines will increase.
- MENTORVISION is a new type of machine vision inspection system which
Acuity introduced to the vision market in the fourth quarter of 1994. Acuity
believes that Mentorvision represents an advancement in the commercial
application of electronic inspection products for the packaging industry for two
reasons: (1) Mentorvision learns without programming, by viewing "good" products
on the assembly line; and (2) Mentorvision can detect a wide variety of flaws in
product appearance that may
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be unpredictable as to size, cause, type or location of the product. Acuity
believes that Mentorvision is able to address some of the most demanding, and
previously un-addressable, requirements in the packaging industry. Acuity has
only had minimal sales of this product in 1995, and has significantly decreased
its original sales projections for this product for the balance of 1995.
Acuity currently sells two other general purpose products: Autovision 100, a
high-speed, high-resolution, gray scale vision system; and MVP, a high
performance product utilized when a high degree of features and performance are
required in one product. Acuity does not anticipate any significant revenues
from these products in the future.
Vision systems designed for niche (application specific) markets have
comprised a smaller share of Acuity's total revenue for the past several years.
Specifically, in 1994 revenues from niche market products represented 17% of
total Acuity revenues as compared to 22% in 1993 and 24% in 1992. Acuity
believes that this market will continue to be an important part of Acuity's
business but its percentage of Acuity's total revenue is expected to decrease as
compared to the general purpose market percentage of Acuity's total revenues.
Acuity's products for application specific markets are described below.
- I-PAK is a product designed to meet the needs of the pharmaceutical
industry to verify that the correct label has been applied to pharmaceutical
products and that the lot and date code printed on the label are legible. I-Pak
performs this function at manufacturing line speeds. I-Pak employs a customized
user interface that has been specifically designed to meet label inspection
needs of pharmaceutical customers. I-Pak requires minimum user programming and
has been designed for ease of use and integration into the manufacturing line.
Acuity recently released a new version of this product named the I-Pak V-100.
- DATA MATRIX READER began initial shipments in 1993. Unlike bar codes
which have rigid print tolerances, data matrix codes can be read more easily and
applied directly to the surfaces being marked. Data matrix codes allow large
amounts of coded information to be printed in a small space. In general,
manufacturers are requiring that more information be encoded on their products.
The Data Matrix Reader reads matrix-coded information at line speeds and permits
traceability of product, even with small, hard-to-mark products. Revenues from
this product's first year were encouraging and Acuity believes that the product
will experience revenue growth.
Acuity currently sells three other niche products: ICIS, a product designed
to inspect the final packaging of semiconductor devices; CLS-500, a precision
machine vision gauging system; and the Blister Pak Inspection Machine, a product
designed for the pharmaceutical industry to inspect blister packaged tablets and
capsules. Acuity does not anticipate any significant revenues from these
products in the future.
ENGINEERING SERVICES
Acuity has been awarded nine R&D contracts aggregating approximately $2
million during the past three years by various agencies of the U.S. Government
under the SBIR program. Work on several of these contracts continues and Acuity
plans to bid on new contracts in the future. Acuity believes that R&D under the
SBIR contracts may lead to products with possible commercial applications.
Revenues from the SBIR program represented 3% of total revenues in 1994, 4% in
1993 and 2% in 1992. R&D labor costs associated with the SBIR contracts are
included in Research and Development expenses in Acuity's financial statements.
These represented 4%, 7% and 3% of total Research and Development expenses for
1994, 1993 and 1992, respectively.
MARKETING, SALES AND SERVICE
Acuity markets its products worldwide through a direct marketing, sales and
sales application engineering force of 33 persons and through distributors,
OEM's and system integrators.
Acuity has approximately 50 distributors in 80 locations in North America,
Europe and Asia. Acuity believes that sales through distributors allows Acuity
to leverage its sales force and potentially
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sell to a larger customer base than could be served on a direct sales basis.
Acuity supports its distribution channels with regional sales managers and sales
application engineers who support and interface directly with the distributors
and end-user customers. In addition, Acuity provides sales and product training
to the distributors and end customers as well as technical product support.
Acuity intends to continue to expand its distribution channels while also
utilizing its direct sales force to sell directly to strategic accounts.
Distributors are usually signed to a one year renewable contract covering a
defined territory. The distributors are required to purchase certain
demonstration equipment from Acuity and are prohibited from carrying vision
products which are competitive to those of Acuity. The contract is cancelable
upon 30 day written notice from either party. Sales to Acuity's distributors are
made at a percentage off of Acuity's standard list prices.
AEG/Modicon, GE Fanuc and Siemens, which are major manufacturers of factory
automation equipment, including programmable logic controllers (PLCs), have
allowed their independent distributors to carry Acuity products in order to
possibly increase sales of their own products. They compete directly with Allen
Bradley, a large company that manufactures and sells programmable logic
controllers as well as its own line of machine vision products. Since
AEG/Modicon, GE Fanuc and Siemens do not produce their own machine vision
products, the availability of Acuity products that directly interface with their
products can be an important component in enhancing sales of their PLCs. Acuity
believes that the features of its products, such as ease of use and ability to
interface directly with standard factory automation equipment, facilitates
acceptance of Acuity products by distributors of these PLCs.
Visits by customers to Acuity's facilities and demonstrations of its systems
are important elements in sales. Acuity's corporate facility is located in
Nashua, New Hampshire. In addition to this facility, Acuity maintains regional
sales offices in or near Cincinnati, Dallas, Detroit, Milwaukee, Philadelphia,
Sacramento and Tampa. Acuity has a wholly-owned subsidiary based in Coventry,
United Kingdom (Acuity Imaging Limited) for sales and application engineering in
the United Kingdom and Ireland. Sales to continental Europe and Asia/Pacific are
serviced by the Nashua corporate facility.
In 1994 Brown & Williamson was Acuity's largest customer accounting for 16%
of total revenues. These revenues were a result of a $3.6 million contract from
Brown and Williamson for 60 machine vision-based integrated package inspection
systems which Acuity completed in December 1994. In 1993 and 1992 Motorola, Inc.
was Acuity's largest customer, accounting for 12% and 15%, respectively, of
total revenues. Revenues by product line and by geographic location for the two
years ended December 31, 1994 are presented and discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Acuity." Historically, Acuity has had one or two customers which have accounted
for a large percentage of its total revenues for a given year. Acuity recognizes
the potential effects of reliance upon a few significant customers and therefore
continues to attempt to expand its market share through a diversified customer
base. As of year-end 1994 and also as of the date of this Proxy
Statement/Prospectus, Acuity did not have any order or contract in its backlog
that would compare with the size of the Brown & Williamson contract which was
booked in March 1994 and which accounted for a significant part of Acuity's
total 1994 revenues.
Management believes that comprehensive customer support and service are key
to customer satisfaction and loyalty. Major emphasis is placed on customer
service and support because of the importance of maintaining uninterrupted
operations in the customers' manufacturing process. Acuity has three programs
that address customer support: customer service, training and application
assistance. Customer service provides support to customers during the 90 day to
one-year product warranty period, and subsequently by providing various programs
designed to meet different customer needs after the warranty period. Field
service personnel are also available to assist on service calls, as required.
Training classes are provided for those customers who feel the need for
additional information regarding the installation or operation of Acuity
products. Application assistance is available in
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situations where customers may desire on-site support during their installation.
Acuity works with its distributors or directly with its end customers on the
above programs to ensure that the end user of Acuity's products are given the
best possible service and support and to assure efficient product installation
for those customers requiring additional assistance. In 1994 service revenue,
including spare parts and training, was 8% of total revenues; the comparable
amounts were 8% in 1993 and 9% in 1992.
MATERIALS AND SUPPLY
Acuity assembles all of its machine vision systems and also manufactures
several products. Acuity purchases the PowerPC computers used in the Powervision
90 and Powervision 60 product lines. All components of a complete product are
integrated by Acuity and tested prior to shipment to customers for integration
into their manufacturing process.
Several of the components are purchased from single sources. Acuity believes
that alternative sources of supply could be obtained without major interruption
in production. The Power PC, the key component of the PV90 and PV60, is
currently purchased from Apple Computer, Inc. ("Apple"). Acuity has entered into
a Value Added Reseller Agreement with Apple, which agreement may be canceled
upon thirty days written notice by either party. Acuity believes that its
relationship with Apple is good. Acuity believes that alternative sources (i.e.,
manufacturers of the newly introduced clones of Apple's, Power PC and retailers
of Apple's Power PC) of such component are available, but the price charged by
these alternative sources could be higher than the price Acuity is currently
being charged by Apple.
COMPETITION
The machine vision industry is comprised of over 100 companies, many of
which are small companies serving different market segments. No one company is
recognized as the dominant force in the marketplace. Acuity believes that a high
level of competition will continue. While some of Acuity's current competitors
are larger and have greater financial resources than Acuity, many of them are
smaller and have less financial resources and smaller customer bases than
Acuity. However, the technological development barriers to entering the machine
vision market are not high. Therefore, companies which are substantially larger
and have greater financial resources than Acuity could enter the field and
become strong competitors. Foreign competition, particularly from major
companies in Western Europe and Japan, has also been a major factor in many
markets. Price competition has been substantial in all the markets and Acuity
believes such competition could become more intense.
Acuity's main competitors vary depending upon the particular product. The
primary competitors include Allen Bradley, PPT, Cognex and View Engineering.
However, for many of Acuity's products competition tends to be more widespread
with no primary competitor.
Acuity believes its products compete favorably in terms of total capability
provided, ease of use and integration, ability to upgrade, customer support and
other aspects of the total reason for purchase by a customer. Acuity believes
its products are priced competitively as compared to competitors' systems while
often offering greater total capability or performance than the competition.
INTELLECTUAL PROPERTY
Acuity holds four U.S. patents relating to a vision system (#4,557,344)
expiring in March 2003, a vision inspection system (#4,581,762) expiring in
April 2003, an encoder interface (#4,597,081) expiring in June 2003, and a
symmetry calibration method for multiconfiguration robots (#4,841,762) expiring
in June 2006. Acuity does not believe that its present operations are materially
dependent upon the proprietary protection that may be available to Acuity by
reason of any one or more of such patents. Moreover, as its patent position has
not been tested, no assurance can be given as to the effectiveness of the
protection afforded by its patent rights.
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Acuity has a number of U.S. and foreign registered trademarks including
"Acuity". Acuity claims a copyright in its software and, where it considers it
appropriate, the software is sought to be protected as a trade secret by means
of contractual undertakings by users of the software. There can be no assurance
that any of these measures will prove legally effective or commercially
valuable.
Acuity believes that it has significant trade secrets and know-how related
to its products, and it relies primarily on the common law protection of this
information as trade secrets and on confidentiality agreements with its
employees and customers to protect such advantages as such information may
represent. A number of Acuity's competitors develop, produce and market products
similar to those of Acuity and there is no reason to believe that potential
competitors cannot do the same if they so choose. There can be no assurance that
competitors, in both the United States and foreign countries, many of which have
substantially greater resources, will not seek to apply for and obtain patents
that will prevent, limit or interfere with Acuity's ability to make and sell its
products. Acuity has received various assertions of infringement or threats of
litigation along these lines from time to time in the past and may again in the
future.
RESEARCH AND DEVELOPMENT
Acuity continues to devote significant resources to product development in
the areas of image processing, computer hardware design and software
development. During the three years ended December 31, 1994, 1993, and 1992,
respectively, Acuity spent $3,911,000, $3,482,000, and $2,862,000 on research,
development, customer application activities and R&D under the SBIR contracts.
The industries in which Acuity operates are subject to rapid and continued
technological change especially as it relates to computer hardware platforms,
and while such change could render obsolete the present products, Acuity expects
to expend significant additional sums in the future, as it has in the past, to
improve and expand its product lines as its resources may allow. Acuity has not
experienced any material effects as a result of product obsolescence.
ENVIRONMENTAL CONDITIONS
Acuity's facilities are subject to numerous laws and regulations of the U.S.
and U.K. governments, as well as state and local jurisdictions, designed to
protect the environment, particularly from plant wastes and emissions. In
management's opinion, it is complying with such laws and regulations, and
compliance has not had and is not expected to have a material adverse effect
upon Acuity's financial condition or results of operations.
EMPLOYEES
As of December 31, 1994, Acuity had 117 full-time employees, of whom 27 were
engaged in manufacturing and customer service activities, 44 were involved in
research, development and home office customer application activities, 33 were
performing marketing, sales and field sales application functions, and 13 were
providing administrative services. Of these totals, Acuity Imaging Limited
(Acuity's wholly owned U.K. subsidiary) employed 5 in application engineering
and customer support, 4 in marketing and sales, and 1 in administrative
functions. The 1994 year-end headcount of 117 compares with a total of 110 at
the end of 1993 and 103 at the end of 1992. At the end of the first quarter of
1995 Acuity reduced its headcount to 113. The reduction consisted of 6 full time
employees and 4 full time sub-contractors.
None of Acuity's employees is represented by a labor organization. Acuity
considers its relations with its employees to be excellent. Acuity has
experienced reductions in staff during the past including the above referenced
reduction in the first quarter of 1995.
FACILITIES
Acuity leases 50,114 square feet in Nashua, New Hampshire for its corporate
office. The lease commenced in April, 1994 and carries a term of six years,
expiring in April, 2000. The square foot rental rate changes yearly as follows:
$4.45, $4.15, $4.20, $4.35, $4.45, and $4.75. Acuity believes this facility is
adequate to meet its needs for the foreseeable future without any material
renovations or improvements.
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Acuity also leases sales and service facilities in or near Cincinnati,
Detroit, Milwaukee, Philadelphia and Sacramento in the United States and
Coventry in the United Kingdom. These leases are for short terms and the amounts
involved are not material. See Note 10 to Acuity's Consolidated Financial
Statements.
LEGAL PROCEEDINGS
To Acuity's knowledge, there are no material pending legal proceedings to
which Acuity is a party. Due to the nature of Acuity's business it may from time
to time become involved in various litigation including litigation relating to
patents and the ownership of intellectual property. The defense and prosecution
of patent suits is both costly and time-consuming, even if the outcome is
favorable. An adverse outcome in the defense of a patent suit could subject
Acuity to significant liabilities to third parties, require disputed rights to
be licensed from third parties, or require Acuity to cease selling some of its
products. Acuity has received various assertions of infringement or threats of
litigation along these lines from time to time in the past and may again in the
future.
COGNITION (DISCONTINUED OPERATIONS)
Included in the financial statements of Acuity for the years ended 1992,
1991 and 1990 under the caption "Discontinued Operations" are the results of
operations of its then partially owned subsidiary, SuperCads Inc. (known by its
trade name, Cognition). The subsidiary operated in the field of CAD/ CAM,
selling primarily software packages. On July 15, 1992, after 4 1/2 years of
Cognition losses totaling $4.3 million, Acuity sold Cognition to Cadema
Corporation of Middletown, New York. Subsequently, Cadema disposed of Cognition
which now operates as an independent private company. Acuity has no equity, or
other, interest in Cognition. Cognition's products were the Advantage CAD/ CAM
modules and the CAE offerings of Mechanical Advantage-Registered Trademark- and
Cost and Manufacturability Guide-Registered Trademark-. Net revenues for
Cognition were $608,000 (through the date of its sale) in 1992, $1,713,000 in
1991, and $1,338,000 in 1990. Net losses were $147,000 (through the date of its
sale) in 1992, $333,000 in 1991, and $1,188,000 in 1990.
MANAGEMENT OF ACUITY
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Acuity are as follows:
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------ ------------------------------------------------------------------------------
<S> <C>
Ofer Gneezy President and Director
John E. Agapakis Vice President, R&D
Alvin Hubbard Vice President, Operations
William Riley Vice President, Engineering
John A. Rogers Vice President, Finance, Treasurer, and Chief Financial Officer
Brian St. Pierre Vice President, Sales
R. Schorr Berman Director
Donald J. Kramer Chairman of the Board of Directors
C. William McDaniel Director
</TABLE>
Ofer Gneezy, age 43, President and a Director of Acuity since September
1990, Chief Executive Officer from September 1990 to January 1994, and Treasurer
from March 1991 until January 1992. General Manager of Acuity since April 1990
and previously Vice President of Software Development. Mr. Gneezy has been
employed full time by Acuity since January 1980.
John E. Agapakis, age 38, Vice President, Research and Development since
January 1992. Previously Director of Engineering, R&D Program Manager, Senior
Engineer, and Systems Engineer. Mr. Agapakis has been employed full time by
Acuity since August 1984.
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Alvin Hubbard, age 50, Vice President, Operations since January 1994.
Previously Vice President of Operations of Itran Corp. from 1992 to January 1994
and previously its Director of Materials from 1984 to 1992. Mr. Hubbard has been
employed full time by Acuity (including time served with Itran) since May 1984.
William Riley, age 51, Vice President, Engineering since January 1994.
Previously Vice President, Engineering of Itran Corp. from 1989 to January 1994
and Vice President, Operations of Eikonix Digital Imaging from 1987 to 1989. Mr.
Riley has been employed full time by Acuity (including time served with Itran)
since May 1989.
John A. Rogers, age 37, Vice President, Finance since January 1992, Chief
Financial Officer and Treasurer from June 1994 and from January 1992 to January
1994, Chief Accounting Officer since January 1991. Mr. Rogers was previously
Controller and Treasury Manager. Mr. Rogers has been employed full time by
Acuity since April 1984.
Brian St. Pierre, age 38, Vice President, Sales since June 1994 and
previously Director of Sales from January to June 1994. Previously Director of
Sales of Itran Corp. from 1989 to 1993. Mr. St. Pierre was previously Product
Manager of Itran Corp. Mr. St. Pierre has been employed full time by Acuity
(including time served with Itran) since November 1984.
R. Schorr Berman, age 46, Director of Acuity since September 1986. Mr.
Berman is President of MDT Advisers, Inc., an asset management firm, which
primarily manages the investments of Memorial Drive Trust of which he is the
administrator. Memorial Drive Trust is the Trustee for the Arthur D. Little,
Inc. Employees' Retirement Plan. Memorial Drive Trust was the beneficial owner
of more than 5% of Acuity's Common Stock during part of 1994 and for several
previous years. Mr. Berman was previously an investment officer at MDT Advisers,
Inc. Mr. Berman is also a Director of Arch Communications Group, Inc. and Helix
Technology Corporation, and several privately held companies.
Donald J. Kramer, age 62, Chairman of the Board of Directors since January
1994. Mr. Kramer served as a Director of Itran Corp. from 1982 until its merger
with Acuity in January 1994. Mr. Kramer has been a private consultant and
special limited partner of TA Associates, a private equity capital firm located
in Boston, Massachusetts, since January 1990. For the previous five years, Mr.
Kramer was a general partner of TA Associates. Mr. Kramer is also a director of
Varitronic Systems, Inc. and Micro Component Technology, Inc., and several
privately held companies.
C. William McDaniel, age 54, Director of Acuity since January 1994. Mr.
McDaniel served as a Director of Itran Corp. from 1984 until its merger with
Acuity in January 1994. He was President and a director of CP Ventures, Inc.
from 1986 to March 1995. He serves as a director of several other public and
private companies, including Natural MicroSystems and UltraCision, Inc.
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EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for services
rendered during the last three completed fiscal years to Acuity with respect to
(1) the Chief Executive Officer, and (2) each of Acuity's four other most highly
compensated executive officers, based on salary and bonus earned during 1994
(the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
--------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION (1)
- -------------------------------- --------- ----------- --------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
John Pemble (2) 1994 $ 126,166 $ 35,000 10,000 $ 605
Former CEO
Ofer Gneezy (3) 1994 $ 115,003 $ 35,000 10,000 $ 605
President 1993 95,014 15,000 -- 550
1992 90,002 3,500 9,187 498
Brian St. Pierre (4) 1994 $ 152,122 -- 5,000 $ 518
V.P. Sales
John Agapakis (5) 1994 $ 102,003 $ 19,000 7,000 $ 590
V.P. R&D 1993 82,014 8,000 -- 475
1992 75,005 2,000 6,532 435
William Riley (6) 1994 $ 103,926 $ 16,000 6,000 $ 605
V.P. Engineering
<FN>
- ------------------------
(1) Term life insurance premiums paid by Acuity on behalf of the named
individual. Coverage extends only for the period of employment and there is
no cash value or refunds, from the policy, to the named individual.
(2) Mr. Pemble became Chief Executive Officer on January 26, 1994. The above
amounts reflect compensation earned from January 26, 1994 to December 31,
1994. Mr. Pemble resigned from Acuity effective January 27, 1995.
(3) Mr. Gneezy was the Chief Executive Officer of Acuity until January 26,
1994. He is currently the President of Acuity.
(4) Mr. St. Pierre became Vice President of Sales on June 27, 1994. The above
amounts reflect compensation earned from January 26, 1994 to December 31,
1994.
(5) Mr. Agapakis is the Vice President of R&D.
(6) Mr. Riley became the Vice President of Engineering on January 26, 1994. The
above amounts reflect compensation earned from January 26, 1994 to December
31, 1994.
</TABLE>
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<PAGE>
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------
PERCENT OF
TOTAL OPTIONS
NUMBER OF GRANTED TO PER SHARE
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION
NAME GRANTED (1) FISCAL YEAR BASE PRICE DATE
- ------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John Pemble (2) 10,000 13.2% $ 9.82 01/27/95(2)
Ofer Gneezy 10,000 13.2% $ 9.82 04/13/04
Brian St. Pierre 5,000 6.6% $ 9.82 04/13/04
John Agapakis 7,000 9.2% $ 9.82 04/13/04
William Riley 6,000 7.9% $ 9.82 04/13/04
<FN>
- ------------------------
(1) Options to acquire Common Stock. All grants are under Acuity's 1991 Stock
Option Plan, as amended. Such options are not transferable, other than by
will or the laws of descent and distribution. Such options were granted on
April 13, 1994 and will become exercisable at a rate of 25% annually,
beginning on the first anniversary of the grant.
(2) Mr. Pemble resigned from Acuity effective January 27, 1995 with none of the
above options exercisable.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FY-END AT FY-END (1)
---------------- --------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ------------------- ----------------- ------------- ---------------- --------------------
<S> <C> <C> <C> <C>
John Pemble (2) 0 0 57,973/10,000 $ 383,202/$0
Ofer Gneezy 0 0 27,484/19,263 $ 145,146/$58,923
Brian St. Pierre 0 0 4,896/6,014 $ 32,363/$6,703
John Agapakis 0 0 5,921/10,266 $ 27,965/$20,315
William Riley 0 0 21,725/6,000 $ 143,602/$0
<FN>
- ------------------------
(1) Value is calculated based on the closing bid price of Acuity's Common Stock
as of Friday, December 30, 1994 ($7.50) minus the exercise price multiplied
by the number of shares to which the option relates.
(2) Mr. Pemble resigned from Acuity effective January 27, 1995. On March 21,
1995 Mr. Pemble exercised his options for 57,973 shares at a total exercise
price of $51,596.
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
On January 27, 1995 Mr. Pemble resigned as Chief Executive Officer and
Director of Acuity. In connection with his departure, Acuity paid Mr. Pemble one
year of salary and agreed to pay his health insurance premiums under Acuity's
sponsored health plan for up to one year.
COMPENSATION OF DIRECTORS
In January 1994, the Board of Directors approved compensation for outside
directors of $1,250 per meeting attended ($2,000 for the Chairman of the Board),
including any special meeting or committee meeting not held on the same day as a
regularly scheduled meeting of the Board of Directors. In 1993, compensation for
outside directors had been $500 per meeting attended.
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In January 1994, Acuity adopted the Acuity Imaging, Inc. Non-Employee
Director Stock Option Plan under which members of the Board of Directors who are
not employees of Acuity are automatically granted non-qualified stock options on
the date of the first meeting of the Board in each calendar year to purchase the
lesser of (i) 1,550 shares or (ii) the number of shares determined by dividing
$25,000 by the fair market value of a share of Acuity's Common Stock as of the
date of the grant. The exercise price for such options will be equal to the fair
market value of Acuity's Common Stock on such date. The Plan provides that
options to purchase up to an aggregate of 50,000 shares of common stock may be
granted under the Plan. Each option is fully exercisable one year after the
grant date and expires at the end of ten years and one day after the grant date.
In January 1994, Acuity granted, pending stockholder approval, which was
subsequently granted, options for 6,200 shares of common stock at $8.50 per
share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 15, 1992, the owners of all of the outstanding securities of
SuperCads Inc., including Automatix Incorporated (the predecessor to Acuity),
Michael Cronin, a former Chairman of the Board and Executive Officer of
Automatix, and Memorial Drive Trust and ABS Ventures III Limited Partnership,
each then the beneficial owners of more than 5% of the common stock of
Automatix, sold all of their interests in SuperCads Inc. to Cadema Corporation,
a publicly held company. At the time of the transaction, SuperCads Inc. was a
71% owned subsidiary of Automatix. In connection with this transaction,
Automatix received $300,000 in cash and an 8% note payable June 15, 1994 in the
principal amount of $540,000 (the "Automatix Cadema Note"). Each of Mr. Cronin,
Memorial Drive Trust, and ABS Ventures III Limited Partnership received
five-year interest free convertible notes in the face amount of $12,000,
$300,000 and $120,000 respectively (the "Interest-Free Cadema Notes").
On May 28, 1993, as a condition to the closing of a transaction in which a
group of investors led by Mr. Cronin acquired all of the outstanding securities
of SuperCads Inc. (which had since changed its name to Cognition Corporation)
from Cadema Corporation, Mr. Cronin purchased the Automatix Cadema Note
(together with all accrued and unpaid interest thereon) from Automatix in
exchange for (i) the transfer by Mr. Cronin to Automatix of 750,000 shares of
Automatix common stock (pre 1 for 20 reverse stock split), and (ii) the
surrender by Mr. Cronin to Automatix of an option held by him to acquire from
Automatix 400,000 shares of Automatix common stock (pre 1 for 20 reverse stock
split) at a purchase price of $.39 per share (equivalent to $7.80 per share with
respect to Acuity Common Stock). In the subsequent acquisition of Cognition
Corporation: (a) Mr. Cronin transferred the Automatix Cadema Note to Cadema
Corporation in exchange for all the issued and outstanding common stock of
Cognition Corporation; (b) Mr. Cronin, Memorial Drive Trust and ABS Ventures III
Limited Partnership (among other investors) each exchanged the Interest-Free
Cadema Notes respectively held by them, and paid a small amount of cash, for
shares of a newly authorized Series A of preferred stock of Cognition
Corporation; and (c) Mr. Cronin (among other investors) purchased for cash
shares of a newly authorized Series B preferred stock of Cognition Corporation.
Memorial Drive Trust was the holder of $1,000,000 face value 10% unsecured
subordinated notes issued in 1986 in connection with a financing under which
Acuity was required to make a payment to Memorial Drive Trust and the other
noteholders in the aggregate of $3,502,123 on June 30, 1994. Acuity retired such
notes with a payment of $3,418,740 (including $1,590,111 to Memorial Drive
Trust) on April 1, 1994. In connection with its investment in these notes,
Memorial Drive Trust also received warrant rights to purchase 66,667 (adjusted
for a 1 for 20 reverse split) shares of Common Stock at an exercise price of
$8.00 (adjusted for a 1 to 20 reverse split) per share, which expired
unexercised on June 30, 1994. Memorial Drive Trust was the beneficial owner of
more than 5% of the Common Stock of Acuity during part of 1994 and several
previous years, and Mr. Berman, the President of MDT Advisers, Inc. which
primarily manages the investments of Memorial Drive Trust, is a Director of
Acuity.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of July 31, 1995 information concerning
the beneficial ownership of Acuity Common Stock and information concerning
beneficial ownership of RVSI Common Stock if the Merger is consummated by: (i)
those persons known to Acuity to own beneficially more than 5% of its
outstanding Common Stock, (ii) each director of Acuity, (iii) each of the Named
Executives and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT,
AMOUNT, NATURE AND
NATURE AND PERCENTAGE OF
PERCENTAGE OF BENEFICIAL
BENEFICIAL OWNERSHIP OF
OWNERSHIP OF RVSI COMMON
ACUITY COMMON STOCK IF THE
NAME AND ADDRESS STOCK BEFORE MERGER IS
OF BENEFICIAL OWNER THE MERGER(1) CONSUMMATED (1)
- ---------------------------------------- ------------- -------------
<S> <C> <C> <C> <C>
R. Schorr Berman (2).................... 67,100 2.7% 51,398 *
Ofer Gneezy (3)......................... 36,950 1.5% 28,303 *
William Riley (4)....................... 23,225 * 17,790 *
John Agapakis (5)....................... 10,747 * 8,232 *
Brian St. Pierre (6).................... 7,238 * 5,544 *
C. William McDaniel (7)................. 7,178 * 5,498 *
Donald J. Kramer (8).................... 6,458 * 4,946 *
All directors and executive officers as
a group (9 persons).................... 173,438 6.7% 132,853 *
<FN>
- ------------------------
* Less than 1%
(1) The person or entity listed above has sole voting and investment power with
respect to shares shown, unless otherwise indicated. The shares shown as
beneficially owned also include shares representing options to purchase
Acuity's Common Stock that are currently exercisable or exercisable within
60 days of July 31, 1995. Computed on the basis of an Exchange Ratio of
0.766 of a share of RVSI Common Stock for each share of Acuity Common
Stock.
(2) Mr. Berman, a Director of Acuity, does not own any shares of Acuity Common
Stock in his own right. His beneficial ownership consists of 2,800 shares
representing options under Acuity's stock option plans that are currently
exercisable or exercisable within 60 days, and 64,300 shares of Acuity
Common Stock beneficially owned by Memorial Drive Trust of all of which
latter shares Mr. Berman disclaims beneficial ownership. Mr. Berman is
President of MDT Advisers, Inc., an asset management and advisory firm,
which primarily manages the investments of Memorial Drive Trust of which he
is the administrator. The business address of Mr. Berman is MDT Advisers,
Inc., 125 CambridgePark Drive, Cambridge, MA 02140.
(3) Mr. Gneezy is a Director and the President of Acuity. Mr. Gneezy's
beneficial ownership consists of 36,950 shares representing options to
purchase Acuity Common Stock that are currently exercisable or exercisable
within 60 days. The business address of Mr. Gneezy is 9 Townsend West,
Nashua, NH 03063.
(4) Mr. Riley is the Vice President, Engineering of Acuity. Mr. Riley's
beneficial ownership consists of 23,225 shares representing options to
purchase Acuity Common Stock that are currently exercisable or exercisable
within 60 days. The business address of Mr. Riley is 9 Townsend West,
Nashua, NH 03063.
(5) Mr. Agapakis is the Vice President, R&D of Acuity. Mr. Agapakis' beneficial
ownership consists of 1,443 shares of Acuity Common Stock held directly and
9,304 shares representing options to purchase Acuity Common Stock that are
currently exercisable or exercisable within 60 days. The business address
of Mr. Agapakis is 9 Townsend West, Nashua, NH 03063.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(6) Mr. St. Pierre is the Vice President, Sales of Acuity. Mr. St. Pierre's
beneficial ownership consists of 1,092 shares of Acuity Common Stock held
directly and 6,146 shares representing options to purchase Acuity Common
Stock that are currently exercisable or exercisable within 60 days. The
business address of Mr. St. Pierre is 9 Townsend West, Nashua, NH 03063.
(7) Mr. McDaniel is a Director of Acuity. Mr. McDaniel's beneficial ownership
consists of 5,628 shares of Acuity Common Stock held directly and 1,550
shares representing options to purchase Acuity Common Stock that are
currently exercisable or exercisable within 60 days. The business address
of Mr. McDaniel is 9 Townsend West, Nashua, NH 03063.
(8) Mr. Kramer is the Chairman of the Board of Directors of Acuity. Mr.
Kramer's beneficial ownership consists of 4,908 shares of Acuity Common
Stock held directly and 1,550 shares representing options to purchase
Acuity Common Stock that are currently exercisable or exercisable within 60
days. The address of Mr. Kramer is P.O. Box 497 West Falmouth, MA 02574.
</TABLE>
DESCRIPTION OF ACUITY'S SECURITIES
ACUITY COMMON STOCK
Acuity is currently authorized to issue up to 10,000,000 shares of its
Common Stock, $.01 par value. As of July 31, 1995 there were 2,486,937 shares of
its Common Stock issued and outstanding, held of record by approximately 3,600
persons.
Holders of shares of Acuity Common Stock are entitled to such dividends as
may be declared from time to time by the Board of Directors in its discretion,
on a ratable basis, out of funds legally available therefor, and to a pro rata
share of all assets available for distribution upon liquidation, dissolution or
the winding up of the affairs of Acuity. All of the outstanding shares of Acuity
Common Stock are fully paid and non-assessable.
TRANSFER AGENT
The transfer agent for Acuity Common Stock is American Stock Transfer and
Trust Company, 40 Wall Street, New York, New York 10005.
REPORTS TO STOCKHOLDERS
Acuity furnishes to its stockholders, after the close of each fiscal year,
an Annual Report which contains audited financial statements. Acuity has not
supplied such a report for the year ended December 31, 1994.
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BUSINESS OF RVSI
HISTORY
The history of RVSI dates back to June 1960 with the founding of Dynell
Electronics Corporation, a manufacturer of large complex radar sets, special
purpose data processing equipment, underwater acoustic detection equipment and
target tracking equipment ("Dynell"). In December 1977, United Technologies
Corp. acquired Dynell for $22 million.
As part of the acquisition, United Technologies agreed to spin-off RVSI,
then a division of Dynell, as an independent publicly-held company to develop a
novel technology dealing with optical three-dimensional measurement and
replication techniques. RVSI operated as a developmental stage company for the
first four years of its existence.
Initially, RVSI applied its vision technology in a project for the U.S.
Navy. RVSI developed a turn-key system to aid the Navy in inspecting propellers
for the Navy's nuclear submarines. This project, along with several other
smaller government projects, provided revenues of approximately $9.5 million
over a period of time from 1980 to the end of 1984. To reflect its concentrated
focus on vision-based systems, RVSI changed its name to Robotic Vision Systems,
Inc. in July 1981.
Having built up a significant base of technology, RVSI began to look to
other industrial markets where it could commercially manufacture and market
vision-based systems. In late 1983, GM sought out RVSI to undertake several
major projects aimed at automating certain automobile manufacturing processes, a
strategic action which GM undertook in an attempt to achieve worldwide
competitiveness. Seeking to avoid the typical vendor-manufacturer relationship
of the automobile industry, RVSI agreed to pursue this direction only if GM
would acquire a significant equity interest in RVSI. In August 1984, GM
purchased an approximately 18% equity interest in RVSI for $8.9 million,
provided RVSI with $3.9 million for research and development and contracted with
RVSI to perform a specific $1.0 million vision related project.
Following the establishment of its relationship with GM, RVSI grew from 60
employees to 225 employees in 1986. RVSI's first project for GM was the design,
manufacturing and implementation of a vision guided robotic sealant turn-key
system. The first equipment purchase order from GM for two of these systems
aggregated $6.0 million. In the first year of its relationship with RVSI, GM
placed orders for projects worth approximately $15.0 million.
Over the course of the next three years, GM dramatically reduced its level
of capital spending, particularly for high tech automation systems. In view of
this development, RVSI sought alternative markets to compensate for declining
revenues in the automotive industry. On an interim basis, RVSI pursued contract
business in the robotic welding systems market. RVSI viewed this step as an
interim means of generating cash flow to offset further declines in the
automotive sector. Between 1987 and 1990, RVSI produced nine welding systems
generating approximately $6.9 million in revenues.
Concurrent with developing its welding systems operations and deciding not
to wait for GM to resume project spending, RVSI sought to apply its core
technology to new applications outside the turn-key robotic systems industry. In
particular, RVSI considered relevant markets to the machine vision industry in
light of its expertise and the advanced state of its technology. RVSI focused on
the electronics industry as having a significant number of applications where
its technology could be applied with identifiable advantages over current
equipment.
RVSI's first area of focus in the electronics industry addressed the
difficulties of manual and 2-dimensional ("2-D") inspection methods for printed
circuit boards. As a source of low-cost research, RVSI initially undertook a
U.S. Navy project, funded through IBM, to study the feasibility of fully
automating the highly labor intensive and error-prone circuit board inspection
process. This study ultimately resulted in RVSI's receipt of approximately $3.0
million in development funding from IBM and the U.S. Navy to develop automated
solder joint inspection applications for vision technology. Building on this
research, RVSI successfully completed the engineering and development of the
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HR-2000, a fully automated 3-D solder joint inspection and process control
system, by the spring of 1989. Over the next two years, RVSI installed HR-2000
units at several defense electronics manufacturing houses.
Subsequently, RVSI began to explore other applications in the electronics
industry for vision technology based inspection and quality control equipment.
Identifying both the competitive advantages of 3-D inspection over traditional
equipment while also recognizing the size of the market, RVSI decided to pursue
the development of a semiconductor lead-inspection system in August 1990. Two
months later, the LS-2000, an automated high-speed 3-D semiconductor lead
inspection system, was introduced. In July 1994, RVSI introduced its advanced
LS-3000 Series lead inspection system. Since the initial introduction of the
LS-2000 and through March 31, 1995, RVSI has shipped a total of 238 LS-2000 and
LS-3000 Series units. It had an order backlog for an additional 40 units at
March 31, 1995, valued at approximately $11.6 million.
During the fiscal year ended September 30, 1990, RVSI withdrew from its
automotive robotic systems integration business because of extremely aggressive
price competition from a large Japanese robot manufacturer, resulting in reduced
margins and a diminishing backlog of orders. The sale of its robotic welding
systems integration business in fiscal 1990 marked the culmination of RVSI's
transition from being a supplier of turnkey systems to being a developer and
supplier of standard products having a wide array of commercial and military
applications in the area of electronics inspection.
VISION TECHNOLOGY
An important class of digital imaging systems is "machine vision,"
intelligent machines that "see" in order to perform tasks such as automated
inspection in factory environments. These systems operate at a sufficiently high
speed to work within a system's existing production rate and with sufficient
visual discrimination to adaptively react to the factory environment.
On a simple level, machine vision can be categorized into three segments. In
ascending order of sophistication, these systems are 2-D binary imaging,
stereovision and 3-D vision.
2-D imaging has been satisfactory for many applications of machine vision to
date. 2-D vision technology employs a technique known as gray-scaling in which
workpieces are illuminated, viewed and converted into an image composed of many
light points in varying shades of gray, much like a black and white television
picture. The image captures qualitative information about the width and height
of the object but provides no data as to its depth characteristics.
Consequently, 2-D vision is unable to distinguish a three-inch sheetmetal hole
positioned two feet away from a six-inch hole placed four feet away.
Stereovision is an intermediate technology that, while more sophisticated
than 2-D vision, is less sophisticated and reliable than true 3-D vision. This
technology is based on viewing an illuminated workpiece from cameras poised at
two different angles. Theoretically, the relative positions of the two images
seen by the cameras can be reconciled to determine the object's location in
three-dimensional space. While more powerful than 2-D vision, stereovision
requires copious surface detail on the object and unambiguous and consistent
recognition by both cameras. A further constraint is that ambient lighting
conditions found on the typical factory floor may confuse a stereovision system
by shadowing one camera's view more than the other's view.
The highest level of machine vision sophistication is contained in true 3-D
vision. This technology, based on sophisticated structured light and optical
triangulation techniques, is at the heart of all of RVSI's systems. With true
3-D vision technology, workpieces are first illuminated with a known pattern of
laser light. After illumination, a single camera views light patterns reflected
by the workpiece, thus eliminating the problem of sensitivity to ambient
lighting conditions inherent in two-camera systems. Images are then digitized
into a grid of precise data points. In the final stage, exact three-dimensional
coordinates of each of these data points are calculated, and the position and
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orientation of the object in three-dimensional space and its feature
characteristics are known. Three-dimensional vision is the only technique that
can recognize depth characteristics of almost any arbitrary workpiece.
On a broad level, machine vision applications in automated manufacturing
fall into two categories -- inspection and process guidance.
<TABLE>
<CAPTION>
INSPECTION TASKS PROCESS GUIDANCE TASKS
- -------------------------- -----------------------
<S> <C>
Verification Counting Positioning Control
Character Recognition Sorting
Identification Adaptive Control
Flaw Detection Seam Tracking
</TABLE>
Inspection functions are ideally suited to machine vision technology.
Because inspection is largely performed on a random sampling basis, human
inspection results in information delays and requires continual sampling to
determine the extent and cause of any defects. Machine vision eliminates
information delay through real-time inspection. Machine-based inspection also
eliminates subjectivity and human errors that result from fatigue and loss of
concentration.
Process guidance, in most cases, represents the more sophisticated
application of machine vision. In these applications, robots, using optical
imaging, must first "find" the location, orientation and geometric features of a
part under manufacture, and then, once a work environment has become "known" to
the computer, guide a robot or other mechanical device to the workpiece and
adaptively control the operation of a specific process.
MARKETS AND PRODUCTS
Revenues derived by RVSI during the six months ended March 31, 1995 and its
fiscal years ended September 30, 1994, 1993 and 1992 are described below:
<TABLE>
<CAPTION>
% OF REVENUES
--------------------------------------------------------
FISCAL YEAR ENDED
SEPTEMBER 30,
SIX MONTHS ENDED -----------------------------------
MARCH 31, 1995 1994 1993 1992
------------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Semiconductor Lead Inspection...................................... 99% 95% 92% 79%
Systems (LS-2000 and LS-3000 Series) Contracts from U.S. Government
(1)............................................................... 1% 4% 8% 23%
Other (2).......................................................... -- 1% -- (2)%
----- --- --------- ---
100% 100% 100% 100%
----- --- --------- ---
----- --- --------- ---
<FN>
- ------------------------
(1) Includes, but is not limited to, programs relating to the advanced
inspection and machining of ship's propellers, and continued research and
development of RVSI's ID-1 Ice Detection Technology.
(2) RVSI provided for certain adjustments with respect to revenues associated
with two automotive contracts which were canceled in fiscal 1992.
</TABLE>
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RVSI's domestic and foreign export sales during RVSI's six months ended
March 31, 1995 and its fiscal years ended September 30, 1994, 1993 and 1992 are
described below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
SIX MONTHS ENDED -------------------------------
MARCH 31, 1995 1994 1993 1992
---------------- --------- --------- ---------
<S> <C> <C> <C> <C>
North America........................... $ 3,501 $ 9,258 $ 5,166 $ 6,074
Asia/Pacific Rim........................ 10,821 14,103 12,608 5,838
Europe.................................. 2,278 1,252 2,169 1,423
-------- --------- --------- ---------
$ 16,600 $ 24,613 $ 19,943 $ 13,335
-------- --------- --------- ---------
-------- --------- --------- ---------
</TABLE>
RVSI expects that foreign export sales will continue to account for a
significant portion of RVSI's revenues in the future. Foreign sales are subject
to certain inherent risks of global operations, including international monetary
conditions, tariffs, import licenses, trade policies, and domestic and foreign
tax policies.
SEMICONDUCTOR LEAD INSPECTION SYSTEMS
The semiconductor manufacturing process begins with the fabrication of the
semiconductor chip and ends with the final assembly, test/inspection and marking
of the ultimate product. The typical industry descriptions for these areas are
"front end" and "back end."
The front end is a "planar" process where devices are made in "wafer" format
(i.e., large flat surface where the main process concerns are x-y alignment for
various process tools). The trend toward very high density chips has demanded
more inspection and process control in the front end and, consequently, has
created the need for vision guided processes. This technology advancement
generated several large and profitable optical based companies all of which used
2-D optical and vision technology. While the front end developed rapidly to
utilize the new technology, the back end of the manufacturing process did not
yet involve such tiny part dimensions. The back end had line separations of 0.1
inches and above, and pin counts were seldom in excess of 40 leads. In addition,
there was very little competitive pressure to improve quality dramatically.
Accordingly, automated inspections were not yet required.
Today, the back end of the production process must deal with pin counts as
high as 500 leads and line spacings down to 0.004 inches. In addition,
manufacturers are seeing demands for quality levels as high as 3 or 4 failures
per million. Unlike the front end, the height dimension is also critical in
assuring proper lead contact when mounted. Therefore, at this end of the
process, vision solutions must be "three-dimensional." This advancing technology
has created a significant market opportunity for RVSI's series lead inspection
products.
RVSI's LS-3000 Series Lead Scanning Systems are an outgrowth of its prior
LS-2000 Series. RVSI believes that the LS-2000, first introduced in October
1990, is the only high-speed automated semiconductor lead inspection system
capable of inspecting devices while they remain in their protective trays. The
LS-2000 is an extension of RVSI's HR-2000 product, which was originally
introduced in 1989 for printed circuit board solder joint inspection. In June
1992, RVSI introduced the LS-2000A which is a higher accuracy version of the
LS-2000. At the same time, RVSI also introduced the LS-2700, a significantly
faster version of the LS-2000, which also affords a greater level of accuracy.
RVSI formally introduced the LS-3000 Series at the Semicon West trade show in
July 1994. All of the models in the LS-3000 Series line are lighter and smaller
than the LS-2000A and the LS-2700. The flagship of the LS-3000 series, the
LS-3700, is also significantly faster than the LS-2700. RVSI received purchase
orders for 55 and 36 LS-3000 Series machines during the six months ended March
31, 1995 and the fiscal year ended September 31, 1994, respectively.
AIRCRAFT ICE DETECTION SYSTEM
In January 1993, RVSI announced the completion of the initial development
phase of its new ID-1 aircraft ice detection system. The ID-1 is designed to
make a major improvement in winter flight
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safety and to fulfill the intent of strict new FAA regulations concerning the
inspection of wing surfaces in adverse weather conditions. The device is also
anticipated to reduce winter flying delays and their associated costs and to
diminish the environmental hazard posed by de-icing fluids.
The ID-1 is a full-wing electro-optical ice detection system that is
designed to provide a quick, clear, and reliable indication of the presence or
absence of ice, snow or frost. RVSI has filed patent applications for this
technology. The system can be mounted on the bucket of a de-icing truck or other
vehicle and is designed to operate under conditions where visual inspection can
be ineffective or tactile inspection difficult. Its compact size and high degree
of mobility are also designed to allow the ID-1 to detect ice on aircraft
surfaces at any point between the gate and runway.
Extensive field testing of the ID-1 was conducted at several locations
during the 1994-1995 winter ice season. The commercial viability of the ID-1 has
not as yet been proven nor can it be assured. Consequently, there can be no
assurance that the ID-1 can be commercially marketed at a profit at any time in
the proximate future, if ever.
MANUFACTURING
RVSI's production facilities are capable of fabricating and assembling total
electronic and electromechanical systems and subsystems. Facilities include an
assembly and wiring department that has the capability of producing complex
wiring harnesses, as well as intricate electronic subassemblies. RVSI maintains
a comprehensive test and inspection program to ensure that all systems meet
exacting customer requirements for performance and quality workmanship prior to
delivery. In addition, an in-house sheetmetal and machine shop allows for the
manufacture of both prototype and production hardware. To support its internal
operations and to extend its overall capacity, RVSI purchases a wide variety of
components, assemblies and services from proven outside manufacturers,
distributors and service organizations.
MARKETING
RVSI's marketing strategy focuses on cultivating long-term relationships
with the leading manufacturers of electronic and semiconductor inspection and
quality control equipment. As a result of its limited and focused target market,
RVSI's marketing efforts rely heavily on direct sales methods. The selling cycle
for the LS-2000 and LS-3000 Series products has proven to be generally between
six to nine months from initial customer contact. A lengthy purchase process is
often the case in the purchase of the initial unit of a particular product sold
by RVSI. Subsequent purchases require less time and often result in multiple
orders. Typically, potential purchasers visit RVSI's headquarters to receive a
full demonstration of the product and discuss the merits of the product with
RVSI's engineers before making a purchase decision.
Sales activities in the domestic market are handled by a combination of
direct sales personnel and independent sales representatives. Due to the depth
of analysis involved in the customer's purchase decision, management emphasizes
active interaction between the direct sales staff, its independent sales
representatives and the buyer throughout the selling process.
RVSI has also established distribution capabilities in both Europe and the
Far East, providing access to virtually all major markets for electronic and
semiconductor test equipment. Leveraging off management's experience and
contacts in the international markets, RVSI has negotiated agreements with four
independent representatives in the Far East and three independent
representatives in Europe to sell and service RVSI's products.
RVSI presently employs 6 persons primarily engaged in personal selling. In
addition, corporate management is committed to frequent communications with
customers, particularly those in higher, policy-making positions. Lending
further support to the sales effort is RVSI's 78 person engineering and
technical staff, which provides assistance in areas requiring in-depth technical
analysis.
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Supporting the personal selling effort is a range of marketing
communications materials including brochures, video tapes and slide and overhead
presentations. Additionally, news coverage and trade articles are used to
enhance RVSI's reputation and image. RVSI also exhibits at selected trade shows.
CUSTOMERS
RVSI's sales have been historically concentrated in a small number of
customers at any time, although the specific customers change over time. Sales
to ASE and Anam accounted for approximately 11% and 10%, respectively, of RVSI's
revenues during the six months ended March 31, 1995. Sales to Intel Corporation
and Motorola Inc. accounted for approximately 15% and 10%, respectively, of
RVSI's revenues during the fiscal year ended September 30, 1994. Sales to
Samsung Corporation, Anam Corporation and Intel Corporation accounted for
approximately 15%, 13% and 13%, respectively, of RVSI's revenues during its year
ended September 30, 1993. Sales to the U.S. Government accounted for 4%, 8% and
23% of RVSI's total revenues for the fiscal years ended September 30, 1994,
September 30, 1993 and 1992, respectively. No other customers accounted for more
than 10% of sales during such fiscal years and fiscal periods.
RESEARCH AND DEVELOPMENT
RVSI-sponsored research and development efforts over recent years have been
largely devoted to continued development of advanced three-dimensional vision
technology and applications software for use in various inspection and process
control automation systems. RVSI's primary research and development efforts are
focused on development of new electronic and semiconductor inspection and
quality control products and improvements of existing products, along with
development of RVSI's ID-1 aircraft wing ice detection technology. Research and
development expenditures, net of capitalized software development costs,
aggregated $3,718,000, $2,526,000, and $1,731,000 for RVSI's fiscal years ended
September 30, 1994, 1993 and 1992, respectively, and $2,389,000 for its six
month fiscal period ended March 31, 1995. In its fiscal years ended September
30, 1994, 1993 and 1992 and its six month fiscal period ended March 31, 1995,
RVSI capitalized $433,000, $476,000, $568,000 and $274,000, respectively, of its
software development costs in accordance with the provisions of Statement of
Financial Accounting Standards No. 86. RVSI also contracts to perform certain
customer-funded research and development efforts. Revenues and cost of revenues
related to such contracts were $468,000 and $155,000, respectively, for fiscal
1994, compared to $342,000 and $271,000, respectively, for fiscal 1993 and were
$106,000 and $42,000, respectively, for its six month fiscal period ended March
31, 1995.
SOURCES OF SUPPLY
The raw materials and components used in the development and manufacture of
RVSI's products are generally available from domestic suppliers at competitive
prices; fabrication of certain major components has been subcontracted for on an
as-needed basis. RVSI has not experienced any significant difficulty in
obtaining adequate supplies to perform under its contracts.
During fiscal 1994, one of RVSI's major suppliers voluntarily filed for
protection under Chapter 11 of the Federal Bankruptcy Code. This supplier has
advised RVSI that it expects to emerge successfully from bankruptcy. However, as
a protective measure to ensure a stable supply of this vendor's product, RVSI
has acquired a three month inventory and has negotiated an escrow arrangement
with this vendor that would afford RVSI access to the documentation required to
reprocure or manufacture this product in the event the vendor is no longer able
to furnish such product to RVSI.
BACKLOG
At March 31, 1995 RVSI's backlog was approximately $11.6 million as
contrasted with approximately $7.0 million, $7.3 million and $6.0 million at
September 30, 1994, 1993 and 1992, respectively. RVSI believes that most of its
backlog at March 31, 1995 will be completed prior to the close of calendar year
1995. RVSI does not believe that its backlog at any particular time is
necessarily indicative of its future business.
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<PAGE>
CUSTOMER SERVICE AND SUPPORT
Given the high cost of downtime, it is imperative that any malfunction in
one of RVSI's systems, regardless of cause, be addressed in the shortest
possible time. RVSI therefore makes available a 24-hour a day "hot line" which
can be used to request service support. RVSI's service organization consists of
technicians, mechanics and engineers reporting to customer service managers who
not only are intimately familiar with its own vision sensors and processors, but
also with the other system components. Additionally, RVSI has made arrangements
with many of its component suppliers whereby they have agreed to provide service
specialists within 24 hours should the need arise. Such calls are coordinated
through RVSI's service manager who is assisted by a full-time service
administrator.
RVSI's service personnel have their formal training augmented by direct
participation in testing of systems at RVSI's facility and also in the
installation and acceptance tests at the customer's plant.
GOVERNMENT REGULATION
Approximately 1%, 4%, 8% and 23% of RVSI's sales during the six months ended
March 31, 1995 and the fiscal years ended September 30, 1994, 1993 and 1992,
respectively, were related directly or indirectly to U.S. Government programs.
Any substantial overall reduction in government expenditures may adversely
affect RVSI's business. Orders under government prime contracts or subcontracts
are customarily subject to termination at the convenience of the government. In
this event, the contractor is normally entitled to reimbursement for allowable
costs and a reasonable allowance for profits, unless the termination was due to
a default on the part of the contractor. Government contracts are also subject
to audit by applicable government agencies prior to finalization.
PROPRIETARY PROTECTION
At March 31, 1995 RVSI owned 76 issued U.S. patents, with expiration dates
ranging from 1995 to 2011, relating to its three-dimensional vision technology.
RVSI also owns the rights to several U.S. patent applications relating to such
technology.
RVSI does not believe that its present operations are materially dependent
upon the proprietary protection that may be available to RVSI by reason of any
one or more of such patents. Moreover, as its patent position has not been
tested, no assurance can be given as to the effectiveness of the protection
afforded by its patent rights.
COMPETITION
RVSI believes that machine vision has evolved into a new industry over the
past ten years in which a number of machine vision-based firms have developed
successful industrial applications for the technology. RVSI is aware that a
large number of companies, estimated to be upward of 100 firms, entered the
industry in the years 1980 through 1986 and that most of these were small
private concerns. Over the last several years the number of competitors has
narrowed to less than 25. RVSI believes this is attributable, to a large extent,
to a consolidation within the industry.
RVSI is not aware of any other entity having a three-dimensional vision
system capability as comprehensive and highly automated as that achieved by
RVSI. However, RVSI is aware of several competitors which might promote
substitute technologies. RVSI believes that there are other concerns, some of
which may be substantially larger and have substantially greater assets and
resources than RVSI, engaged in the development of technology and products which
would be competitive with those of RVSI should they choose to enter the machine
vision marketplace.
EMPLOYEES
At March 31, 1995 RVSI employed 141 persons, of whom 78 were engineering and
other technical personnel.
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<PAGE>
FACILITIES
RVSI leases approximately 50,000 square feet of office and factory space at
425 Rabro Drive East, Hauppauge, New York under a lease which extends to March
31, 2001. The lease requires RVSI to pay property taxes and certain operating
expenses and contains escalation clauses relating to property taxes.
LITIGATION
On or about October 22, 1992, RVSI instituted an action in the United States
District Court for the Eastern District of New York against defendant Cybo
Systems, Inc. ("Cybo"), entitled ROBOTIC VISION SYSTEMS, INC. V. CYBO SYSTEMS,
INC. A/K/A CYBOT SYSTEMS, INC., alleging that the defendant breached certain
agreements between the parties with respect to the sale by RVSI to the defendant
of all of the assets of its welding and cutting systems business.
On or about December 4, 1992, Cybo filed and served an answer denying the
substantive allegations of RVSI's complaint. In addition, Cybo asserted
counterclaims against RVSI alleging, among other things, breach of contract and
warranties, fraud, bad faith, trespass and conversion and is seeking aggregate
damages in excess of $3.3 million. Shortly thereafter, RVSI moved to dismiss
certain of Cybo's counterclaims on the ground that Cybo failed to plead fraud
with the requisite particularity. By Order dated March 20, 1993, the Court (i)
granted RVSI's motion to dismiss without prejudice, and (ii) granted Cybo leave
to serve an amended answer with amended counterclaims by April 19, 1993. Cybo
has since served an amended answer and counterclaims which purport to plead
fraud with the requisite particularity. Subsequent thereto, RVSI moved to
dismiss Cybo's claims for trespass and conversion, which motion is presently
pending. RVSI, upon the advice of its general counsel, believes Cybo's
counterclaims are without merit and that the ultimate outcome of this matter
will not have a material adverse effect on RVSI's financial position or results
of operations. RVSI plans to defend against such counterclaims vigorously.
Except for certain matters relating to the issue of damages, the parties have
completed discovery.
In addition, on October 21, 1993, RVSI instituted an action against Cybo and
Robert Rongo, a Cybo employee who had previously been employed by RVSI, in the
Supreme Court of the State of New York, County of Suffolk. The action, entitled
ROBOTIC VISION SYSTEMS, INC. V. ROBERT RONGO AND CYBO SYSTEMS, INC. A/K/A CYBOT
SYSTEMS, INC., alleges that Rongo, induced by Cybo, breached a confidentiality
agreement which he had entered into while in RVSI's employ. Defendants have
asserted an answer to RVSI's complaint, which answer incorporates the
counterclaims asserted by Cybo in the action previously filed by RVSI against
Cybo, discussed above. Mr. Rongo made a motion to dismiss the action for lack of
jurisdiction, but that motion was denied.
RVSI is a defendant in a recently filed proceeding instituted by one of its
competitors seeking (i) a declaration of the invalidity of one of RVSI's patents
("Pertinent RVSI Patent"), (ii) a declaration that the plaintiff is not
infringing the Pertinent RVSI Patent and (iii) a restraining order or other
relief preventing RVSI from contacting customers of the plaintiff regarding the
Pertinent RVSI Patent. Such proceeding does not seek or assert damages. Based
upon the advice of its patent counsel, the Morrison Law Firm, RVSI believes this
suit is without merit. RVSI has filed an answer and counterclaim seeking (i) a
declaration that the Pertinent RVSI Patent is valid, (ii) a declaration that the
plaintiff has infringed a number of RVSI patents, including the Pertinent RVSI
Patent, (iii) the prohibition of further infringement by plaintiff of certain
patents of RVSI, including the Pertinent RVSI Patent, (iv) a denial of the
plaintiff's request for injunctive relief, (v) monetary damages for the
plaintiff's infringement of RVSI's patents, and (vi) a trebling of monetary
damages because of willful infringement by plaintiff of RVSI's patents.
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<PAGE>
MANAGEMENT OF RVSI
EXECUTIVE OFFICERS AND DIRECTORS
PRIOR TO THE MERGER
The following table sets forth certain information with respect to those of
RVSI's executive officers who are not directors of RVSI:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) PRINCIPAL OCCUPATION
- ----------------------- --- ----------------- ---------------------------------------------------------------
<S> <C> <C> <C>
Steven J. Bilodeau 36 Executive Vice Is and since December 1986 has been Executive Vice President of
President RVSI. Prior thereto and from April 1985 he served RVSI in
various capacities, most recently as Vice President of
Operations.
Earl H. Rideout 48 Vice President Is and since February 1989 has been Vice President of the
Electronics Group of RVSI. Prior thereto and from 1986 he was
Executive Vice President of Vitronics Corporation, a firm
engaged in the manufacture and distribution of solder reflow
ovens for the electronics industry. From 1984 to 1986 he was
President and Chief Operating Officer of Testamatic
Corporation, a manufacturer of bare board test equipment.
William E. Yonescu 52 Vice President Is and since June 1991 has been Vice President for New Product
Development of RVSI. Prior thereto and from March 1984, he was
Research and Development Manager of RVSI.
</TABLE>
Information with respect to RVSI's directors, including those who are also
executive officers of RVSI, is set forth on pps. 32-33 of this Proxy
Statement/Prospectus.
AFTER THE MERGER
At the Effective Time of the Merger and assuming they are elected, Donald J.
Kramer and Ofer Gneezy, the Chairman and President, respectively, of Acuity,
will become additional directors of RVSI. The executive officers of RVSI prior
to the Merger will continue as such after the Merger.
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<PAGE>
EXECUTIVE COMPENSATION
Set forth below is the aggregate compensation for services rendered in all
capacities to RVSI during its fiscal years ended September 30, 1994, 1993 and
1992 by its chief executive officer and each of its four most highly compensated
executive officers whose compensation exceeded $100,000 during its fiscal year
ended September 30, 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
AWARDS
------------------------ PAYOUTS
ANNUAL COMPENSATION NUMBER OF -----------
------------------------------------- RESTRICTED SECURITIES LONG TERM
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING INCENTIVE ALL OTHER
POSITION FISCAL YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
- ------------------- ----------- --------- --------- --------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pat V. Costa 1994 $ 176,702 $ 36,000 -- -- -- -- $ 52,310(1)(2)
Chief Executive 1993 $ 169,218 -- -- -- 100,000 -- $ 52,262(1)(2)
Officer 1992 $ 148,866 -- -- -- 340,000 -- --
Steven J. Bilodeau 1994 $ 139,260 $ 31,000 -- -- -- -- $ 2,686(2)
Executive Vice 1993 $ 133,426 $ 6,000 -- -- 50,000 -- $ 2,096(2)
President 1992 $ 117,374 $ 1,800 -- -- 141,900 -- --
Earl H. Rideout 1994 $ 112,127 $ 13,500 -- -- -- -- --
Vice President 1993 $ 112,550 -- -- -- 25,000 -- --
1992 $ 99,008 $ 2,700 $ 3,808(3) -- 70,000 -- --
Howard Stern 1994 $ 117,787 $ 26,000 -- -- -- -- $ 2,347(2)
Senior Vice 1993 $ 112,805 -- -- -- 45,000 -- $ 1,699(2)
President 1992 $ 99,237 -- -- -- 129,330 -- $ 1,541(2)
Robert H. Walker 1994 $ 111,715 $ 26,000 -- -- -- -- $ 1,785(2)
Executive Vice 1993 $ 102,082 $ 4,000 -- -- 41,113 -- $ 1,598(2)
President 1992 $ 89,794 -- -- -- 94,580 -- $ 1,394(2)
<FN>
- ------------------------------
(1) During fiscal 1992, RVSI entered into a Stock Appreciation Rights Agreement
with Mr. Costa. Under this agreement, Mr. Costa will receive a cash payment
based on the appreciation in the market value of RVSI Common Stock. The
maximum cash payments which may be made under this agreement are $50,000
for the fiscal years ended September 30, 1993 and 1994, $75,000 for fiscal
year ending September 30, 1995 and $100,000 for fiscal year ending
September 30, 1996. However, the timing of these payments may be
accelerated by the RVSI Board. Payments of $50,000 have been made to Mr.
Costa for each of the years ended September 30, 1993 and 1994.
(2) Represents accrued and vested payments under RVSI's Stock Ownership Plan.
For Mr. Costa, this amount equaled $2,310 and $2,262 for the fiscal years
ended September 30, 1993 and 1994, respectively.
(3) Vacation pay in lieu of time.
</TABLE>
Set forth below is further information with respect to unexercised options
to purchase RVSI Common Stock under RVSI's Stock Option Plans:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED SEPTEMBER 30, 1994 AT SEPTEMBER 30, 1994
ON VALUE -------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pat V. Costa.................. 60,073 $ 253,295 219,927 160,000 $ 1,054,602 $ 670,475
Steven J. Bilodeau............ 44,900 $ 187,400 76,000 71,000 $ 358,992 $ 291,985
Earl H. Rideout............... 27,006 $ 115,826 24,244 43,750 $ 111,346 $ 190,025
Howard Stern.................. 23,500 $ 104,160 86,580 64,250 $ 413,364 $ 265,930
Robert H. Walker.............. 25,500 $ 110,654 56,858 53,335 $ 268,070 $ 216,997
</TABLE>
87
<PAGE>
EMPLOYEE AGREEMENTS
Mr. Pat V. Costa is employed as Chief Executive Officer and President of
RVSI under an indefinite term agreement which currently provides for annual base
salary of $180,627. Pursuant to the terms of his employment agreement, Mr. Costa
has been granted certain rights in the event of the termination of his
employment or a change in control of RVSI. Specifically, in the event of
termination for any reason other than for cause and other than voluntarily, Mr.
Costa will be entitled to the continuance of salary and certain fringe benefits
for a period of twelve months and may exercise all outstanding stock options
which are exercisable during the twelve month period succeeding termination at
any time within such twelve month period. In the event of the occurrence of a
change in control of RVSI (as defined in his employment agreement) and, further,
in the event that Mr. Costa is not serving in the positions of Chief Executive
Officer, President and Chairman of RVSI (other than for cause) within one year
thereafter, Mr. Costa will be entitled to exercise all outstanding stock
options, regardless of when otherwise exercisable, during the six month period
following the termination date of his employment.
RVSI has also granted certain rights in the event of termination of
employment to Messrs. Bilodeau, Rideout, Stern, Walker and Yonescu. Specifically
in the event of involuntary termination other than for cause, each officer will
be given a termination package which provides for three months severance pay and
continued benefits, with the exception of Mr. Rideout whose employment agreement
allows for six months severance. In addition, RVSI has agreed to provide a
maximum of one hundred days' advance written notice to each of Messrs. Bilodeau,
Stern, and Walker in the event RVSI should desire to terminate their employment
other than for cause. In such event, each such officer shall be entitled to
exercise all outstanding stock options, regardless of when otherwise
exercisable, during a specified period following such termination.
DIRECTORS' COMPENSATION
During the fiscal year ended September 30, 1994, directors who were not
otherwise employees of RVSI were compensated at the rate of $1,000 for
attendance at each meeting of the RVSI Board or any committee thereof, $250 for
attendance at any second meeting held during the same day, and $100 for
participation at a telephonic meeting or execution of a consent in lieu of a
meeting.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of March 31, 1995, GM owned approximately 10.5% of the outstanding RVSI
Common Stock. Sales to GM accounted for less than 1% of RVSI's total sales for
the six-month periods ended March 31, 1995 and for RVSI's fiscal year ended
September 30, 1994.
Mr. Jay M. Haft, a Director of RVSI, is Of Counsel to Parker Duryee Rosoff &
Haft, RVSI's general counsel.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF RVSI
The following table sets forth, as of July 31, 1995, the number and
percentage of shares of RVSI Common Stock held by (a) all persons who, to the
knowledge of RVSI, are the beneficial owners of, or who otherwise exercise
voting or dispositive control over, more than 5% of outstanding RVSI Common
Stock within the meaning of Rule 13d-3 of the Exchange Act, (b) all directors of
RVSI and (c) all executive officers and directors of RVSI as a group:
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP (1) CLASS
- ------------------------------------------------------------------ ---------------------- -----------
<S> <C> <C>
Pat V. Costa...................................................... 326,647(2) 2.4%
Frank A. DiPietro................................................. 45,000(3) (13)
Donald F. Domnick................................................. 25,500(4) (13)
Jay M. Haft....................................................... 516,546(5) 3.8%
Mark J. Lerner.................................................... 100,411(6) (13)
Howard Stern...................................................... 109,222(7) (13)
Robert H. Walker.................................................. 69,983(8) (13)
General Motors Corporation........................................ 1,225,775 9.3%
767 Fifth Avenue
New York, New York 10153
Marie Cioti....................................................... 1,100,000(9) 8.1%
408 Mamaroneck Road
Scarsdale, New York 10583
Robotic Vision Systems............................................ 897,865(10) 6.8%
Shareholder's Committee
and Robotic Vision Shareholder's Group
c/o BEG Enterprises, Inc.
33493 14 Mile Road, #100
Farmington Hills, MI 48831
All current executive officers and directors as a group
(10 persons)..................................................... 1,321,018(11)(2) 9.3%
<FN>
- ------------------------
(1) Includes shares issuable pursuant to currently exercisable options and
warrants as well as those options and warrants which will become
exercisable within 60 days of July 31, 1995. Except as otherwise indicated,
the persons named herein have sole voting and dispositive power with
respect to the shares beneficially owned.
(2) Includes (i) 295,326 shares issuable to Mr. Costa upon exercise of
outstanding options and (ii) 1,321 vested shares held under the RVSI SOP
over which shares Mr. Costa has voting power, but does not have dispositive
control.
(3) Includes (i) 12,000 shares issuable to Mr. DiPietro upon exercise of
outstanding options and (ii) 28,000 shares owned of record by his spouse.
(4) Includes 12,000 shares issuable to Mr. Domnick upon exercise of outstanding
options.
(5) Includes (i) 52,000 shares issuable to Mr. Haft upon exercise of
outstanding options, (ii) 305,600 shares issuable upon exercise of
outstanding warrants, of which 286,100 are held by his spouse, (iii)
142,000 shares owned of record by his spouse and (iv) 7,666 shares held
indirectly in a retirement trust.
(6) Includes (i) 5,000 shares issuable to Mr. Lerner upon exercise of
outstanding options and (ii) 95,411 shares issuable to Morgen, Evan &
Company, Inc. of which Mr. Lerner is the principal owner, upon exercise of
outstanding warrants.
</TABLE>
89
<PAGE>
<TABLE>
<S> <C>
(7) Includes (i) 103,330 shares issuable to Mr. Stern upon exercise of
outstanding options and (ii) 5,892 vested shares held under the RVSI SOP
over which shares Mr. Stern has voting power, but does not have dispositive
control.
(8) Includes (i) 64,636 shares issuable to Mr. Walker upon exercise of
outstanding options and (ii) 5,347 vested shares held under the RVSI SOP
over which shares Mr. Walker has voting power, but does not have
dispositive control.
(9) Includes 400,000 shares issuable upon exercise of certain outstanding
warrants.
(10) Information obtained from amended Schedule 13D filed with the Commission on
November 18, 1994.
(11) Includes (i) 235,446 shares owned of record and beneficially and (ii)
1,063,642 shares issuable upon exercise of certain outstanding stock
options and warrants.
(12) Includes 21,930 vested shares held in the RVSI SOP for certain officers of
RVSI over which shares such officers have voting power, but do not have
dispositive control.
(13) Less than one percent.
</TABLE>
DESCRIPTION OF RVSI'S SECURITIES
COMMON STOCK
RVSI is currently authorized to issue up to 20,000,000 shares of its Common
Stock, $.01 par value. As of July 31, 1995, there were 13,128,576 shares of RVSI
Common Stock issued and outstanding, held of record by approximately 2,700
persons.
Holders of shares of RVSI Common Stock are entitled to such dividends as may
be declared from time to time by the Board of Directors in its discretion, on a
ratable basis, out of funds legally available therefor, and to a pro rata share
of all assets available for distribution upon liquidation, dissolution or the
winding up of the affairs of RVSI. All of the outstanding shares of RVSI Common
Stock are fully paid and non-assessable.
WARRANTS
As of July 31, 1995, there were 1,361,412 warrants issued and outstanding,
held of record by 29 persons, each allowing the holder thereof to acquire one
share of RVSI Common Stock at various dates through June 2000 at exercise prices
ranging from $1.00 to $14.63 per share. See "Management -- Transactions with
Management and Other Related Persons."
RVSI Common Stock issuable upon exercise of all such warrants, when paid for
in accordance with their respective terms, will be fully paid and
non-assessable. The Warrants provide for adjustment of the exercise price to
protect the holders against dilution upon the occurrence of such events as stock
dividends an distributions, splits, recapitalizations, mergers and the like.
TRANSFER AGENT
The transfer agent for RVSI Common Stock is American Stock Transfer & Trust
Company, 40 Wall Street, New York, New York 10005. RVSI acts as its own warrant
agent.
REPORTS TO STOCKHOLDERS
The Company furnishes to its Stockholders, after the close of each fiscal
year, an Annual Report which contains audited financial statements.
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<PAGE>
COMPARISON OF RIGHTS OF HOLDERS
OF ACUITY COMMON STOCK AND RVSI COMMON STOCK
If the Merger Agreement is approved and the Merger becomes effective, Acuity
Stockholders will become stockholders of RVSI, and their rights as stockholders
will be determined by the RVSI Certificate of Incorporation and the RVSI Bylaws.
Each of Acuity and RVSI is organized under the DGCL, and consequently the
differences in the rights of Acuity Stockholders subsequent to consummation of
the Merger, which are generally non-material in their nature, arise from various
provisions of the respective Certificates of Incorporation and Bylaws of Acuity
and RVSI, which are summarized below. This summary is not intended to be
complete and is qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of each of Acuity and RVSI.
AUTHORIZED SHARES OF CAPITAL STOCK
The Acuity Certificate of Incorporation, as amended, authorizes the issuance
of 10,000,000 shares of Acuity Common Stock of which 2,461,213 shares were
issued and outstanding as of the Acuity Record Date.
The RVSI Certificate of Incorporation, as amended, authorizes the issuance
of 20,000,000 shares of RVSI Common Stock, of which 13,128,576 shares were
issued and outstanding as of the RVSI Record Date. At the RVSI Special Meeting,
RVSI stockholders will be asked to consider and vote upon a proposal to approve
an amendment to the RVSI Certificate of Incorporation increasing RVSI's
authorized Common Stock from 20,000,000 shares to 30,000,000 shares.
MEETINGS
Pursuant to the Acuity Bylaws, annual meetings of Acuity Stockholders shall
be held on the second Tuesday in May if not a legal holiday, or at such other
date and at such other time as the Acuity Board may determine. At each annual
meeting, the Acuity Stockholders entitled to vote shall elect a Board of
Directors, and they may transact such other corporate business as may properly
be brought before the meeting. At the annual meeting any business may be
transacted, irrespective of whether the notice calling such meeting shall have
contained a reference thereto, except where notice is required by law, the
Acuity Certificate of Incorporation or the Acuity Bylaws. Special meetings of
Acuity Stockholders may be called for any purpose by the Acuity Board, the
Chairman of the Board, the Chief Executive Officer or the President. No business
may be transacted at such special meeting except that referred to in said
notice, or in a supplemental notice also given in compliance with the Acuity
Bylaws, or such other business as may be germane or supplementary to that stated
in such notice or notices. Written notice of any meeting of Acuity Stockholders
shall be mailed not less than ten nor more than sixty days before such meeting
to each Acuity Stockholder entitled to vote thereat.
Special meetings of the Acuity Board may be called by the Chairman of the
Board, the Chief Executive Officer or the President on two days' notice to each
director, or such shorter period of time before the meeting as will be
sufficient for the convenient assembly of the directors so notified. Special
meetings shall be called by the Secretary in like manner and notice on the
written request of two or more directors.
Pursuant to the RVSI Bylaws, annual meetings of RVSI Stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting shall be held at such date as the RVSI Board shall determine and
as set forth in the notice of the meeting. At each annual meeting, the RVSI
Stockholders entitled to vote shall elect a Board of Directors and they may
transact such other corporate business as shall be stated in the notice of the
meeting. Special meetings of RVSI Stockholders may be called for any purpose by
the President or Secretary by resolution of the directors, or by a notice signed
by the registered holders of no less than 10% of RVSI's then issued and
outstanding capital stock. No business other than that stated in the notice
shall be transacted at any meeting without the unanimous consent of all RVSI
Stockholders entitled to vote thereat. Written notice shall be given to each
RVSI Stockholder entitled to vote thereat not less than ten nor more than fifty
days before the date of the meeting.
91
<PAGE>
Special meetings of the RVSI Board may be called by the President or the
Secretary on the written request of any two directors on at least two days'
notice to each director.
DIRECTORS AND OFFICERS
Pursuant to the Acuity Bylaws, the Acuity Board may fix the number of
directors, but such number may not be less than three nor more than nine
persons. The Acuity Board has currently fixed the number of directors at four.
The officers of Acuity shall be a Chairman of the Board, a Chief Executive
Officer, a President, a Vice President, a Secretary and a Treasurer and there
may be one or more Vice Presidents, one or more Assistant Secretaries and one or
more Assistant Treasurers as the Acuity Board may elect.
Pursuant to the RVSI Bylaws, the number of directors comprising the RVSI
Board shall not be less than three nor more than eleven persons. The RVSI Board
has currently fixed the number of directors at seven. The officers of RVSI shall
be a President, a Treasurer and a Secretary. In addition, the RVSI Board may
elect a Chairman, one or more Vice Presidents and such Assistant Secretaries and
Assistant Treasurers as they may deem proper.
LEGAL MATTERS
Matters relating to the legality of the shares of RVSI Common Stock offered
by this Proxy Statement/Prospectus are being passed upon by Parker Duryee Rosoff
& Haft A Professional Corporation, 529 Fifth Avenue, New York, New York 10017.
Jay M. Haft, of counsel to such Firm and a director of RVSI, beneficially owns
158,946 shares of RVSI Common Stock, as well as options and warrants to acquire
an additional 357,600 shares of such Common Stock. Members of Parker Duryee
Rosoff & Haft, other than Mr. Haft, beneficially own 148,625 shares of RVSI
Common Stock and warrants to acquire an additional 72,667 shares of RVSI Common
Stock.
Matters relating to the patent litigation referred to under "Business of
RVSI -- Litigation" are being passed upon for RVSI by the Morrison Law Firm, 145
North Fifth Avenue, Mr. Vernon, NY 10550-1201.
EXPERTS
The financial statements of RVSI at September 30, 1994 and 1993 and for the
years ended September 30, 1994, 1993 and 1992 appearing in this Proxy
Statement/Prospectus have been audited by Deloitte & Touche LLP, independent
auditors. These financial statements are included in reliance upon the report of
Deloitte & Touche LLP given upon their authority as experts in accounting and
auditing.
The financial statements of Acuity as of December 31, 1994 and 1993 and for
the years ended December 31, 1994, 1993 and 1992 included in this Proxy
Statement/Prospectus and elsewhere in this Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as set forth in
their reports. In those reports, that firm states that with respect to Automatix
for 1993 and 1992, its opinion is based on the reports of other independent
public accountants, namely Deloitte & Touche LLP. The financial statements
referred to above have been included herein in reliance upon the authority of
those firms as experts in giving said reports.
CHANGE IN ACUITY'S ACCOUNTANTS
On April 22, 1994 pursuant to the recommendation of Acuity's Audit
Committee, Acuity's Board of Directors voted to appoint Arthur Andersen LLP as
Acuity's independent accountants for fiscal 1994, replacing Deloitte & Touche
LLP who had served as Acuity's independent accountants since October 21, 1991.
Arthur Andersen LLP had served as the independent accountants of Itran Corp.,
with which Acuity merged on January 26, 1994, since 1982.
92
<PAGE>
During the fiscal years ended December 31, 1993 and 1992, and any subsequent
interim periods, there were no disagreements between Acuity and Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosures, or audit scope or procedure, which disagreements if not
resolved to the satisfaction of Deloitte & Touche LLP would have caused them to
make reference thereto in their report on Acuity's financial statements for such
years. None of the audit reports of Deloitte & Touche LLP for any period,
including the fiscal years ended December 31, 1993 and 1992, contained an
adverse opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at RVSI's 1996 Annual Meeting
of Stockholders pursuant to the provisions of Rule 14a-8 of the Commission,
promulgated under the Exchange Act, must be received by RVSI at its offices in
Hauppauge, New York by December 18, 1995 for inclusion in RVSI's proxy statement
and form of proxy relating to such meeting.
93
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
AND
ACUITY IMAGING, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ROBOTIC VISION SYSTEMS, INC.
Independent Auditors' Report............................................................................ F-2
Balance Sheets at September 30, 1994 and 1993........................................................... F-3
Statements of Operations for the Years Ended September 30, 1994, 1993, and 1992......................... F-4
Statements of Stockholders' Equity (Deficiency) for the Years Ended September 30, 1994, 1993, and
1992................................................................................................... F-5
Statements of Cash Flows for the Years Ended September 30, 1994, 1993, and 1992......................... F-6
Notes To Financial Statements for the Years Ended September 30, 1994, 1993, and 1992.................... F-7
Condensed Balance Sheets At September 30, 1994 and March 31, 1995 (Unaudited)........................... F-18
Condensed Statements of Income For the Three and Six-Month Periods Ended March 31, 1995 and 1994
(Unaudited)............................................................................................ F-19
Condensed Statements of Cash Flows For the Six-Month Periods Ended March 31, 1995 and 1994
(Unaudited)............................................................................................ F-20
Notes To Condensed Financial Statements (Unaudited)..................................................... F-21
ACUITY IMAGING, INC.
Report of Independent Public Accountants................................................................ F-23
Independent Auditors' Report............................................................................ F-24
Consolidated Balance Sheets as of December 31, 1994, 1993 and April 1, 1995 (Unaudited)................. F-25
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1993, and 1992 and the
Three-Month Periods Ended April 1, 1995 and April 2, 1994 (Unaudited).................................. F-26
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1993, and 1992
and the Three-Month Periods Ended April 1, 1995 and April 2, 1994 (Unaudited).......................... F-27
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993, and 1992 and the
Three-Month Periods Ended April 1, 1995 and April 2, 1994 (Unaudited).................................. F-28
Notes to Consolidated Financial Statements.............................................................. F-29
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Robotic Vision Systems, Inc.:
We have audited the accompanying balance sheets of Robotic Vision Systems,
Inc. as of September 30, 1994 and 1993, and the related statements of
operations, stockholders' equity (deficiency), and cash flows for each of the
three years in the period ended September 30, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at September 30, 1994 and 1993,
and the results of its operations and its cash flows for each of the three years
in the period ended September 30, 1994 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Jericho, New York
December 14, 1994
F-2
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1994 AND 1993
ASSETS (NOTE 8)
<TABLE>
<CAPTION>
NOTES 1994 1993
--------- --------------- ---------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................... 13 $ 1,568,000 $ 465,000
Investments............................................................. 13 1,495,000 --
Receivables -- net...................................................... 2,13 3,412,000 2,157,000
Inventories............................................................. 3 2,634,000 2,136,000
Deferred income taxes................................................... 4 1,163,000 584,000
Prepaid expenses and other.............................................. 134,000 107,000
--------------- ---------------
Total current assets................................................ 10,406,000 5,449,000
PLANT AND EQUIPMENT -- NET.............................................. 5 1,923,000 1,317,000
OTHER ASSETS............................................................ 6 1,159,000 1,123,000
INVESTMENTS............................................................. 13 1,500,000 --
--------------- ---------------
TOTAL............................................................... $ 14,988,000 $ 7,889,000
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable........................................................... 8 $ 63,000 $ --
Accounts payable........................................................ 2,717,000 2,579,000
Accrued expenses........................................................ 7,9 2,243,000 2,742,000
Advance contract payments received...................................... 719,000 894,000
--------------- ---------------
Total current liabilities........................................... 5,742,000 6,215,000
OTHER LIABILITIES....................................................... 9 210,000 245,000
--------------- ---------------
TOTAL LIABILITIES................................................... 5,952,000 6,460,000
--------------- ---------------
COMMITMENTS AND CONTINGENCIES........................................... 10
STOCKHOLDERS' EQUITY: 11
Common stock, $.01 par value; shares authorized, 20,000,000; shares
issued and outstanding, 1994 -- 11,583,602 and 1993 -- 9,651,285....... 116,000 97,000
Additional paid-in capital.............................................. 32,805,000 28,328,000
Accumulated deficit..................................................... (23,885,000) (26,996,000)
--------------- ---------------
Stockholders' equity.................................................... 9,036,000 1,429,000
--------------- ---------------
TOTAL............................................................... $ 14,988,000 $ 7,889,000
--------------- ---------------
--------------- ---------------
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
NOTES 1994 1993 1992
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES................................................. 14 $ 24,613,000 $ 19,943,000 $ 13,335,000
COST OF REVENUES......................................... 12,722,000 11,454,000 9,802,000
-------------- -------------- --------------
GROSS PROFIT............................................. 11,891,000 8,489,000 3,533,000
-------------- -------------- --------------
OPERATING COSTS AND EXPENSES:
Research and development costs........................... 3,718,000 2,526,000 1,731,000
Selling, general and administrative expenses............. 5,521,000 4,834,000 2,766,000
Interest income.......................................... (104,000) (2,000) (11,000)
Interest expense......................................... 46,000 27,000 30,000
-------------- -------------- --------------
9,181,000 7,385,000 4,516,000
-------------- -------------- --------------
INCOME (LOSS) BEFORE BENEFIT FROM INCOME TAXES AND
EXTRAORDINARY ITEMS..................................... 2,710,000 1,104,000 (983,000)
BENEFIT FROM INCOME TAXES................................ 4 401,000 495,000 --
-------------- -------------- --------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS................. 3,111,000 1,599,000 (983,000)
EXTRAORDINARY ITEMS:
Gain relating to agreement with General Motors
Corporation (net of income tax provision of $97,000).... 4,12 -- -- 1,138,000
Utilization of net operating loss carryforward........... 4 -- -- 72,000
-------------- -------------- --------------
NET INCOME............................................... $ 3,111,000 $ 1,599,000 $ 227,000
-------------- -------------- --------------
INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary items................. $ .24 $ .14 $ (.13)
Extraordinary items...................................... -- -- .16
-------------- -------------- --------------
Net income............................................... $ .24 $ .14 $ .03
-------------- -------------- --------------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL STOCKHOLDERS'
NUMBER OF PAID-IN ACCUMULATED EQUITY
NOTES SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY)
----- ------------ ---------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1991.............. 6,357,480 $ 64,000 $ 26,757,000 $ (28,822,000) $ (2,001,000)
Shares issued to the Defined
Contribution Stock Ownership and
Deferred Compensation Plan........... 9 26,027 -- 22,000 -- 22,000
Shares and warrants issued in
connection with private equity
placement, net of offering costs..... 11 3,000,000 30,000 1,309,000 -- 1,339,000
Shares and warrants issued for
professional services rendered....... 11 230,000 2,000 128,000 -- 130,000
Net income............................ -- -- -- 227,000 227,000
------------ ---------- ------------- -------------- -------------
Balance, September 30, 1992........... 9,613,507 96,000 28,216,000 (28,595,000) (283,000)
Shares issued to the Defined
Contribution Stock Ownership and
Deferred Compensation Plan........... 9 16,250 -- 22,000 -- 22,000
Offering costs incurred in connection
with registration of shares and
warrants............................. -- -- (80,000) -- (80,000)
Shares issued in connection with the
exercise of stock options............ 21,528 1,000 20,000 -- 21,000
Warrants issued for professional
services rendered.................... 11 -- -- 125,000 -- 125,000
Warrants issued in connection with the
settlement of litigation............. 11 -- -- 25,000 -- 25,000
Net income............................ -- -- -- 1,599,000 1,599,000
------------ ---------- ------------- -------------- -------------
Balance, September 30, 1993........... 9,651,285 97,000 28,328,000 (26,996,000) 1,429,000
Shares issued to the Defined
Contribution Stock Ownership and
Deferred Compensation Plan........... 9 8,610 -- 36,000 -- 36,000
Shares and warrants issued in
connection with private equity
placement, net of offering costs..... 11 1,360,000 14,000 3,790,000 -- 3,804,000
Warrants issued for professional
services............................. 11 -- -- 38,000 -- 38,000
Shares issued in connection with the
exercise of stock options............ 11 321,107 3,000 345,000 -- 348,000
Shares issued in connection with the
exercise of warrants................. 11 242,600 2,000 268,000 -- 270,000
Net income............................ -- -- -- 3,111,000 3,111,000
------------ ---------- ------------- -------------- -------------
Balance, September 30, 1994........... 11,583,602 $ 116,000 $ 32,805,000 $ (23,885,000) $ 9,036,000
------------ ---------- ------------- -------------- -------------
------------ ---------- ------------- -------------- -------------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income (loss) before extraordinary items........................... $ 3,111,000 $ 1,599,000 $ (983,000)
Adjustments to reconcile income (loss) before extraordinary items
to net cash provided by (used in) operating activities:
Deferred income taxes............................................ (579,000) (584,000) --
Depreciation and amortization.................................... 620,000 425,000 322,000
Provision for doubtful accounts receivable....................... -- 82,000 20,000
Issuance of common stock and warrants for professional services
rendered........................................................ -- 125,000 130,000
Issuance of common stock -- Defined Contribution Stock Ownership
and Deferred Compensation Plan.................................. 36,000 22,000 22,000
Warrants issued as settlement of litigation...................... -- 25,000 --
Other............................................................ 4,000 -- 3,000
Changes in assets and liabilities:
Receivables.................................................... (1,255,000) (437,000) (123,000)
Inventories.................................................... (498,000) (1,108,000) 392,000
Prepaid expenses and other current assets...................... (27,000) 25,000 (2,000)
Other assets................................................... (275,000) (650,000) (483,000)
Accounts payable............................................... 138,000 1,490,000 (122,000)
Accrued expenses............................................... (499,000) 18,000 282,000
Advance contract payments received............................. (175,000) 244,000 (310,000)
Other liabilities.............................................. (35,000) (90,000) (139,000)
-------------- -------------- -------------
Net cash provided by (used in) operating activities................ 566,000 1,186,000 (991,000)
-------------- -------------- -------------
INVESTING ACTIVITIES:
Additions to plant and equipment................................... (1,002,000) (837,000) (347,000)
Purchase of investments............................................ (2,984,000) -- --
-------------- -------------- -------------
Net cash used in investing activities.............................. (3,986,000) (837,000) (347,000)
-------------- -------------- -------------
FINANCING ACTIVITIES:
Issuance of common stock and warrants -- private equity placement
(less offering costs)............................................. 3,842,000 (80,000) 1,339,000
Issuance of common stock in connection with the exercise of stock
options and warrants.............................................. 618,000 21,000 --
Notes payable...................................................... 63,000 -- --
-------------- -------------- -------------
Net cash provided by (used in) financing activities................ 4,523,000 (59,000) 1,339,000
-------------- -------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... 1,103,000 290,000 1,000
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR................................................ 465,000 175,000 174,000
-------------- -------------- -------------
END OF YEAR...................................................... $ 1,568,000 $ 465,000 $ 175,000
-------------- -------------- -------------
-------------- -------------- -------------
SUPPLEMENTAL INFORMATION -- Interest paid.......................... $ 46,000 $ 25,000 $ 137,000
-------------- -------------- -------------
-------------- -------------- -------------
-- Taxes paid............................... $ 269,000 $ 11,000 $ --
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
a. DESCRIPTION OF BUSINESS -- Robotic Vision Systems, Inc. (the "Company")
is principally engaged in the development, manufacture and marketing of
standard inspection and measurement products which have a variety of
commercial and military applications.
b. REVENUES AND COST OF REVENUES -- The Company recognizes revenue on its
standard electronic inspection and measurement products upon shipment.
The Company recognizes revenues and related cost of revenues associated
with the long-term contracts using the percentage-of-completion method of
accounting, measured by the percentage of total costs incurred in
relation to total estimated costs at completion. Contract costs include
material, direct labor, manufacturing overhead and other direct costs.
The degree of accuracy with which the Company is able to estimate the
profit to be realized on fixed-price long-term contracts is greater as
the contract approaches completion; accordingly, the Company reviews its
estimates periodically and records adjustments thereto as required. On
firm fixed-price contracts which are in the early stages of completion,
and for which estimates of profit cannot be reasonably determined, the
Company utilizes the percentage-of-completion method recognizing revenue
in amounts equal to costs incurred until such time that profit margins
can be reasonably estimated. If a loss is anticipated on a contract, the
entire amount of the estimated loss is accrued in the period in which the
loss becomes known.
Revenues are billed in accordance with the terms of each contract. The
Company estimates that all of its unbilled receivables at September 30,
1994 will become billable during the ensuing twelve months.
c. CASH AND CASH EQUIVALENTS -- Cash and cash equivalents includes money
market accounts with an original maturity of less than three months.
d. PLANT AND EQUIPMENT -- Plant and equipment is recorded at cost less
accumulated depreciation and amortization and includes the costs
associated with demonstration equipment and other equipment internally
developed by the Company. The cost of internally developed assets
includes direct material and labor costs and applicable factory overhead.
Depreciation is computed by the straight-line method over estimated lives
ranging from two to eight years. Leasehold improvements are amortized
over the lesser of their respective estimated useful lives or lease
terms.
e. INVENTORIES -- Inventories are stated at the lower of cost (using the
first-in, first-out cost flow assumption) or market.
f. SOFTWARE DEVELOPMENT COSTS -- Software development costs are capitalized
in accordance with Statement of Financial Accounting Standards No. 86.
Capitalized software development costs are amortized primarily over a
five-year period, which is the estimated useful life of the software.
Amortization begins in the period in which the related product is
available for general release to customers.
g. RESEARCH AND DEVELOPMENT COSTS -- The Company charges research and
development costs for Company-funded projects to operations as incurred.
Research and development costs which are reimbursable under
customer-funded contracts are treated as contract costs.
F-7
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING
POLICIES (CONTINUED)
h. INCOME TAXES -- In fiscal 1993, the Company adopted the provision of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"), which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events
that have been included in the Company's financial statements or tax
returns. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial accounting and
tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
Prior to fiscal 1993, the provision for income taxes was based on
revenue and expenses included in the Company's statement of operations.
Where appropriate, the Company provided deferred income taxes for the tax
effects of transactions which were recorded for different periods for
financial accounting purposes than for income tax purposes. At September
30, 1992, no deferred taxes were recorded because of the existence of net
operating loss carryforwards.
i. INCOME (LOSS) PER SHARE -- Income (loss) before extraordinary items per
common share, extraordinary items per common share, and net income per
common share are computed by dividing each year's income (loss) before
extraordinary items, extraordinary items and net income by the respective
weighted average number of shares of common stock outstanding during the
period, after giving effect to dilutive options and warrants. For the
year ended September 30, 1994 and 1993, the effect of options and
warrants was calculated using the modified treasury stock method. The
average number of shares used in the computation of per common share
amounts for the year ended September 30, 1992 does not include shares
issuable pursuant to options and warrants since their effect was not
material. The weighted average number of common and common equivalent
shares outstanding for 1994, 1993 and 1992 was 13,057,000, 12,534,000 and
7,783,000, respectively.
j. RECLASSIFICATION -- Certain amounts in the 1992 and 1993 financial
statements have been reclassified to conform with the 1994 presentation.
2. RECEIVABLES
Receivables at September 30, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Accounts billed and receivable from the United States Government
and its agencies............................................... $ 351,000 $ 593,000
Accounts receivable from other customers........................ 2,463,000 1,378,000
Unbilled receivables (including retainages on
contracts-in-progress)......................................... 702,000 290,000
------------- -------------
Total....................................................... 3,516,000 2,261,000
Less allowance for doubtful accounts receivable................. 104,000 104,000
------------- -------------
Receivables -- net.............................................. $ 3,412,000 $ 2,157,000
------------- -------------
------------- -------------
</TABLE>
F-8
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
3. INVENTORIES
Inventories at September 30, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Raw materials................................................... $ 356,000 $ 348,000
Work-in-process................................................. 2,278,000 1,788,000
------------- -------------
Total....................................................... $ 2,634,000 $ 2,136,000
------------- -------------
------------- -------------
</TABLE>
4. INCOME TAXES
The benefit from income taxes for the fiscal years ended September 30, 1994
and 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
-------------- ------------
<S> <C> <C>
Current:
Federal....................................................... $ 905,000 $ 653,000
State......................................................... 173,000 126,000
Utilization of net operating loss carryforwards............... (900,000) (690,000)
-------------- ------------
178,000 89,000
Deferred:
Federal....................................................... 891,000 --
State......................................................... 108,000 --
Adjustment of valuation allowance............................. (1,578,000) (584,000)
-------------- ------------
Total....................................................... $ (401,000) $ (495,000)
-------------- ------------
-------------- ------------
</TABLE>
The income tax provision relating to the extraordinary credit relating to
the agreement with General Motors Corporation for the fiscal year ended
September 30, 1992, consists of the following:
<TABLE>
<S> <C>
Federal -- charge equivalent...................................... $ 72,000
State -- current.................................................. 25,000
---------
$ 97,000
---------
---------
</TABLE>
As described in Note 1, the Company adopted SFAS 109 during fiscal 1993. The
adoption of SFAS 109 was made as of the beginning of the fiscal year on a
prospective basis. This accounting change had no effect on the Company's
financial statements as of the date of adoption. However, the adoption of SFAS
109 resulted in an increase in the income tax benefit recognized in fiscal 1993
and, therefore, an increase in income before extraordinary items of $584,000
($.05 per common share).
The adjustments of the valuation allowance during fiscal 1994 and fiscal
1993 emanate from the Company's profitable operations during those years and the
extent to which the Company can substantiate projected future earnings. The
deferred tax assets as of September 30, 1994 and 1993 are equivalent to the
benefit to be derived from net operating loss carryforwards that were expected
to be utilized to offset future taxable income projected as of the respective
balance sheet dates. The deferred tax assets at September 30, 1994 and 1993 have
been limited to the benefit to be derived from projected future income,
primarily due to the Company's limited history of earnings and its projected
future profitability currently being primarily dependent on one existing product
line.
F-9
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
4. INCOME TAXES (CONTINUED)
A reconciliation between the statutory U.S. Federal income tax rate and the
Company's effective tax rate for the years ended September 30, 1994 and 1993 is
as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
U.S. Federal statutory rate........................................... 34.0% 34.0%
Increases (reductions) due to:
State taxes -- net of Federal tax benefit........................... 4.2 7.5
Utilization of net operating loss carryforwards..................... (31.9) (34.1)
Anticipated future utilization of net operating loss
carryforwards...................................................... (21.4) (52.9)
Other -- net........................................................ .3 .7
---------- ----------
Total............................................................. (14.8)% (44.8)%
---------- ----------
---------- ----------
</TABLE>
The deferred tax assets at September 30, 1994 and 1993 are comprised of the
following:
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS 1994 1993
- -------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Net operating loss carryforwards.............................. $ 7,743,000 $ 8,763,000
Tax credit carryforwards...................................... 767,000 460,000
Accrued liabilities........................................... 462,000 451,000
Inventory..................................................... 269,000 196,000
Fixed assets.................................................. 47,000 122,000
Receivables................................................... 40,000 40,000
-------------- --------------
9,328,000 10,032,000
Less valuation allowance...................................... (8,165,000) (9,448,000)
-------------- --------------
Total..................................................... $ 1,163,000 $ 584,000
-------------- --------------
-------------- --------------
</TABLE>
As of September 30, 1994, the Company had Federal net operating loss
carryforwards of approximately $20,300,000. Such loss carryforwards expire in
the fiscal years 1995 through 2007 as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING SEPTEMBER 30,
- ------------------------------------------------------------------------------
<S> <C>
1995.......................................................................... $ 33,000
1996.......................................................................... 1,136,000
1997.......................................................................... 797,000
1998.......................................................................... 518,000
1999.......................................................................... 1,030,000
2000-2004..................................................................... 9,678,000
2005-2007..................................................................... 7,108,000
--------------
Total......................................................................... $ 20,300,000
--------------
--------------
</TABLE>
Additionally, the Company had Federal income tax credits of approximately
$518,000 and state income tax credits of approximately $377,000. The utilization
of the carryforwards to offset future tax liabilities is dependent upon the
Company's ability to generate sufficient taxable income during the carryforward
periods.
F-10
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
5. PLANT AND EQUIPMENT
Plant and equipment at September 30, 1994 and 1993 consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Machinery and equipment................................................... $ 1,581,000 $ 1,602,000
Furniture, fixtures and other equipment................................... 1,064,000 1,126,000
Demonstration equipment................................................... 469,000 418,000
Leasehold improvements.................................................... 112,000 45,000
------------- -------------
Total................................................................. 3,226,000 3,191,000
Less accumulated depreciation and amortization............................ 1,303,000 1,874,000
------------- -------------
Plant and equipment -- net................................................ $ 1,923,000 $ 1,317,000
------------- -------------
------------- -------------
</TABLE>
6. OTHER ASSETS
Other assets at September 30, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Software development costs, net of accumulated amortization of $413,000
and $174,000, respectively............................................... $ 1,064,000 $ 870,000
Other..................................................................... 95,000 253,000
------------- -------------
Total................................................................. $ 1,159,000 $ 1,123,000
------------- -------------
------------- -------------
</TABLE>
Certain software development costs totaling $433,000 and $476,000 have been
capitalized during the fiscal years ended September 30, 1994 and 1993,
respectively. Amortization expense relating to software development costs for
1994, 1993 and 1992 was $239,000, $137,000 and $37,000, respectively.
7. ACCRUED EXPENSES
Accrued expenses at September 30, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Accrued wages and related employee benefits............................... $ 857,000 $ 472,000
Accrued warranty and other product related costs.......................... 385,000 526,000
Accrued sales commissions................................................. 348,000 596,000
Accrued pension costs (Note 9)............................................ 175,000 112,000
Other..................................................................... 478,000 1,036,000
------------- -------------
Total................................................................. $ 2,243,000 $ 2,742,000
------------- -------------
------------- -------------
</TABLE>
8. NOTES PAYABLE TO BANK
The Company maintains a line of credit agreement with a bank under which the
Company may borrow up to $1,500,000 against certain customer accounts receivable
and inventory. Borrowings under this agreement bear interest at the higher of
the banks prime lending rate or the Federal funds rate plus one-half of one
percent. The interest rate for borrowings under this agreement at September 30,
1994 was 8.75 percent. This agreement expires in June 1995.
F-11
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
9. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLAN
The Company has a noncontributory pension plan for employees who meet
certain minimum eligibility requirements. The level of retirement benefit is
based on a formula which considers both employee compensation and length of
credited service.
Plan assets are invested in pooled bank investment accounts, and the fair
value of such assets is based on the quoted market prices of underlying
securities in such accounts. The Company funds pension plan costs based on
minimum and maximum funding criteria as determined by independent actuarial
consultants.
The components of net pension cost for the fiscal years ended September 30,
1994, 1993 and 1992 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Service cost -- benefits earned during the period................. $ 143,000 $ 91,000 $ 93,000
Interest on projected benefit obligations......................... 62,000 49,000 58,000
Estimated return on plan assets................................... (52,000) (43,000) (55,000)
Other -- amortization of actuarial gains and net transition
asset............................................................ (30,000) (32,000) (35,000)
----------- ---------- ----------
Net pension cost.................................................. $ 123,000 $ 65,000 $ 61,000
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The funded status of the plan compared with the accrued expense included in
the Company's balance sheet at September 30, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Fair value of plan assets................................................. $ 724,000 $ 621,000
------------- -------------
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of $636,000
and $491,000 in 1994 and 1993, respectively............................ 790,000 587,000
Effect of projected compensation increases.............................. 226,000 137,000
------------- -------------
Projected benefit obligation for services rendered to date................ 1,016,000 724,000
------------- -------------
Projected benefit obligation in excess of plan assets..................... (292,000) (103,000)
Unrecognized net loss (gain).............................................. 67,000 (85,000)
Remaining unrecognized net transition asset being amortized over 11
years.................................................................... (122,000) (157,000)
Unrecognized prior service costs.......................................... 40,000 48,000
------------- -------------
Accrued pension cost...................................................... $ (307,000) $ (297,000)
------------- -------------
------------- -------------
</TABLE>
Accrued pension costs are included in the accompanying September 30, 1994
and 1993 balance sheets as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Accrued expenses.............................................................. $ 175,000 $ 112,000
Other liabilities............................................................. 132,000 185,000
----------- -----------
$ 307,000 $ 297,000
----------- -----------
----------- -----------
</TABLE>
F-12
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
Significant assumptions used in determining net periodic pension cost and
related pension obligations are as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Discount rate.............................................................. 7.50% 8.25%
Rate of compensation increase.............................................. 4.00% 4.00%
Expected long-term rate of return on assets................................ 8.25% 8.25%
</TABLE>
DEFINED CONTRIBUTION STOCK OWNERSHIP AND DEFERRED COMPENSATION PLAN
The Company has a defined contribution plan for all eligible employees, as
defined by the Plan. The Plan provides for employee cash contributions ranging
from two to ten percent of compensation and matching employer contributions of
Company stock at a rate of 25 percent of an employee's contribution, limited to
a maximum of six percent of a participant's compensation. The Plan also provides
for additional employer contributions of Company stock at the discretion of the
Company's Board of Directors. The Company incurred $61,000, $36,000 and $22,000
for employer contributions to the Plan in 1994, 1993 and 1992, respectively. In
1994, 1993 and 1992, the Company issued 8,610, 16,250 and 26,027, respectively,
shares of its common stock to the Plan related to its prior year contribution.
STOCK APPRECIATION RIGHTS
During fiscal 1992, the Company entered into a stock appreciation rights
agreement with its President. Under the terms of the agreement, the President
will receive a cash payment equal to the appreciation in the market value of a
fixed number of shares of the Company's common stock if certain conditions are
met.
The Company records the compensation expense related to this agreement at
the date that the amount of payment to be made can be reasonably estimated. The
Company recorded compensation expense of $85,000 and $100,000 related to this
agreement during fiscal 1994 and 1993, respectively. No compensation expense was
recorded relating to this agreement during fiscal 1992. The maximum future
compensation which may be earned under this agreement is $90,000.
10. COMMITMENTS AND CONTINGENCIES
A. OPERATING LEASES
The Company has entered into operating lease agreements for
equipment, manufacturing and office facilities. The minimum noncancelable
scheduled rentals under these agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30: AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
1995........................................................................... $ 408,000
1996........................................................................... 396,000
1997........................................................................... 385,000
1998........................................................................... 257,000
-------------
Total...................................................................... $ 1,446,000
-------------
-------------
</TABLE>
Rent expense for 1994, 1993 and 1992 was $363,000, $347,000 and
$347,000, respectively.
F-13
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
B. LITIGATION
During fiscal 1992, the Company instituted an action against Cybo
Systems, Inc. ("Cybo"), alleging that Cybo breached certain agreements
between the parties with respect to the sale by the Company to Cybo of
all of the assets of its welding and cutting systems business.
In response to the action brought by the Company, Cybo asserted
claims against the Company alleging, among other things, breach of
contract and warranties, fraud, bad faith, and conversion. Cybo is
seeking aggregate damages in excess of $3.3 million. The Company believes
that Cybo's claims are without merit and plans to defend against them
vigorously. The Company's management, after discussion with legal
counsel, believes that the ultimate outcome of this matter will not have
a material adverse impact on the Company's financial position or results
of operations.
C. UNITED STATES GOVERNMENT CONTRACTS
Certain of the Company's contracts are subject to audit by applicable
United States governmental agencies. Until such audits are completed, the
ultimate profit on these contracts cannot be finally determined; however,
in the opinion of management, the final contract settlements will not
have a material adverse effect on the Company's financial position or
results of operations.
11. STOCKHOLDERS' EQUITY
PRIVATE EQUITY PLACEMENTS -- During fiscal 1994, the Company entered into an
agreement with a group of investors. Under the agreement the Company received
approximately $3,800,000, after expenses, in exchange for the issuance of
1,360,000 shares of the Company's common stock. The Company also issued warrants
exerciseable through December 1999 to purchase 51,000 shares of the Company's
common stock at an exercise price of $3.75 per share.
During fiscal 1992, the Company entered into an agreement with a group of
investors which included a director of the Company. Under the agreement the
Company received approximately $1,300,000, after expenses, in exchange for the
issuance of 3,000,000 shares of the Company's common stock and warrants
exercisable through July 1996 to purchase an additional 1,000,000 shares of the
Company's common stock at an exercise price of $1.00 per share. Additionally,
the director included in the group of investors received warrants exercisable
through July 1997 to purchase 240,000 shares of the Company's common stock at an
exercise price of $1.00 per share.
SHARES AND WARRANTS ISSUED FOR SERVICES RENDERED -- During fiscal 1994, the
Company issued warrants for the purchase of 30,000 shares of the Company's
common stock at an exercise price of $4.69 per share as compensation for
professional services rendered. The Company recorded an expense of approximately
$38,000 related to the issuance of such warrants.
During fiscal 1993, the Company issued warrants under certain agreements
granting the holders thereof the right through June 1998 to purchase up to
227,004 shares of the Company's common stock at exercise prices ranging from
$0.88 to $3.00 per share as compensation for professional services rendered. The
Company recorded an expense of approximately $125,000 related to the issuance of
such warrants.
During fiscal 1992, the Company issued 230,000 shares of common stock and a
warrant expiring April 1996 to purchase 66,667 shares of the Company's common
stock at an exercise price of $1.00 per
F-14
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
11. STOCKHOLDERS' EQUITY (CONTINUED)
share to a law firm in satisfaction of unpaid legal fees of $130,000. A director
of the Company is a partner in the law firm. The market value of the shares and
the warrant on the dates of issuance was $130,000.
WARRANT ISSUED IN SETTLEMENT OF LITIGATION -- During fiscal 1993, the
Company issued warrants in connection with the settlement of a lawsuit to
purchase up to 25,000 shares of the Company's common stock at an exercise price
of $4.37 per share. The expiration date of such warrants is November 1, 1996.
The Company recorded an expense of approximately $25,000 related to the issuance
of such warrants.
WARRANTS EXERCISED -- During fiscal 1994, the Company received approximately
$270,000 in connection with the issuance of 242,600 shares of its common stock
upon the exercise of warrants to purchase such shares at prices between $0.88
and $4.38 per share.
WARRANTS OUTSTANDING -- As of September 30, 1994, there were warrants
outstanding to purchase approximately 1,372,000 shares of the Company's common
stock with exercise prices of between $1.00 and $4.69 per share.
STOCK OPTION PLANS -- The Company has four stock option plans (the 1977,
1982, 1987 and 1991 plans) which provide for the granting of options to
employees or directors at prices and terms as determined by the Board of
Directors' Stock Option Committee (the "Committee"). With respect to the 1977
and 1987 plans, option prices may not be less than the fair market value at date
of grant. Any excess of the fair market value of shares under option at the date
of grant over the exercise price is charged to operations over the period in
which the stock options vest. All options issued by the Company to date have
exercise prices which were equal to market value of the Company's common stock
at the date of grant. No new options may be granted under the 1977 and 1982
plans.
F-15
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
11. STOCKHOLDERS' EQUITY (CONTINUED)
The following table sets forth summarized information concerning the
Company's stock options:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE RANGE
SHARES
----------- -------------------------------
<S> <C> <C> <C> <C>
Options outstanding for shares of common stock at October 1, 1991....... 834,088 $ .75 - $ 7.06
Granted................................................................. 1,130,721 .53 - 1.63
Canceled or expired..................................................... (649,323) .53 - 7.06
-
----------- --------- ---------
Options outstanding for shares of common stock at September 30, 1992.... 1,315,486 .53 - 5.69
Granted................................................................. 470,963 .88 - 4.04
Canceled or expired..................................................... (99,852) .53 - 5.69
Exercised............................................................... (21,528) .53 - 1.44
-
----------- --------- ---------
Options outstanding for shares of common stock at September 30, 1993.... 1,665,069 .53 - 4.25
Granted................................................................. 257,416 3.63 - 6.81
Canceled or expired..................................................... (23,478) .53 - 5.32
Exercised............................................................... (321,107) .53 - 4.19
-
----------- --------- ---------
Options outstanding for shares of common stock at September 30, 1994.... 1,577,900 $ .53 - $ 6.81
-
-
----------- --------- ---------
----------- --------- ---------
Options exercisable at September 30, 1994............................... 725,845
-----------
-----------
Shares reserved for issuance at September 30, 1994...................... 1,692,525
-----------
-----------
</TABLE>
12. GAIN RELATING TO AGREEMENT WITH GENERAL MOTORS CORPORATION
In September 1989, General Motors Corporation ("GM") and the Company entered
into an agreement whereby GM would lend the Company up to $1,100,000. Loans
under this agreement bore interest at two percentage points above the prime rate
and were collateralized by substantially all of the Company's assets.
The Company recorded interest expense of approximately $22,000 for the year
ended September 30, 1992 relating to this note payable.
In fiscal 1992, the Company and GM entered into an agreement whereby GM
exchanged this debt and the related accrued interest thereon and released the
security interest held by GM in the Company's assets as full payment for (i)
certain automotive spare parts inventories held by the Company, (ii) the
execution of a service agreement under which the Company will provide
maintenance and repair services for a four-year period and (iii) execution of an
agreement by the Company and its officers and directors not to bring a suit
against GM.
During fiscal 1992, the Company recorded an extraordinary item relating to
the agreement from the sale of the inventory to GM. The inventory which was sold
to GM had been written off during fiscal 1990 as part of the Company's
restructuring decision. The Company is recognizing the revenue related to the
service agreement on a straight-line basis over the life of the agreement, with
$18,000, $18,000 and $14,000 recognized in fiscal 1994, 1993 and 1992,
respectively. Costs related to the fulfillment of the service agreement are
expensed as incurred.
F-16
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
a. Cash and Cash Equivalents -- The carrying amounts approximate fair value
because of the short maturity of these instruments.
b. Investments -- Fair value equals quoted market value.
c. Receivables -- The carrying amount approximates fair value because of
the short maturity of these instruments.
As of September 30, 1994, investments consisted of certain debt securities
issued by the United States government with maturities through November 1996.
The Company's intention is to hold such investments until their maturity,
therefore, such investments are recorded at their amortized cost. As of
September 30, 1994, the aggregate fair value of investments maturing within one
year was approximately $1,478,000 and the fair value of investments with
maturities of longer than one year was approximately $1,447,000. The aggregate
unrealized losses as of September 30,1994 were approximately $70,000.
14. SEGMENT AND PRINCIPAL CUSTOMER INFORMATION
For the purposes of segment reporting, management considers the Company to
operate in one industry, the machine vision industry.
During the years ended September 30, 1994, 1993 and 1992 the Company
recognized revenues on sales to major customers as set forth below:
PERCENT OF TOTAL REVENUES
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
United States Government and its agencies.......................................... 4 8 23
Major customers:
Customer A....................................................................... 15 13 21
Customer B....................................................................... 10 3 --
Customer C....................................................................... 9 15 3
Customer D....................................................................... 5 13 --
Customer E....................................................................... -- -- 17
All other customers................................................................ 57 48 36
--- --- ---
Total.......................................................................... 100 100 100
--- --- ---
--- --- ---
</TABLE>
Foreign export sales accounted for 62 percent, 74 percent and 54 percent of
the Company's revenues in fiscal 1994, 1993 and 1992, respectively.
The Company's domestic and foreign export sales during the years ended
September 30, 1994, 1993 and 1992 are set forth below:
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
North America.......................................... $ 9,258,000 $ 5,166,000 $ 6,074,000
Asia/Pacific Rim....................................... 14,103,000 12,608,000 5,838,000
Europe................................................. 1,252,000 2,169,000 1,423,000
-------------- -------------- --------------
Total.............................................. $ 24,613,000 $ 19,943,000 $ 13,335,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-17
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1995 1994
--------------- ---------------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................................... $ 346,000 $ 1,568,000
Investments (Note 2)......................................................... 1,500,000 1,495,000
Receivables -- net (including unbilled receivables of $678,000 at March 31,
1995 and $702,000 at September 30, 1994).................................... 5,691,000 3,412,000
Inventories (Note 3)......................................................... 4,533,000 2,634,000
Deferred income taxes........................................................ 2,923,000 1,163,000
Prepaid expenses and other current assets.................................... 254,000 134,000
--------------- ---------------
Total Current Assets....................................................... 15,247,000 10,406,000
Machinery and equipment (at cost, less accumulated depreciation and
amortization)................................................................. 2,210,000 1,923,000
Deferred income taxes.......................................................... 506,000 --
Other assets................................................................... 1,260,000 1,159,000
Investments (Note 2)........................................................... 2,487,000 1,500,000
--------------- ---------------
TOTAL...................................................................... $ 21,710,000 $ 14,988,000
--------------- ---------------
--------------- ---------------
LIABILITIES
Current Liabilities:
Accounts payable............................................................. $ 4,503,000 $ 2,717,000
Accrued expenses............................................................. 2,330,000 2,243,000
Advance contract payments received........................................... 103,000 719,000
Notes payable (Note 4)....................................................... -- 63,000
--------------- ---------------
Total Current Liabilities.................................................. 6,936,000 5,742,000
Other liabilities.............................................................. 213,000 210,000
--------------- ---------------
Total Liabilities.......................................................... 7,149,000 5,952,000
--------------- ---------------
STOCKHOLDER'S EQUITY
Capital stock -- common -- authorized 20,000,000 shares, $.01 par value; issued
and outstanding 11,671,615 shares at March 31, 1995 and 11,583,602 shares at
September 30, 1994............................................................ 117,000 116,000
Additional paid-in capital..................................................... 33,047,000 32,805,000
Accumulated deficit............................................................ (18,603,000) (23,885,000)
--------------- ---------------
Total Stockholder's Equity................................................. 14,561,000 9,036,000
--------------- ---------------
TOTAL...................................................................... $ 21,710,000 $ 14,988,000
--------------- ---------------
--------------- ---------------
</TABLE>
F-18
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------ ----------------------------
1995 1994 1995 1994
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues........................................... $ 16,600,000 $ 11,790,000 $ 9,071,000 $ 5,901,000
Cost of revenues................................... 7,616,000 6,439,000 4,054,000 3,101,000
-------------- -------------- ------------- -------------
Gross profit....................................... 8,984,000 5,351,000 5,017,000 2,800,000
Research and development costs..................... 2,389,000 1,798,000 1,270,000 968,000
Selling, general and administrative expenses....... 3,469,000 2,549,000 1,955,000 1,321,000
Interest (income) net.............................. (96,000) (2,000) (65,000) (9,000)
-------------- -------------- ------------- -------------
Income before income tax benefit................... 3,222,000 1,006,000 1,857,000 520,000
Income tax benefit................................. 2,060,000 1,093,000 2,606,000 1,123,000
-------------- -------------- ------------- -------------
Net income..................................... $ 5,282,000 $ 2,099,000 $ 4,463,000 $ 1,643,000
-------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------
Net income per common share.................... $.38 $.16 $.32 $.13
-------------- -------------- ------------- -------------
-------------- -------------- ------------- -------------
</TABLE>
F-19
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ $ 5,284,000 $ 2,099,000
Adjustments to reconcile net income to net cash from operating activities:
Deferred income taxes........................................................... (2,266,000) (1,143,000)
Depreciation and amortization................................................... 410,000 320,000
Issuance of common stock -- defined contribution stock ownership and deferred
compensation plan.............................................................. 60,000 36,000
Provision for doubtful receivable............................................... 20,000 --
Issuance of warrants for professional services rendered......................... 14,000 --
Asset and liability management:
Receivables................................................................... (2,299,000) (1,293,000)
Inventories................................................................... (1,899,000) (266,000)
Prepaid expenses and other current assets..................................... (121,000) (73,000)
Other assets.................................................................. (247,000) (166,000)
Accounts payable.............................................................. 1,786,000 95,000
Accrued expenses.............................................................. 87,000 281,000
Advanced contract payment received............................................ (616,000) (774,000)
Other liabilities............................................................. 3,000 (40,000)
-------------- --------------
Net cash provided by (used in) operating activities............................... 216,000 (924,000)
-------------- --------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Additions to property and equipment............................................. (551,000) (715,000)
Investments..................................................................... (993,000) (3,000,000)
-------------- --------------
Net cash used in investing activities............................................. (1,544,000) (3,715,000)
-------------- --------------
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Issuance of common stock in connection with the exercise of stock option and
warrants....................................................................... 169,000 32,000
Notes payable................................................................... (63,000) 187,000
Proceeds/net of expenses related to issuance of common stock.................... -- 4,078,000
-------------- --------------
Net cash provided by financing activities......................................... 106,000 4,297,000
-------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS............................................. $ (1,222,000) $ (342,000)
-------------- --------------
-------------- --------------
</TABLE>
F-20
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED FINANCIAL STATEMENTS
The condensed balance sheet of Robotic Vision Systems, Inc. ("RVSI" or the
"Company") as of March 31, 1995, the condensed statements of operations for the
three and six month periods ended March 31, 1995 and 1994 and the condensed
statements of cash flows for the six month periods ended March 31, 1995 and 1994
have been prepared by the Company, without audit. The balance sheet as of
September 30, 1994 was derived from the audited balance sheet included in the
Company's September 30, 1994 Annual Report on Form 10-K. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial condition, results of operations and
cash flows at March 31, 1995 and 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. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's September 30, 1994 Form 10-K. The results of
operations for the period ended March 31, 1995 are not necessarily indicative of
the operating results for the full year.
2. INVESTMENTS
At March 31, 1995 and September 30, 1994, investments consist primarily of
U.S. Treasury Notes and U.S. Treasury Bills.
3. INVENTORIES
As of March 31, 1995 and September 30, 1994 inventories consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31, 1995 SEPTEMBER 30, 1994
-------------- ------------------
<S> <C> <C>
Raw Materials............................................. $ 461,000 $ 356,000
Work-in-Process........................................... 4,072,000 2,278,000
-------------- ------------------
Total................................................. $ 4,533,000 $ 2,634,000
-------------- ------------------
-------------- ------------------
</TABLE>
4. NOTES PAYABLE
The Company has an agreement with a bank under which the Company may borrow
up to $1,500,000. Loans under this agreement bear interest at a rate of prime
plus one percent per annum and are secured by all the assets of the Company. The
amount outstanding under this credit facility was $-0- at March 31, 1995 and
$63,000 at September 30, 1994. The agreement expires on June 7, 1995.
5. INCOME TAXES
The income tax benefit for the six months ended March 31, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
Current provision.............................................. $ (206,000) $ (50,000)
Deferred provision............................................. (1,036,000) --
Adjustment of valuation allowance.............................. 3,302,000 1,143,000
-------------- -------------
Total...................................................... $ 2,060,000 $ 1,093,000
-------------- -------------
-------------- -------------
</TABLE>
The adjustments to the valuation allowance during the quarters ended March
31, 1995 and 1994 emanate from the Company's profitable operations and the
extent to which the Company can substantiate projected future earnings. The
deferred tax assets as of March 31, 1995 and September 30, 1994 are equivalent
to the benefit to be derived from net operating loss carryforwards and other tax
credits
F-21
<PAGE>
ROBOTIC VISION SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
5. INCOME TAXES (CONTINUED)
which are expected to be utilized to offset future taxable income projected as
of those dates. The deferred tax assets as of March 31, 1995 and September 30,
1994 have been limited to the benefit to be derived from projected future
income, primarily due to the Company's limited history of earnings and its
projected future profitability currently being primarily dependent on one
existing product line.
6. SUBSEQUENT EVENT
(A) PROPOSED MERGER AGREEMENT
On April 27, 1995, the Company and Acuity Imaging, Inc. ("Acuity") signed a
definitive merger agreement. Upon consummation of the merger, Acuity will become
a wholly-owned subsidiary of RVSI.
The merger terms, as amended on July 11, 1995, contemplate that RVSI is to
issue 0.766 of a share of its common stock for each Acuity share (the "Exchange
Ratio") or approximately 1,883,000 shares of RVSI common stock in exchange for
all of Acuity's outstanding shares as of March 31, 1995. In addition, Acuity's
outstanding stock options are to be exchanged for options upon RVSI's common
stock in the same 0.766 to one ratio. If the price of the RVSI Common Stock
averages more then $14.50 or less than $10.00 per share during the 20 business
days preceding the consummation of the Merger, the number of shares of the RVSI
Common Stock issuable to the Acuity Stockholders would be proportionately
adjusted. In no event, however, will the Exchange Ratio be more than .925626 or
less than .555375.
Consummation of the merger, which is intended to be completed as a tax-free
reorganization and to be accounted for as a pooling of interests, is subject to
conditions customary for transactions of this nature, including approval by the
stockholders of each of RVSI and Acuity.
(B) PRIVATE EQUITY PLACEMENT
On June 28, 1995, the Company entered into an agreement with a group of
investors. Under the agreement, the Company received approximately $9.5 million,
after expenses, in exchange for the issuance of 1,110,000 shares of the
Company's common stock. The Company also issued warrants exercisable through
June 2000 to purchase 68,300 shares of the Company's common stock at exercise
prices ranging from $8.75 to $9.00 per share.
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Acuity Imaging, Inc.:
We have audited the accompanying consolidated balance sheets of Acuity
Imaging, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Automatix Incorporated
for 1993 and 1992, which reflect total assets and total revenues of 43 percent
and 47 percent in 1993 and 42 percent and 51 percent in 1992, respectively, of
the consolidated totals. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for those entities, is based solely on the report of other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Acuity Imaging, Inc. and subsidiaries at
December 31, 1994 and 1993, and the results of their operations and their cash
flows for each of the three years ended December 31, 1994, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 13, 1995 (except for the
matters
discussed in Notes 7 and 13, as to
which the dates are July 19, 1995 and
July 11, 1995, respectively)
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Acuity Imaging, Inc.:
We have audited the consolidated balance sheets of Acuity Imaging, Inc.
(formerly Automatix Incorporated) and subsidiaries as of December 31, 1993, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 1993 (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Acuity Imaging, Inc. (formerly
Automatix Incorporated) and subsidiaries at December 31, 1993, and the results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 11, 1994
F-24
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
NOTES 1994 1993
--------- APRIL 1, ---------- ----------
1995
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets:
Cash and equivalents................................................ 1 $ 279 $ 529 $ 2,324
Accounts receivable, net of allowance for doubtful accounts of $178
and $140 in 1994 and 1993, respectively, and $104 at April 1,
1995............................................................... 3,228 3,605 3,007
Inventories......................................................... 1,4 1,781 1,665 1,565
Other current assets................................................ 174 28 54
----------- ---------- ----------
Total current assets............................................ 5,462 5,827 6,950
Property and Equipment -- Net......................................... 1,5 988 873 652
Other Assets.......................................................... 20 20 20
----------- ---------- ----------
Total Assets.......................................................... $ 6,470 $ 6,720 $ 7,622
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable.................................................... $ 1,807 $ 1,573 $ 1,208
Loan payable........................................................ 7 1,250 -- --
Advances from customers............................................. 99 193 194
Accrued expenses.................................................... 6 1,010 1,591 1,860
Subordinated notes and related accrued interest..................... 8 -- -- 3,335
----------- --------- ---------
Total current liabilities....................................... 4,166 3,357 6,597
----------- --------- ---------
Loan Payable.......................................................... 7 -- 1,015 --
----------- --------- ---------
Commitments 10
Stockholders' Equity: 1,9
Common stock, $.01 par value; authorized, 10,000,000 shares; issued,
2,389,532 and 2,428,845 shares at December 31, 1994 and 1993,
respectively, and 2,458,680 shares at April 1, 1995................ 25 24 24
Additional paid-in capital.......................................... 61,161 61,081 61,479
Accumulated deficit................................................. (59,029) (58,888) (60,194)
Cumulative translation adjustment................................... 147 131 137
Less treasury stock at cost (64,910 common shares in 1993).......... -- -- (421)
----------- --------- ---------
Total stockholders' equity............................................ 2,304 2,348 1,025
----------- --------- ---------
Total Liabilities and Stockholders' Equity............................ $ 6,470 $ 6,720 $ 7,622
----------- --------- ---------
----------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
YEAR ENDED DECEMBER
-------------------- 31,
APRIL 1, APRIL 2, --------------------
NOTES 1995 1994 1994 1993
----- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales and service revenue......................................... 1,12 $ 4,895 $ 5,189 $ 22,168 $ 18,734
--------- --------- --------- ---------
Costs and Expenses:
Cost of sales and service revenue................................... 2,121 2,101 9,369 7,752
Research and development (includes $172, $233 and $82 of costs
associated with SBIR contracts in 1994, 1993 and 1992,
respectively, and $63 and $49 in the three months ended April 1,
1995 and April 2, 1994, respectively............................... 1,089 938 3,911 3,482
Marketing and selling............................................... 1,469 1,250 5,317 4,614
General and administrative.......................................... 337 373 1,580 1,452
Merger and restructuring costs...................................... 2 -- -- 440 1,091
--------- --------- --------- ---------
Total costs and expenses........................................ 5,016 4,662 20,617 18,391
--------- --------- --------- ---------
Income from operations................................................ (121) 527 1,551 343
Interest income....................................................... 2 10 18 41
Interest expense...................................................... 22 83 153 317
--------- --------- --------- ---------
Income from continuing operations before income taxes................. (141) 454 1,416 67
Provision for income taxes on continuing operations................... 11 -- 44 110 97
--------- --------- --------- ---------
Income (loss) from continuing operations.............................. (141) 410 1,306 (30)
Income (Loss) From Discontinued Operations: 3
Loss from operations................................................ -- -- -- --
Gain on disposal.................................................... -- -- -- --
--------- --------- --------- ---------
Total discontinued operations................................... -- -- -- --
--------- --------- --------- ---------
Income (loss) before extraordinary item............................... $ (141) $ 410 $ 1,306 $ (30)
--------- --------- --------- ---------
Extraordinary item-extinguishment of long-term debt (net of taxes,
$3).................................................................. 8 -- -- -- --
--------- --------- --------- ---------
Net income (loss)..................................................... $ (141) $ 410 $ 1,306 $ (30)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (Loss) Per Share: 1
Income (loss) from continuing operations............................ $ (.06) $ .16 $ .51 $ (.01)
Discontinued operations............................................. -- -- -- --
Extraordinary item.................................................. -- -- -- --
--------- --------- --------- ---------
Net income (loss)................................................... $ (.06) $ .16 $ .51 $ (.01)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of common and common equivalent shares
outstanding.......................................................... 1 2,417 2,579 2,569 2,380
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
1992
---------
<S> <C>
Net sales and service revenue......................................... $ 16,610
---------
Costs and Expenses:
Cost of sales and service revenue................................... 7,810
Research and development (includes $172, $233 and $82 of costs
associated with SBIR contracts in 1994, 1993 and 1992,
respectively, and $63 and $49 in the three months ended April 1,
1995 and April 2, 1994, respectively............................... 2,862
Marketing and selling............................................... 3,977
General and administrative.......................................... 1,197
Merger and restructuring costs...................................... --
---------
Total costs and expenses........................................ 15,846
---------
Income from operations................................................ 764
Interest income....................................................... 59
Interest expense...................................................... 324
---------
Income from continuing operations before income taxes................. 499
Provision for income taxes on continuing operations................... 48
---------
Income (loss) from continuing operations.............................. 451
Income (Loss) From Discontinued Operations:
Loss from operations................................................ (147)
Gain on disposal.................................................... 1,361
---------
Total discontinued operations................................... 1,214
---------
Income (loss) before extraordinary item............................... $ 1,665
---------
Extraordinary item-extinguishment of long-term debt (net of taxes,
$3).................................................................. 46
---------
Net income (loss)..................................................... $ 1,711
---------
---------
Income (Loss) Per Share:
Income (loss) from continuing operations............................ $ .19
Discontinued operations............................................. .51
Extraordinary item.................................................. .02
---------
Net income (loss)................................................... $ .72
---------
---------
Weighted average number of common and common equivalent shares
outstanding.......................................................... 2,383
---------
---------
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- ADDITIONAL CUMULATIVE
NUMBER OF $.01 PAR PAID-IN ACCUMULATED TRANSLATION TREASURY
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT STOCK
----------- ------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992...................... 2,410 $ 24 $ 61,463 $ (61,828) $ 261 $ (421)
Exercises of stock options.................. 19 -- 16 -- -- --
Other....................................... -- -- -- (47) -- --
Translation adjustment...................... -- -- -- -- (121) --
Net income.................................. -- -- -- 1,711 -- --
----- --- ----------- ------------ ----------- -----------
BALANCE, DECEMBER 31, 1992.................... 2,429 24 61,479 (60,164) 140 (421)
----- --- ----------- ------------ ----------- -----------
Translation adjustment...................... -- -- -- -- (3) --
Net loss.................................... -- -- -- (30) -- --
----- --- ----------- ------------ ----------- -----------
BALANCE, DECEMBER 31, 1993.................... 2,429 24 61,479 (60,194) 137 (421)
----- --- ----------- ------------ ----------- -----------
Exercises of stock options.................. 26 -- 23 -- -- --
Retirement of treasury stock................ (65) -- (421) -- -- 421
Translation adjustment...................... -- -- -- -- (6) --
Net income.................................. -- -- -- 1,306 -- --
----- --- ----------- ------------ ----------- -----------
BALANCE, DECEMBER 31, 1994.................... 2,390 24 61,081 (58,888) 131 --
----- --- ----------- ------------ ----------- -----------
Exercises of stock options.................. 69 1 80 -- -- --
Translation adjustment...................... -- -- -- -- 16 --
Net loss.................................... -- -- -- (141) -- --
----- --- ----------- ------------ ----------- -----------
BALANCE, APRIL 1, 1995 (Unaudited)............ 2,459 $ 25 $ 61,161 $ (59,029) $ 147 $ --
----- --- ----------- ------------ ----------- -----------
----- --- ----------- ------------ ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------- YEAR ENDED DECEMBER 31,
APRIL 1, APRIL 2, -------------------------------
1995 1994 1994 1993 1992
----------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (141) $ 410 $ 1,306 $ (30) $ 1,711
----------- --------- --------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item-extinguishment of debt................. -- -- -- -- (46)
Gain on sale of subsidiary................................ -- -- -- -- (1,361)
Depreciation and amortization............................. 131 77 418 334 379
Interest expense.......................................... -- 84 84 310 281
Increase (decrease) in cash resulting from:
Accounts receivable..................................... 377 (199) (598) 325 (676)
Inventories............................................. (116) 16 (100) (573) (109)
Accounts payable........................................ 234 (165) 365 156 565
Advances from customers................................. (94) 1,179 (1) 71 30
Accrued expenses........................................ (581) (477) (269) 709 98
Other................................................... (146) (13) 26 7 55
----------- --------- --------- --------- ---------
Total adjustments..................................... (195) 502 (75) 1,339 (784)
----------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities... (336) 912 1,231 1,309 927
----------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment..................... (246) (209) (639) (390) (413)
Proceeds from sale of subsidiary, net of cost of disposal... -- -- -- -- 247
----------- --------- --------- --------- ---------
Net cash used in investing activities................... (246) (209) (639) (390) (166)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt................................... -- -- -- -- (671)
Proceeds from exercises of stock options.................... 81 1 23 -- 16
Proceeds from bank loan..................................... 235 1,500 1,015 -- --
Payment of short-term debt and related accrued interest..... -- (3,419) (3,419) -- --
----------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities..... 316 (1,918) (2,381) -- (655)
----------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS....... 16 (1) (6) (3) (121)
----------- --------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS................... (250) (1,216) (1,795) 916 (15)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD..................... 529 2,324 2,324 1,408 1,423
----------- --------- --------- --------- ---------
CASH AND EQUIVALENTS, END OF PERIOD........................... $ 279 $ 1,108 $ 529 $ 2,324 $ 1,408
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 22 $ 1,269 $ 1,338 $ -- $ 43
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Cash paid for taxes......................................... $ 28 $ 56 $ 114 $ 49 $ 98
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the financial statements of Acuity Imaging, Inc. (formerly Automatix
Incorporated) and its subsidiaries (the Company). All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain amounts
in the 1993 and 1992 financial statements and notes thereto have been
reclassified to conform to the 1994 presentation.
The consolidated financial statements of Acuity Imaging, Inc. have been
prepared to give retroactive effect to the combination with Itran Corp. (Note
2), which occurred on January 26, 1994 and has been recorded as a pooling of
interests.
REVERSE STOCK SPLIT -- All share and per share data have been retroactively
adjusted to reflect the one-for-twenty reverse stock split of the Company's
common stock effected on January 26, 1994.
REVENUE RECOGNITION -- Revenue from equipment sales, which include a
software component, is recognized at the time of shipment provided that no
significant vendor or postcontract support obligations remain outstanding and
collection of the resulting receivable is deemed probable. Revenue from
equipment requiring significant field engineering, vendor or postcontract
support is deferred until such obligations are substantially completed. In
limited instances, the Company installs equipment at the customer's site. The
installation process is routine, and the costs to install the equipment are
accrued at shipment. The Company recognizes any separately billable revenues
from the installation of its products when the installations are completed.
Estimated warranty costs are accrued at the time system sales are recognized as
revenue. Revenue from government research and development contracts is billed
and recognized as the services are provided and the reimbursement is earned
during the period based on actual labor, materials and overhead incurred, plus
profit as allowed under each contract. Other services revenues are recognized
when rendered. Service revenue, including spare parts and training, was
$1,807,000, $1,481,000 and $1,543,000 for the years ended December 31, 1994,
1993 and 1992, respectively, and $501,000 and $466,000 for the three months
ended April 1, 1995 and April 2, 1994, respectively.
SOFTWARE DEVELOPMENT COSTS -- Software development costs are expensed as
incurred. Costs incurred after technological feasibility has been determined
have not been significant.
CASH AND EQUIVALENTS -- Cash equivalents consist primarily of short-term
bank time deposits purchased with remaining maturities of three months or less.
INVENTORIES -- Inventories are stated at the lower of cost (first-in,
first-out method) or market. The Company makes provisions for obsolete,
slow-moving and/or nonsaleable inventories on a quarterly basis.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Additions, renewals and improvements are capitalized, and repair and maintenance
costs are expensed. Fully depreciated assets are removed from the accounts.
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets.
FOREIGN CURRENCY TRANSLATION -- Assets and liabilities of the Company's
European subsidiary are translated at the exchange rate in effect at the balance
sheet date. Operating statement accounts are translated at the average exchange
rate for the year. The resulting translation adjustments are excluded from
operations and accumulated as a separate component of stockholders' equity.
Transaction gains are included in net income and totaled $19,000, $0 and $45,000
in 1994, 1993 and 1992, respectively, and $2,000 and $0 for the three months
ended April 1, 1995 and April 2, 1994, respectively.
F-29
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES -- Deferred tax liabilities and assets are determined based on
the difference between the financial statement carrying amounts and the tax
basis of existing assets and liabilities using enacted tax rates in effect in
the year(s) in which the differences are expected to reverse.
INCOME (LOSS) PER SHARE -- Income (loss) per share is computed using the
weighted average number of common and common equivalent shares outstanding
during each year. Fully diluted and primary income per common share are not
materially different for each of the periods presented.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS -- The Company has no obligation
for postretirement or postemployment benefits.
DERIVATIVE FINANCIAL INSTRUMENTS -- In October 1994, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 119 (SFAS No. 119), DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND
FAIR VALUE OF FINANCIAL INSTRUMENTS, which is effective for fiscal years ending
after December 15, 1994. SFAS No. 119 requires certain disclosures about
derivative financial instruments including futures, forward swap and option
contracts and other financial instruments with similar characteristics. As of
December 31, 1994 and April 1, 1995, the Company had no instruments requiring
disclosure under SFAS No. 119.
FAIR VALUE FINANCIAL INSTRUMENTS -- The following methods and assumptions
were used to estimate the fair value of each class of financial instruments:
a. Cash and equivalents -- the carrying amounts approximate fair value
because of the short maturity of those investments.
b. Receivables -- the carrying amounts approximate fair value because of
the short maturity of those investments.
c. Debt -- the carrying amounts approximate fair value because of the
relatively short maturity of those instruments.
INTERIM FINANCIAL STATEMENTS -- The Company determines its quarterly
reporting periods based upon thirteen week periods. The accompanying
consolidated balance sheets as of April 1, 1995, the consolidated statements of
operations and cash flows for the thirteen-week periods ended April 1, 1995 and
April 2, 1994, and the consolidated statements of stockholders' equity for the
thirteen-week period ended April 1, 1995 are unaudited but, in the opinion of
management, include all adjustments (consisting only of normal, recurring
adjustments) necessary for a fair presentation of the results for these interim
periods. The results of operations for the thirteen weeks ended April 1, 1995
are not necessarily indicative of results to be expected for the entire year.
2. BUSINESS COMBINATION
On January 26, 1994, the Company merged with Itran Corp. (Itran) in a
tax-free exchange of 1,482,755 registered shares of Automatix common stock for
substantially all of Itran's outstanding common and preferred stock. Itran was a
developer and seller of computerized visual inspection equipment. Automatix was
the surviving corporation and, simultaneously with the merger, changed its name
to Acuity Imaging, Inc. Outstanding Itran stock options were converted into
options to purchase 161,750 shares of the Company's common stock. The merger has
been accounted for as a pooling of interests. The Company incurred expenses of
approximately $1,091,000 related to the merger, which are included in merger and
restructuring costs in the accompanying statement of
F-30
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
2. BUSINESS COMBINATION (CONTINUED)
operations in 1993. For the periods presented there were no inter-company
transactions which would require elimination. Unaudited pro forma condensed
statement of operations data for the years ended December 31, 1993 and 1992 are
as follows:
<TABLE>
<CAPTION>
AUTOMATIX ITRAN COMBINED
----------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
1993
Revenue............................................................... $ 8,841 $ 9,893 $ 18,734
Net income (loss)..................................................... 15 (45) (30)
1992
Revenue............................................................... $ 8,548 $ 8,062 $ 16,610
Extraordinary item -- Extinguishment of long-term debt................ 46 -- 46
Net income............................................................ 1,525 186 1,711
</TABLE>
The Company incurred restructuring costs in 1994 related to the merger which
are included in merger and restructuring costs for 1994. These costs represented
approximately $346,000 in severance and related benefits and $94,000 related to
a lease termination.
3. DISCONTINUED OPERATIONS
On July 15, 1992, the Company sold its 71% interest in SuperCads Inc.
(SuperCads) for cash of $300,000, resulting in a gain of $1,361,000, comprised
of the following:
<TABLE>
<S> <C>
Cash proceeds.......................................................... $ 300,000
Reversal of minority interest.......................................... 987,000
Assumption of net liabilities by buyer................................. 126,000
Less -- legal expenses................................................. (52,000)
----------
Gain recognized........................................................ $1,361,000
----------
----------
</TABLE>
The Company also received a note of $540,000, which bore interest at 8% and
was due on June 15, 1994. Because of uncertainty relating to the collectibility
of the note, the Company did not recognize any additional gain upon receipt of
the note. In May 1993, the Company sold the note to its then Chairman of the
Board of Directors in exchange for 37,500 shares of the Company's common stock
and options for 20,000 additional shares of the Company's common stock
transferred by the Chairman of the Company. The 37,500 shares of stock were
added to the Company's treasury stock at the value of the note sold (zero). Net
sales of SuperCads were $608,000 for the period from January 1, 1992 through
July 15, 1992.
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
APRIL 1, ------------- -------------
1995
-------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................................. $ 698,000 $ 589,000 $ 608,000
Work-in-process............................................ 532,000 626,000 279,000
Finished products.......................................... 411,000 325,000 658,000
Field engineering parts and components..................... 140,000 125,000 20,000
------------- ------------- -------------
$ 1,781,000 $ 1,665,000 $ 1,565,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-31
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
4. INVENTORIES (CONTINUED)
Work-in-process and finished-goods inventories include materials, labor and
manufacturing overhead.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- DEPRECIABLE
1994 1993 LIVES IN YEARS
APRIL 1, -------------- ------------- ---------------
1995
--------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Manufacturing, testing and other
equipment............................. $ 1,236,000 $ 1,157,000 $ 862,000 1-3
Marketing, demo and training
equipment............................. 677,000 531,000 369,000 1-3
Office furniture and fixtures.......... 84,000 101,000 80,000 2-5
Leasehold improvements................. 172,000 162,000 17,000 (Lease term )
-------------- -------------- -------------
2,169,000 1,951,000 1,328,000
Less-accumulated depreciation.......... (1,181,000) (1,078,000) (676,000)
-------------- -------------- -------------
$ 988,000 $ 873,000 $ 652,000
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
APRIL 1, ------------- -------------
1995
-------------
(UNAUDITED)
<S> <C> <C> <C>
Installation and warranty costs............................ $ 139,000 $ 144,000 $ 131,000
Employee compensation...................................... 559,000 890,000 598,000
Merger and restructuring costs............................. 20,000 224,000 538,000
Other...................................................... 292,000 333,000 593,000
------------- ------------- -------------
$ 1,010,000 $ 1,591,000 $ 1,860,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
7. LINE-OF-CREDIT AGREEMENT
On March 22, 1994, the Company obtained a line of credit from a bank, which
provided for borrowings of up to the lesser of $3,500,000 or 80% of eligible
accounts receivable, as defined. The available borrowings base as of December
31, 1994 was approximately $2,022,000. Interest was payable monthly at a rate of
prime (8.5% at December 31, 1994) plus .5%. Borrowings under the line were
secured by substantially all of the assets of the Company. In addition, the
agreement required, among other covenants, that the Company maintain minimum
levels of profitability, net worth, liquidity and limited the levels of
leverage. The Company was in compliance with all covenants as of December 31,
1994. At December 31, 1994, $1,015,000 was outstanding under the line of credit.
This line of credit was scheduled to expire on May 5, 1995. In March 1995, the
Company negotiated a long-term line of credit from another commercial bank
carrying more favorable terms than the above line. The Company borrowed against
this new line and immediately paid off and terminated the above line of credit.
Since the new line of credit was for a long-term commitment (expiration of June
1, 1997), the Company's December 31, 1994 loan payable on its bank line of
credit was classified as a long-term liability in the Company's audited December
31, 1994 balance sheet.
The Company's new line of credit is a revolving line of credit that provides
for borrowings up to the lesser of $3,500,000 or 80% of eligible accounts
receivable, as defined, plus 50% of unpledged
F-32
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
7. LINE-OF-CREDIT AGREEMENT (CONTINUED)
domestic cash and cash equivalents. Interest is payable monthly at a rate of
prime plus .5%. Borrowings under the line are secured by substantially all
assets of the Company. The agreement requires, among other covenants, that the
Company maintain minimum levels of profitability, current ratio, net worth and
limits the levels of leverage. At April 1, 1995, $1,250,000 was outstanding
under the line of credit, and the Company had another approximately $593,000 in
available borrowings against its line of credit. As of April 1, 1995, the
Company was in default of certain of its covenants on its outstanding bank
line-of-credit agreement, and as such, the loan payable amount has been
classified as a short-term liability in the Company's unaudited April 1, 1995
balance sheet. The Company has obtained forbearance from such defaults until the
earlier of (i) September 30, 1995 or (ii) any termination of the Company's
arrangement for its contemplated merger with Robotic Vision Systems, Inc.,
("RVSI"), without such merger having been consummated. In the event that either
of the two events occurs, the Company would need to enter into additional
negotiations with its bank in an attempt to resolve the termination of such
forbearance.
8. SUBORDINATED NOTES
Subordinated notes consisted of principal amounts totaling $2,150,000 at
December 31, 1993 and accrued interest at 10% totaling $1,185,000 at December
31, 1993. Of these amounts, $1,551,000 was payable to a stockholder of the
Company at December 31, 1993. The subordinated notes and accrued interest
thereon were repaid on April 1, 1994.
The 10% noteholders received warrants to purchase 143,334 shares of the
Company's common stock at $8 per share until June 30, 1994, which expired
unexercised on that day.
In August 1992, the Company concluded an agreement with the holder of a
$689,000 note to repay the note for $640,000. The $49,000 difference between the
unpaid balance of the note and the payment, less applicable income taxes of
$3,000, is shown as an extraordinary item in the consolidated statements of
operations.
The Company made cash payments for interest related to these notes of
$1,269,000, $0 and $43,000 in 1994, 1993 and 1992, respectively.
9. STOCK PLANS
The Company has the following stock plans:
1980 INCENTIVE STOCK OPTION PLAN -- This plan provides for options to
purchase an aggregate of 100,481 shares of common stock by employees. The
options generally become exercisable ratably over
F-33
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
9. STOCK PLANS (CONTINUED)
a two-to four-year period from the date of grant. The plan expired in 1990. The
exercise price of all options granted to date under the plan equaled the fair
value of the Company's common stock on the date of grant. Stock option activity
under the plan was as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED YEAR ENDED YEAR ENDED
APRIL 1, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------- ---------------------- ----------------------
AGGREGATE AGGREGATE AGGREGATE
OPTION OPTION OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of period....................... 27,796 $ 307,899 27,977 $ 309,992 28,500 $ 314,000
Options granted, net of
forfeitures..................... -- -- (181) (2,093) (523) (4,008)
Options exercised................ (2,750) (21,450) -- -- -- --
--------- ----------- --------- ----------- --------- -----------
Options outstanding at end of
period.......................... 25,046 $ 286,449 27,796 $ 307,899 27,977 $ 309,992
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
Options exercisable at end of
period.......................... 25,046 $ 286,449 27,796 $ 307,899 27,940 $ 309,804
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
</TABLE>
1981 STOCK OPTION PLAN -- This plan provides for nonstatutory options to
purchase an aggregate of 50,000 shares of common stock by employees, directors
and consultants. Options become exercisable ratably over a two-to 10-year period
from the date of grant. The exercise price of all options granted to date under
the plan equaled the fair value of the Company's common stock on the date of
grant. Stock option activity under the plan was as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
YEAR ENDED YEAR ENDED
APRIL 1, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------- ---------------------- ----------------------
AGGREGATE AGGREGATE AGGREGATE
OPTION OPTION OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of period........................ 19,333 $ 98,571 20,720 $ 114,874 40,600 $ 274,000
Options granted, net of
forfeitures...................... (50) (240) (1,337) (16,023) (19,880) (159,126)
Options exercised................. (13) (42) (50) (280) -- --
--------- --------- --------- ----------- --------- -----------
Options outstanding at end of
period........................... 19,270 $ 98,289 19,333 $ 98,571 20,720 $ 114,874
--------- --------- --------- ----------- --------- -----------
--------- --------- --------- ----------- --------- -----------
Options exercisable at end of
period........................... 17,430 $ 94,380 16,116 $ 92,517 13,508 $ 98,731
--------- --------- --------- ----------- --------- -----------
--------- --------- --------- ----------- --------- -----------
Available for future grants....... 30,632 30,582 29,245
--------- --------- ---------
--------- --------- ---------
</TABLE>
1991 STOCK OPTION PLAN -- This plan provides for incentive stock options or
nonstatutory stock options to purchase an aggregate of 350,000 shares of common
stock by employees, directors and consultants. Options become exercisable
ratably over a two-to 10-year period from the date of grant. The exercise price
of all options granted to date under the plan equaled the fair value of the
Company's common stock on the date of grant.
F-34
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
9. STOCK PLANS (CONTINUED)
In connection with the merger with Itran (Note 2), all of Itran's common
stock options were converted into options to purchase Acuity common stock under
the 1991 Stock Option Plan.
Stock option activity under the plan was as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED YEAR ENDED YEAR ENDED
APRIL 1, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------- ---------------------- ----------------------
AGGREGATE AGGREGATE AGGREGATE
OPTION OPTION OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period......... 227,671 $ 804,526 189,496 $ 180,143 188,189 $ 179,255
Options granted, net of
forfeitures................. (10,877) (107,335) 63,722 647,114 1,307 888
Options exercised............ (66,408) (60,000) (25,547) (22,731) -- --
--------- ----------- --------- ----------- --------- -----------
Options outstanding at end of
period...................... 150,386 $ 637,191 227,671 $ 804,526 189,496 $ 180,143
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
Options exercisable at end of
period...................... 77,639 $ 77,154 138,234 $ 128,989 141,981 $ 129,160
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
Available for future
grants...................... 107,659 96,782 160,504
--------- --------- ---------
--------- --------- ---------
</TABLE>
On February 7, 1991, the Board of Directors of the Company voted to grant to
the then President and Chief Executive Officer nonstatutory options for 18,681
shares, exercisable at $1.00 per share, which was not less than the fair market
value on the date of grant. These options were not granted pursuant to any of
the above stock option plans. At December 31, 1994 and 1993, 14,011 and 9,341
options, respectively, were exercisable at an aggregate option price of $14,011
and $9,341, respectively. At April 1, 1995, 18,681 options were exercisable at
an aggregate option price of $18,681.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In January 1994, the Company adopted the Acuity Imaging, Inc. Non-Employee
Director Stock Option Plan (the "Plan") under which members of the Board of
Directors who are not employees of the Company are automatically granted
non-qualified stock options on the date of the first meeting of the Board in
each calendar year to purchase the lesser of (i) 1,550 shares or (ii) the number
of shares determined by dividing $25,000 by the fair market value of a share of
the Company's common stock as of the date of grant. The exercise price for such
options will be equal to the fair market value of the Company's common stock on
such date. The Plan provides that options to purchase up to an aggregate of
50,000 shares of common stock may be granted under the Plan. Each option is
fully exercisable one year after the grant date and expires at the end of 10
years and one day after the grant date. In January 1994, the Company granted
options for 6,200 shares of common stock at $8.50 per share.
F-35
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
9. STOCK PLANS (CONTINUED)
Stock option activity under the plan was as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
YEAR ENDED
APRIL 1, 1995 DECEMBER 31, 1994
-------------------- --------------------
AGGREGATE AGGREGATE
OPTION OPTION
SHARES PRICE SHARES PRICE
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Options outstanding at beginning of period.................. 4,650 $ 39,525 -- $ --
Options granted, net of forfeitures......................... 4,650 39,246 4,650 39,525
Options exercised........................................... -- -- -- --
--------- --------- --------- ---------
Options outstanding at end of period........................ 9,300 $ 78,771 4,650 $ 39,525
--------- --------- --------- ---------
--------- --------- --------- ---------
Options exercisable at end of period........................ 4,650 $ 39,525 -- $ --
--------- --------- --------- ---------
Available for future grants................................. 40,700 45,350
--------- ---------
--------- ---------
</TABLE>
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
In April 1994, the Company adopted the 1994 Acuity Imaging, Inc. Employee
Qualified Stock Purchase Plan (the "1994 Stock Plan"). The 1994 Stock Plan
provides that the Company may grant options for not more than 100,000 shares of
its common stock, subject to increase or decrease in the event of subsequent
stock splits or other capital changes. On the first business day of each
12-month payment period, commencing July 1, 1994, subject to the terms of the
1994 Stock Plan, the Company will grant to each eligible employee who is then a
participant in the 1994 Stock Plan an option to purchase on the last day of such
payment period at the option price (as defined below) such number of shares of
the common stock of the Company reserved under the 1994 Stock Plan as such
employees' accumulated payroll deductions on the last day of such payment period
will pay for at the option price, or if less, that number of shares having a
fair market value (as of the first day of the payment period) equal to $12,500,
provided and on the condition that such employee remains eligible to participate
in the 1994 Stock Plan throughout such payment period. In addition, no option
will be granted which will cause the optionee's right to purchase shares of the
Company's common stock under the 1994 Stock Plan to accrue at a rate that
exceeds $25,000 of fair market value of the stock in any calendar year. The
"option price" for each payment period is equal to the lesser of (i) 85% of the
fair market value per share of the Company's common stock on the first day of
the payment period or (ii) 85% of the fair market value per share of the
Company's common stock on the last day of the payment period.
At April 1, 1995, the Company had 501,674 shares of common stock reserved
for issuance under Stock Option and Employee Qualified Stock Purchase plans.
F-36
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
10. LEASES
The Company leases office and manufacturing facilities and equipment under
various operating leases. Future minimum lease payments, as of December 31,
1994, are as follows:
<TABLE>
<CAPTION>
YEAR BUILDINGS EQUIPMENT TOTAL
- ------------------------------------------------------------- ------------- ----------- -------------
<S> <C> <C> <C>
1995......................................................... $ 284,000 $ 79,000 $ 363,000
1996......................................................... 257,000 63,000 320,000
1997......................................................... 221,000 34,000 255,000
1998......................................................... 222,000 6,000 228,000
1999......................................................... 234,000 2,000 236,000
Thereafter................................................... 60,000 -- 60,000
------------- ----------- -------------
$ 1,278,000 $ 184,000 $ 1,462,000
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
Total rent expense was $323,000, $285,000 and $306,000 during 1994, 1993 and
1992, respectively. Rent expense for the three months ended April 1, 1995 and
April 2, 1994 was $77,000 and $72,000, respectively.
11. INCOME TAXES
Income (loss) from operations before income taxes was comprised of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
------------- ---------- -----------
<S> <C> <C> <C>
Domestic....................................................... $ 1,185,000 $ 98,000 $ 373,000
Foreign........................................................ 231,000 (31,000) 126,000
------------- ---------- -----------
Total...................................................... $ 1,416,000 $ 67,000 $ 499,000
------------- ---------- -----------
------------- ---------- -----------
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----------- --------- ---------
<S> <C> <C> <C>
Current:
Federal........................................................... $ 19,000 $ 8,500 $ --
State............................................................. 91,000 88,500 51,000
----------- --------- ---------
$ 110,000 $ 97,000 $ 51,000
----------- --------- ---------
----------- --------- ---------
</TABLE>
Federal income taxes in 1994, 1993 and 1992 have been offset by net
operating loss carryforwards of $1,412,662, $1,215,000 and $373,000,
respectively, to the extent allowed by alternative minimum tax requirements.
Foreign taxes were offset by net operating loss carryforwards of $239,000 in
1994.
F-37
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
11. INCOME TAXES (CONTINUED)
The sources of deferred income tax and the related tax effect at December
31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Accounts receivable..................................................... $ 70,000 $ 71,000
Warranty reserve........................................................ 50,000 73,000
Vacation accrual........................................................ 101,000 272,000
Depreciation and amortization........................................... 5,000 76,000
Other nondeductible amounts............................................. 345,000 227,000
Net operating loss carryforwards:
Domestic.............................................................. 3,460,000 3,902,000
Foreign............................................................... 215,000 273,000
Credit carryforward..................................................... 325,000 325,000
Valuation allowance..................................................... (4,571,000) (5,219,000)
-------------- --------------
Total................................................................... $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The Company has recorded a valuation allowance equal to the full value of
the deferred tax assets, including net operating loss carryforwards, because of
the uncertainty of their future utilization.
A reconciliation between the Company's effective income tax rate and the
U.S. Federal statutory rate on income for the years ended December 31, 1994,
1993 and 1992 is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate............................................... 34.0% 34.0% 34.0%
Benefit of net operating loss carryforwards.......................... (32.0) (21.0) (34.0)
Nondeductible merger costs........................................... -- 126.0 --
State taxes, net of federal benefit.................................. 6.4 6.0 9.6
Other................................................................ (.6) -- --
----------- ----------- -----------
7.8% 145.0% 9.6%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
At December 31, 1994, the Company had U.S. Federal net operating loss
carryforwards of approximately $10,176,000, which expire commencing in 1995. The
United Kingdom subsidiary had net operating loss carryforwards that aggregate
approximately $588,000 at December 31, 1994 and can be used to offset available
future taxable income in the United Kingdom. In addition, the Company has
approximately $325,000 of unused investment tax credits. Because of the change
in ownership, as defined in the Internal Revenue Code, which occurred in January
1994 (Note 2), certain of the net operating loss carryforwards and credits are
subject to annual limitations and may be further limited by the proposed
transaction described in Note 13.
Because of the Company's net operating loss carryforward position, the
Company has recorded no benefit for the loss for the three months ended April 1,
1995.
F-38
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
12. SEGMENT INFORMATION
The following table summarizes the Company's operations in the referenced
geographic areas:
<TABLE>
<CAPTION>
US EUROPE ELIMINATIONS TOTAL
--------- --------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
Revenues:
Net sales to unaffiliated customers........................... $ 20,467 $ 1,701 $ -- $ 22,168
Transfers between geographic areas............................ 248 -- (248) --
--------- --------- ------ ---------
Total revenues.................................................... $ 20,715 $ 1,701 $ (248) $ 22,168
--------- --------- ------ ---------
--------- --------- ------ ---------
Income from operations............................................ $ 1,059 $ 238 $ 9 $ 1,306
--------- --------- ------ ---------
--------- --------- ------ ---------
Identifiable assets............................................... $ 5,862 $ 551 $ (8) $ 6,405
--------- --------- ------ ---------
--------- --------- ------ ---------
YEAR ENDED DECEMBER 31, 1993:
Revenues:
Net sales to unaffiliated customers........................... $ 17,863 $ 871 $ -- $ 18,734
Transfers between geographic areas............................ 144 -- (144) --
--------- --------- ------ ---------
Total revenues.................................................... $ 18,007 $ 871 $ (144) $ 18,734
--------- --------- ------ ---------
--------- --------- ------ ---------
Income (loss) from operations..................................... $ (9) $ (33) $ 12 $ (30)
--------- --------- ------ ---------
--------- --------- ------ ---------
Identifiable assets............................................... $ 7,232 $ 406 $ (16) $ 7,622
--------- --------- ------ ---------
--------- --------- ------ ---------
YEAR ENDED DECEMBER 31, 1992:
Revenues:
Net sales to unaffiliated customers........................... $ 15,180 $ 1,430 $ -- $ 16,610
Transfers between geographic areas............................ 228 -- (228) --
--------- --------- ------ ---------
Total revenues.................................................... $ 15,408 $ 1,430 $ (228) $ 16,610
--------- --------- ------ ---------
--------- --------- ------ ---------
Income from continuing operations................................. $ 299 $ 124 $ 28 $ 451
--------- --------- ------ ---------
--------- --------- ------ ---------
Identifiable assets............................................... $ 6,109 $ 328 $ (28) $ 6,409
--------- --------- ------ ---------
--------- --------- ------ ---------
THIRTEEN WEEKS ENDED APRIL 1, 1995 (UNAUDITED):
Revenues:
Net sales to unaffiliated customers........................... $ 4,389 $ 506 $ -- $ 4,895
Transfers between geographic areas............................ 129 -- (129) --
--------- --------- ------ ---------
Total revenues.................................................... $ 4,518 $ 506 $ (129) $ 4,895
--------- --------- ------ ---------
--------- --------- ------ ---------
Income (loss) from operations..................................... $ (226) $ 82 $ 3 $ (141)
--------- --------- ------ ---------
--------- --------- ------ ---------
Identifiable assets............................................... $ 5,974 $ 502 $ (6) $ 6,470
--------- --------- ------ ---------
--------- --------- ------ ---------
THIRTEEN WEEKS ENDED APRIL 2, 1994 (UNAUDITED):
Revenues:
Net sales to unaffiliated customers........................... $ 4,837 $ 352 $ -- $ 5,189
Transfers between geographic areas............................ 64 -- (64) --
--------- --------- ------ ---------
Total revenues.................................................... $ 4,901 $ 352 $ (64) $ 5,189
--------- --------- ------ ---------
--------- --------- ------ ---------
Income from operations............................................ $ 392 $ 17 $ -- $ 409
--------- --------- ------ ---------
--------- --------- ------ ---------
Identifiable assets............................................... $ 6,238 $ 512 $ (16) $ 6,734
--------- --------- ------ ---------
--------- --------- ------ ---------
</TABLE>
F-39
<PAGE>
ACUITY IMAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
12. SEGMENT INFORMATION (CONTINUED)
Revenues from export (outside the United States) sales from the Company's US
operations were $3,128,000, $3,909,000 and $1,991,000 for the years ended
December 31, 1994, 1993 and 1992, respectively, and $1,234,000 and $629,000 for
the thirteen weeks ended April 1, 1995 and April 2, 1994, respectively.
During 1994 revenues from Brown & Williamson represented 16% of total
revenues, and during 1993 and 1992, revenues from Motorola, Inc. represented 12%
and 15%, respectively, of total revenues.
13. SUBSEQUENT EVENT
On July 11, 1995, the Company and Robotic Vision Systems, Inc. ("RVSI") of
Hauppauge, New York signed an Agreement and Plan of Merger and Reorganization
whereby RVSI would acquire all of Acuity's outstanding stock. The transaction is
intended to be completed as a tax free reorganization and to be accounted for as
a pooling of interests. To effect the transaction, RVSI would issue 0.766 of a
share of its common stock in exchange for each outstanding share of Acuity
common stock. In addition, Acuity's outstanding stock options would be exchanged
for options of RVSI's common stock in the same 0.766-to-one ratio. Such Exchange
Ratio is subject to adjustment based upon the market value of RVSI's Common
Stock, but in no event will the Exchange Ratio be greater than 0.925626 or less
than 0.555375. Consummation of the transaction is subject to other conditions
customary for transactions of this nature, including stockholder approval. Other
current assets of $174,000 at April 1,1995 include $106,000 of prepaid
merger-related expenses associated with the proposed RVSI merger. For the
quarter ended April 1, 1995, revenues from RVSI totaled approximately $47,000.
F-40
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
DATED AS OF
APRIL 27, 1995, AS AMENDED AND RESTATED AS OF JULY 11, 1995
BY AND AMONG
ROBOTIC VISION SYSTEMS, INC.,
RVSI ACQUISITION CORP.
AND
ACUITY IMAGING, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<S> <C> <C>
SECTION 1.1 The Merger........................................................ A-1
SECTION 1.2 Effective Time of the Merger...................................... A-1
</TABLE>
ARTICLE II
SURVIVING AND PARENT CORPORATIONS
<TABLE>
<S> <C> <C>
SECTION 2.1 Certificate of Incorporation...................................... A-2
SECTION 2.2 By-Laws........................................................... A-2
SECTION 2.3 Directors......................................................... A-2
SECTION 2.4 Officers.......................................................... A-2
SECTION 2.5 Additional Director of Parent..................................... A-2
SECTION 2.6 Further Action.................................................... A-2
</TABLE>
ARTICLE III
CONVERSION OF SHARES
<TABLE>
<S> <C> <C>
SECTION 3.1 Conversion of Company Shares in the Merger........................ A-2
SECTION 3.2 Conversion of Subsidiary Shares................................... A-4
SECTION 3.3 Exchange of Certificates.......................................... A-4
SECTION 3.4 No Fractional Shares.............................................. A-5
SECTION 3.5 Closing........................................................... A-5
</TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<TABLE>
<S> <C> <C>
SECTION 4.1 Organization and Qualification.................................... A-6
SECTION 4.2 Capitalization.................................................... A-6
SECTION 4.3 Subsidiaries...................................................... A-6
SECTION 4.4 Authority; Non-Contravention; Approvals........................... A-7
SECTION 4.5 Reports and Financial Statements.................................. A-7
SECTION 4.6 Absence of Undisclosed Liabilities................................ A-8
SECTION 4.7 Absence of Certain Changes or Events.............................. A-8
SECTION 4.8 Litigation........................................................ A-8
SECTION 4.9 Registration Statement and Proxy Statement........................ A-8
SECTION 4.10 No Violation of Law............................................... A-9
SECTION 4.11 Compliance with Instruments....................................... A-9
SECTION 4.12 Taxes............................................................. A-9
SECTION 4.13 Employee Benefit Plans; ERISA..................................... A-10
SECTION 4.14 Certain Agreements................................................ A-11
SECTION 4.15 Labor Controversies............................................... A-12
SECTION 4.16 Environmental Matters............................................. A-12
SECTION 4.17 Intentionally Left Blank.......................................... A-12
SECTION 4.18 NASDAQ; No Appraisal Rights....................................... A-12
SECTION 4.19 Contracts, Etc.................................................... A-12
SECTION 4.20 Intellectual Property............................................. A-13
SECTION 4.21 Customers......................................................... A-14
SECTION 4.22 Insurance......................................................... A-14
SECTION 4.23 Books, Records and Accounts....................................... A-14
SECTION 4.24 Accounting Matters................................................ A-14
SECTION 4.25 Brokers and Finders............................................... A-14
SECTION 4.26 Disclosure........................................................ A-14
</TABLE>
<PAGE>
ARTICLE V
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF PARENT
<TABLE>
<S> <C> <C>
SECTION 5.1 Organization and Qualification.................................... A-15
SECTION 5.2 Ownership of Subsidiary; No Prior Activities; Assets of A-15
Subsidiary.......................................................
SECTION 5.3 Authority; Non-Contravention; Approvals........................... A-15
</TABLE>
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
<TABLE>
<S> <C> <C>
SECTION 6.1 Conduct of Business Prior to Effective Time....................... A-16
SECTION 6.2 Additional Covenants of the Company............................... A-17
SECTION 6.3 Acquisition Transactions; Break-up Fees........................... A-17
</TABLE>
ARTICLE VII
ADDITIONAL AGREEMENTS
<TABLE>
<S> <C> <C>
SECTION 7.1 Access to Information............................................. A-19
SECTION 7.2 Registration Statement and Proxy Statement/Prospectus............. A-20
SECTION 7.3 Stockholders' Approval............................................ A-20
SECTION 7.4 Managed Offering of Affiliates' Shares............................ A-20
SECTION 7.5 NASDAQ National Market............................................ A-20
SECTION 7.6 Agreement to Cooperate............................................ A-20
SECTION 7.7 Public Statements................................................. A-21
SECTION 7.8 Corrections to the Proxy Statement/Prospectus and Registration A-21
Statement........................................................
SECTION 7.9 Agreements of Affiliates.......................................... A-21
SECTION 7.10 Assurances Relating to Tax Matters Certificate.................... A-21
SECTION 7.11 Disclosure Supplements............................................ A-21
SECTION 7.12 Satisfaction of Conditions Precedent.............................. A-22
</TABLE>
ARTICLE VIII
CONDITIONS
<TABLE>
<S> <C> <C>
SECTION 8.1 Conditions to Each Party's Obligations to Effect the Merger....... A-22
SECTION 8.2 Conditions to Obligations of the Company to Effect the Merger..... A-22
SECTION 8.3 Conditions to Obligations of Parent and Subsidiary to Effect the A-23
Merger...........................................................
</TABLE>
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
<TABLE>
<S> <C> <C>
SECTION 9.1 Termination....................................................... A-25
SECTION 9.2 Effect of Termination............................................. A-25
SECTION 9.3 Amendment......................................................... A-26
SECTION 9.4 Waiver............................................................ A-26
SECTION 9.5 Expenses.......................................................... A-26
</TABLE>
ARTICLE X
GENERAL PROVISIONS
<TABLE>
<S> <C> <C>
SECTION 10.1 Non-Survival of Representations and Warranties.................... A-26
SECTION 10.2 Notices........................................................... A-26
SECTION 10.3 Interpretation.................................................... A-27
SECTION 10.4 Miscellaneous..................................................... A-27
SECTION 10.5 Counterparts...................................................... A-27
SECTION 10.6 Parties In Interest............................................... A-27
SECTION 10.7 Captions.......................................................... A-27
SECTION 10.8 Additional Defined Terms.......................................... A-27
</TABLE>
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION, DATED AS OF APRIL 27,
1995, AS AMENDED AND RESTATED AS OF
JULY 11, 1995 (THIS "AGREEMENT"), BY
AND AMONG ROBOTIC VISION SYSTEMS,
INC., A DELAWARE CORPORATION
("PARENT"), RVSI ACQUISITION CORP., A
DELAWARE CORPORATION AND A WHOLLY
OWNED SUBSIDIARY OF PARENT
("SUBSIDIARY"), AND ACUITY IMAGING,
INC., A DELAWARE CORPORATION (THE
"COMPANY").
------------------------
The Boards of Directors of Parent, Subsidiary and the Company have approved
the merger of Subsidiary with and into the Company pursuant to this Agreement
(the "Merger") and the transactions contemplated hereby upon the terms and
subject to the conditions set forth herein.
It is intended that the Merger shall qualify for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended.
It is intended that the Merger shall be recorded for accounting purposes as
a pooling of interests.
Parent, Subsidiary and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2 below),
Subsidiary shall be merged with and into the Company in accordance with the
provisions of Section 251 of the Delaware General Corporation Law (the "DGCL")
and with the effect provided in Sections 259 - 261 of the DGCL, and the separate
existence of Subsidiary shall thereupon cease. The Company shall be the
surviving corporation in the Merger (hereinafter sometimes referred to as
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Delaware. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time of the Merger, (a) Surviving Corporation shall
possess all assets and property of every description, and every interest
therein, wherever located, and the rights, privileges, immunities, powers,
franchises and authority, of a public as well as of a private nature, of each of
Subsidiary and the Company, (b) all obligations belonging to or due each of
Subsidiary and the Company shall be vested in, and become the obligations of,
Surviving Corporation without further act or deed, (c) title to any real estate
or any interest therein vested in either of Subsidiary and the Company shall not
revert or in any way be impaired by reason of the Merger, (d) all rights of
creditors and all liens upon any property of any of Subsidiary and the Company
shall be preserved unimpaired, and (e) Surviving Corporation shall be liable for
all of the obligations of each of Subsidiary and the Company and any claim
existing, or action or proceeding pending, by or against either of Subsidiary
and the Company may be prosecuted to judgment with right of appeal, as if the
Merger had not taken place.
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SECTION 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective at such time (the "Effective Time") as a Certificate of Merger, in the
form set forth as Exhibit I hereto, is filed with the Secretary of State of the
State of Delaware (the "Merger Filing"), such filing shall be made
simultaneously with or as soon as practicable after the closing of the
transactions contemplated by this Agreement in accordance with Section 3.5.
ARTICLE II
SURVIVING AND PARENT CORPORATIONS
SECTION 2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of Subsidiary as in effect immediately prior to the Effective Time shall be in
the form of the attached Exhibit II and shall be the Certificate of
Incorporation of Surviving Corporation, until duly amended in accordance with
the terms thereof and of the DGCL.
SECTION 2.2 BY-LAWS. The By-laws of Subsidiary as in effect immediately
prior to the Effective Time shall be in the form of the attached Exhibit III and
shall be the By-laws of Surviving Corporation after the Effective Time, and
thereafter may be amended in accordance with their terms and as provided by the
Certificate of Incorporation of Surviving Corporation and the DGCL.
SECTION 2.3 DIRECTORS. The sole director of Subsidiary at the Effective
Time shall, from and after the Effective Time, be the sole director of Surviving
Corporation until his successor has been duly elected or appointed and qualified
or until his earlier death, resignation or removal in accordance with Surviving
Corporation's Certificate of Incorporation and By-laws.
SECTION 2.4 OFFICERS. The officers of the Company at the Effective Time
shall, from and after the Effective Time, be the officers of Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with Surviving Corporation's Certificate of Incorporation and By-Laws.
SECTION 2.5 ADDITIONAL DIRECTOR OF PARENT. At the Effective Time, one
designee of the current directors of the Company, reasonably acceptable to
Parent (the "Company Designee"), shall be appointed a director of Parent, as an
addition to Parent's seven-member Board of Directors, to serve until Parent's
first annual meeting of stockholders next following the Effective Time (the
"1996 Annual Meeting") and until his successor has been duly elected or
appointed and qualified or until his earlier death, resignation or removal in
accordance with Parent's Certificate of Incorporation and By-Laws. At the sole
discretion of the Parent, an additional Company Designee may be appointed a
director of Parent to serve until the 1996 Annual Meeting and until his
successor has been duly elected or appointed and qualified or until his earlier
death, resignation or removal.
SECTION 2.6 FURTHER ACTION. If at any time after the Effective Time,
Parent shall consider that any further deeds, assignments, conveyances,
agreements, documents, instruments or assurances in law or any other things are
necessary or desirable to vest, perfect, confirm or record in Surviving
Corporation the title to any property, rights, privileges, powers and franchises
of the Company by reason of, or as a result of, the Merger, or otherwise to
carry out the provisions of this Agreement, the officers of the Company shall
execute and deliver, upon Parent's reasonable request, any instruments or
assurances, and do all other things necessary or proper to vest, perfect,
confirm or record title to such property, rights, privileges, powers and
franchises in Surviving Corporation, and otherwise to carry out the provisions
of this Agreement.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 CONVERSION OF COMPANY SHARES IN THE MERGER. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of any capital stock of the Company:
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<PAGE>
(a) each share of Common Stock, $.01 par value, of the Company ("Company
Common Stock"), issued and outstanding at the Effective Time, subject to the
terms and conditions of this Agreement, shall be converted (except as
provided in Section 3.1(b)), without any further action, into the right to
receive, and become exchangeable for, 0.766 of a share (as adjusted as
provided below, the "Exchange Ratio") of Common Stock, $.01 par value, of
Parent ("Parent Common Stock"), subject to the payment of cash adjustments
in lieu of the issuance of fractional shares as provided in Section 3.4 of
this Agreement; PROVIDED, HOWEVER, that if the average of the closing prices
of Parent Common Stock on theNasdaq National Market for the 20 trading days
ending on (and including) the third trading day immediately prior to the
date of the special meeting of the Company's shareholders called to approve
the Merger (the "Average Closing Price") is greater than $14.50, then the
Exchange Ratio shall be equal to an amount determined as follows:
11.107/Average Closing Price = Exchange Ratio (PROVIDED that in no event
shall the Exchange Ratio be less than .555375)
and if the Average Closing Price is less than $10.00 then the Exchange Ratio
shall be equal to an amount determined as follows:
7.66/Average Closing Price = Exchange Ratio (PROVIDED that in no event
shall the Exchange Ratio exceed .925626)
and PROVIDED, FURTHER, that if, prior to the Effective Time, Parent should
split, reclassify or combine Parent Common Stock, or pay or grant to all
stockholders of Parent a stock dividend or other stock distribution in
Parent Common Stock or rights to acquire Parent Common Stock, or otherwise
change Parent Common Stock into any other securities, then the Exchange
Ratio will be appropriately adjusted to reflect such split,
reclassification, combination, stock dividend or other distribution or
change;
(b) each share of Company Common Stock, if any, owned by Parent or any
subsidiary of Parent or the Company immediately prior to the Effective Time
shall be cancelled and shall cease to exist from and after the Effective
Time; and
(c) As of the Effective Time, Parent shall assume and thereafter be
solely responsible for satisfying, in accordance with their respective terms
(except as modified herein), the Company's obligations with respect to each
option to purchase shares of Company Common Stock (a "Company Option")
referred to in Section 4.2(b) of the Company's Disclosure Schedule
(including but not limited to the options there referred to and granted
under the Company's Employee Stock Purchase Plan (the "ESPP")) and
outstanding immediately prior to the Effective Time. From and after the
Effective Time, this Agreement shall be the sole required evidence of such
assumption, regardless of whether a new instrument is issued by Parent in
exchange for the instrument representing any Company Option.
From and after the Effective Date, each Company Option shall entitle the
holder thereof to purchase from the Parent up to that number of shares of Parent
Common Stock determined by multiplying the number of shares of Company Common
Stock subject to such Company Option by the Exchange Ratio, at a price per share
of Parent Common Stock:
(i) determined, in the case of any Company Option other than one granted
under the ESPP, by dividing the exercise price per share of Company Common
Stock provided for in such Company Option by the Exchange Ratio, and
(ii) equal to, in the case of any Company Option granted under the ESPP,
eighty-five percent of the lesser of (A) the "fair market value" (as defined
in the ESPP) of a share of Company Common Stock as of the date of the grant
of such Option, divided by the Exchange Ratio, and (B) the fair market value
of a share of Parent Common Stock on the date of the exercise of such
Option;
A-3
<PAGE>
PROVIDED, HOWEVER, that no scrip or fractional shares shall be issued in
connection with the exercise of any Company Option. In lieu of any such
fractional share interests, each holder of a Company Option who would otherwise
be entitled to receive a fraction of a share of Parent Common Stock upon
exercise of such Company Option pursuant to this Section 3.1(c) shall be paid an
amount in cash therefor (without interest) equal to the fractional interest of
such holder in a share of Parent Common Stock multiplied by (i) in the case of
any such Company Option granted under the ESPP, the last reported sale price of
Parent Common Stock on the NASDAQ National Market on the date such Company
Option is exercised, or (ii) in the case of all other Company Options, the
average of the last reported sale prices of Parent Common Stock on the NASDAQ
National Market for the 20 consecutive trading days ending with the third
trading day prior to the Closing Date.
Except as otherwise specifically provided in this Section 3.1(c), each
Company Option shall remain subject after the Effective Time to the same terms
and conditions (including without limitation those with respect to the dates on
which, and with respect to each such date, the proportionate extent to which,
such Company Option may be exercised) as were applicable to such Company Option
immediately prior to the Effective Time.
As soon as is practicable following the Effective Time, Parent shall prepare
and file with the Securities and Exchange Commission ("SEC") a registration
statement on Form S-8 covering the issuance and sale by Parent of the shares of
Parent Common Stock subject to all Company Options, and shall use its best
efforts to cause such registration statement to remain effective for so long as
any Company Options remain outstanding.
SECTION 3.2 CONVERSION OF SUBSIDIARY SHARES. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder of any
capital stock of Subsidiary, each issued and outstanding share of Common Stock,
$.01 par value, of Subsidiary ("Subsidiary Common Stock") shall be converted
into one share of Common Stock, $.01 par value, of Surviving Corporation
("Surviving Corporation Common Stock").
SECTION 3.3 EXCHANGE OF CERTIFICATES.
(a) From and after the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time represented shares
of Company Common Stock (the "Company Certificates") shall cease to have any
right as a stockholder of the Company and such holder's sole rights shall be
to receive in exchange for such holder's Company Certificates, upon
surrender thereof to an exchange agent selected by Parent (the "Exchange
Agent"), a certificate or certificates representing the number of whole
shares of Parent Common Stock which such holder is entitled to receive
pursuant to Section 3.1 plus cash in lieu of fractional shares, as provided
in Section 3.4 hereof. Notwithstanding any other provision of this
Agreement, (i) until holders of Company Certificates theretofore
representing shares of Company Common Stock have surrendered such
certificates for exchange as provided herein, (A) no dividends shall be paid
by the Company with respect to any shares represented by such Company
Certificates and (B) no payment for fractional shares shall be made,
PROVIDED, in each case, that upon surrender of such Company Certificates,
the surrendering holder shall receive all such dividends and payments for
fractional shares and (ii) without regard to when such Company Certificates
are surrendered for exchange as provided herein, no interest shall be paid
on any such dividend or payment for fractional shares. If any certificate
for shares of Parent Common Stock is to be issued in a name other than that
in which the certificate for shares of Company Common Stock surrendered in
exchange therefor is registered, it shall be a condition of such exchange
that the person requesting such exchange shall pay any transfer or other
taxes required by reason of the issuance of certificates for such shares of
Parent Common Stock in a name other than that of the registered holder of
the certificate surrendered, or shall establish to the satisfaction of
Parent that such tax has been paid or is not applicable. No transfers of
Company Common Stock shall be made on the stock transfer books of the
Company after the close of business on the day prior to the date of the
Effective Time.
A-4
<PAGE>
(b) At or before the Effective Time, Parent shall make available to the
Exchange Agent a sufficient number of certificates representing shares of
Parent Common Stock required to effect the exchange referred to in Section
3.3(a).
(c) Promptly after the Effective Time, Parent shall cause the Exchange
Agent to mail to each holder of record of the Company Certificates (i) a
form letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Company Certificates shall pass,
only upon actual delivery of the Company Certificates to the Exchange Agent)
and (ii) instructions for use in effecting the surrender of the Company
Certificates in exchange for certificates representing shares of Parent
Common Stock. Upon surrender of the Company Certificates for cancellation to
the Exchange Agent, together with a duly executed letter of transmittal and
such other documents as the Exchange Agent shall reasonably require, the
holder of such Company Certificates shall be entitled to receive in exchange
therefor one or more certificates representing that number of whole shares
of Parent Common Stock into which the shares of Company Common Stock
theretofore represented by the Company Certificates so surrendered shall
have been converted pursuant to the provisions of Section 3.1, in addition
to payment for any fractional share of Parent Common Stock, and the Company
Certificates so surrendered shall forthwith be cancelled. Until so
surrendered, the Company Certificates shall represent solely the right to
receive the number of whole shares of Parent Common Stock that shall be
issued in exchange for Company Common Stock and any cash in lieu of the
fractional Parent Common Stock as contemplated by Section 3.4.
Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto shall be liable to a holder of shares of Company Common Stock for any
shares of Parent Common Stock delivered to a public official as required by
applicable abandoned property, escheat or similar laws. The Exchange Agent
shall not be entitled to vote or exercise any rights of ownership with
respect to Parent Common Stock held by it from time to time hereunder.
(d) From and after the Effective Time, Parent shall be entitled to treat
outstanding certificates which immediately prior to the Effective Time
represented shares of Subsidiary Common Stock as evidencing the ownership of
the number of full shares of Surviving Corporation Common Stock, which the
holder of the shares of Subsidiary Common Stock represented by such
certificates is entitled to receive pursuant to Section 3.2, and the holder
of such certificates shall not be required to surrender such certificates
for exchange. Shares of Surviving Corporation Common Stock which the holder
of shares of Subsidiary Common Stock is entitled to receive in the Merger
shall be deemed to have been issued at the Effective Time.
SECTION 3.4 NO FRACTIONAL SHARES. Notwithstanding any other provision of
this Agreement, no certificates or scrip for fractional shares of Parent Common
Stock shall be issued in the Merger and no Parent Common Stock dividend,
reclassification, stock split or interest shall be paid or have effect with
respect to any fractional interest in a share of Parent Common Stock, and such
fractional interests shall not entitle the owner thereof to vote or to any other
rights of a security holder. In lieu of any such fractional shares, each holder
of Company Common Stock who would otherwise have been entitled to receive a
fraction of a share of Parent Common Stock upon surrender of the Company
Certificates for exchange pursuant to this Article III will be paid an amount in
cash therefor (without interest) equal to the average of the last reported sale
prices of Parent Common Stock on the National Association of Securities Dealers,
Inc. Automated Quotation System-National Market (the "NASDAQ National Market")
for each of the twenty consecutive trading days ending with the third trading
day prior to the Closing Date (as defined in Section 3.5) multiplied by the
fractional interest of such stockholder in a share of Parent Common Stock. For
purposes of determining whether and to what extent a particular stockholder is
entitled to receive cash adjustments pursuant to this Section 3.4, shares of
record held by such holder and represented by two or more Company Certificates
shall be aggregated.
SECTION 3.5 CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Parker Duryee
Rosoff & Haft, 529 Fifth Avenue, New York,
A-5
<PAGE>
New York 10017, on the third business day following the date on which the last
of the conditions set forth in Article VIII hereof is fulfilled or waived, or at
such other time and place as Parent and the Company shall agree (the date on
which the closing occurs being the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each of Parent and the Company hereby represents and warrants to the other
as follows (subject in each case to such exceptions as are set forth or
cross-referenced in the representing party's attached Disclosure Schedule in the
labeled section corresponding to the caption of the representation or warranty
to which such exceptions relate):
SECTION 4.1 ORGANIZATION AND QUALIFICATION.
(a) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted.
(b) It is qualified to do business and is in good standing as a foreign
corporation in all jurisdictions set forth in Section 4.1(b) of its
Disclosure Schedule, and to its knowledge, such jurisdictions are the only
ones in which the properties owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary, except
where the failure to be so qualified and in good standing will not have a
Material Adverse Effect on it.
(c) True, accurate and complete copies of its Certificate of
Incorporation and By-laws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to the
other.
SECTION 4.2 CAPITALIZATION.
(a) Its authorized and outstanding capital stock are as set forth in
Section 4.2(a) of its Disclosure Schedule. All of its issued and outstanding
shares of capital stock are validly issued and are fully paid, nonassessable
and free of preemptive rights. All outstanding shares of its capital stock
and other securities were issued in compliance with all applicable laws and
regulations.
(b) Attached as Section 4.2(b) of its Disclosure Schedule is a list of
outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating it to issue, deliver or sell or
cause to be issued, delivered or sold, additional shares of its capital
stock or obligating it to grant, extend or enter into any such agreement or
commitment. There are no voting trusts, proxies or other agreements or
understandings to which it is a party or by which it is bound with respect
to the voting of any shares of its capital stock. Subsequent to January 28,
1995, it has not (i) issued any shares of its capital stock except upon
exercise or conversion of the above-described stock equivalents or (ii)
issued any additional stock equivalents.
SECTION 4.3 SUBSIDIARIES. Attached as Section 4.3 of its Disclosure
Schedule is a list of its subsidiaries. As used in this Agreement, the term
"subsidiary" shall mean any corporation or other entity of which the relevant
party, directly or indirectly, controls or which the relevant party owns,
directly or indirectly, 50% or more of the stock or other voting interests, the
holders of which are, ordinarily or generally, in the absence of contingencies
(which contingencies have not occurred) or understandings (which understandings
have not yet been required to be performed) entitled to vote for the election of
a majority of the board of directors or any similar governing body. It is not a
partner in any partnership or joint venture and will not become one prior to the
Effective Time.
A-6
<PAGE>
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) It has full corporate power and authority to enter into this
Agreement and, subject to the Company Stockholders' Approval or the Parent
Stockholders' Approval, as the case may be, (each as defined in Section 7.3
below) and the Required Statutory Approvals (as defined in Section 4.4(c)
below), to consummate the transactions contemplated hereby. Its execution
and delivery of this Agreement, and its consummation of the transactions
contemplated hereby, have been duly authorized by its Board of Directors and
no other corporate proceedings on its part are necessary to authorize its
execution and delivery of this Agreement and its consummation of the
transactions contemplated hereby, except for the Company Stockholders'
Approval or the Parent Stockholders' Approval, as the case may be, and the
obtaining of the Required Statutory Approvals. This Agreement has been duly
and validly executed and delivered by it, and constitutes its valid and
binding agreement, enforceable against it in accordance with its terms,
except that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) Its execution and delivery of this Agreement do not, and its
consummation of the transactions contemplated hereby will not, violate,
conflict with or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate
the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of its properties or assets under
any of the terms, conditions or provisions of (i) its Certificate of
Incorporation or By-Laws, (ii) subject to obtaining the Required Statutory
Approvals and the receipt of the Company Stockholders' Approval or the
Parent Stockholders' Approval, as the case may be, any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to it or
any of its properties or assets, or (iii) any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which it
is now a party or by which it or any of its properties or assets may be
bound, excluding from the foregoing clauses (ii) and (iii), such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, have a Material Adverse Effect on it.
(c) Except for (i) the filing of the Proxy Statement/Prospectus (as
defined in Section 4.9 below) with the SEC pursuant to the Securities Act of
1933, as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) the declaration of the
effectiveness thereof by the SEC and filings with various state blue sky
authorities, and (iii) the making of the Merger Filing with the Secretary of
State of the State of Delaware and the Recorder of the County of New Castle,
Delaware in connection with the Merger (the filings and approvals referred
to in clauses (i) through (iii) are collectively referred to as the
"Required Statutory Approvals"), no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for its execution
and delivery of this Agreement or its consummation of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or
obtained, as the case may be, would not, in the aggregate, have a Material
Adverse Effect on it.
SECTION 4.5 REPORTS AND FINANCIAL STATEMENTS.
(a) It has filed with the SEC all forms, statements, reports and
documents (including all exhibits, amendments and supplements thereto)
required to be filed by it under each of the Securities Act and the Exchange
Act and the respective rules and regulations thereunder, all of which
complied in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder, other than such
filings which if not made or not made
A-7
<PAGE>
in compliance with all applicable requirements, would not, in the aggregate,
have a Material Adverse Effect on it. It has delivered to the other copies
of its SEC Reports. As of their respective dates, its SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Its audited consolidated financial statements and unaudited
interim consolidated financial statements included in its SEC Reports (its
"Financial Statements") have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis and fairly
present its financial condition as of the dates thereof and the results of
its operations, cash flows and changes in financial condition for the
periods then ended, subject, in the case of the unaudited interim financial
statements, to the absence of notes thereto and normal year-end audit
adjustments. Upon filing thereof with the SEC, (i) the Company shall deliver
to Parent any Quarterly Report on Form 10-QSB so filed by it, in each case
together with a certificate containing the representations and warranties
contained in this Section 4.5(a) with respect to such Annual or Quarterly
Report, and (ii) Parent shall deliver to the Company a copy of any Quarterly
Report on Form 10-Q so filed by it, in each case together with a certificate
containing the representations and warranties contained in this Section
4.5(a) with respect to such Quarterly Report.
(b) All of its accounts receivable included in its Financial Statements
reflect actual transactions, have arisen in the ordinary course of business,
will not, to its knowledge, be subject to offset or deduction and will, to
its knowledge, be collectible at the aggregate recorded amounts thereof net
of any reserves established in a manner consistent with its past practices,
all as reflected in its Financial Statements.
SECTION 4.6 ABSENCE OF UNDISCLOSED LIABILITIES. It did not have at
December 31, 1994 and has not incurred since that date any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature,
(a) except liabilities, obligations or contingencies (i) which are accrued or
reserved against in its Financial Statements as of such date or reflected in the
notes thereto or (ii) which were incurred after such date and were incurred in
the ordinary course of business and consistent with past practices or in
connection with the transactions hereby contemplated and (b) except for any
liabilities, obligations or contingencies which (i) would not, in the aggregate,
have, or be reasonably expected to have, a Material Adverse Effect on it or (ii)
have been discharged or paid in full prior to the date hereof.
SECTION 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1994
there has not been any Material Adverse Effect, or any event which would
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate, with respect to it.
SECTION 4.8 LITIGATION. Except as disclosed in its SEC Reports, there are
no claims, suits, actions or proceedings pending or, to its knowledge,
threatened against, it before or by any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator, except for
such claims, suits, actions or proceedings which, alone or in the aggregate,
would reasonably be expected not to have, a Material Adverse Effect on it. It is
not subject to any judgment, decree, injunction, rule or order specifically
naming it of any court, governmental department, commission, agency,
instrumentality, authority, or arbitrator.
SECTION 4.9 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by it for inclusion in (a) the Registration Statement
on Form S-4 to be filed under the Securities Act with the SEC by Parent in
connection with the Merger for the purpose of registering the shares of Parent
Common Stock to be issued in the Merger (the "Registration Statement") or (b)
the proxy or information statement to be distributed in connection with (i) the
Company's meeting of stockholders or (ii) Parent's meeting of stockholders, in
either case to vote upon this Agreement and the transactions contemplated hereby
(collectively, the "Proxy Statement" and, together with the prospectus
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included in the Registration Statement, the "Proxy Statement/Prospectus") will,
in the case of the Proxy Statement/Prospectus or any amendments thereof or
supplements thereto, at the time of the mailing of the Proxy
Statement/Prospectus and any amendments or supplements thereto, and at the time
of the meetings of each of the stockholders of the Company and of Parent to be
held in connection with the transactions contemplated by this Agreement, or, in
the case of the Registration Statement, as amended or supplemented, at the time
it becomes effective and at the time of such meetings, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
SECTION 4.10 NO VIOLATION OF LAW. It is not in violation of and has not
been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority, except for violations which, in the aggregate,
do not have, and would not reasonably be expected to have, a Material Adverse
Effect on it. It has not received any written notice that any investigation or
review with respect to it by any governmental or regulatory body or authority is
pending or threatened, other than, in each case, those the outcome of which, as
far as reasonably can be foreseen, would not reasonably be expected to have, a
Material Adverse Effect on it. It has all permits, licenses, franchises,
variances, exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct its business as presently conducted
(collectively its "Permits"), except for permits, licenses, franchises,
variances, exemptions, orders, authorizations, consents and approvals the
absence of which, alone or in the aggregate, would not have a Material Adverse
Effect on it. It (a) has duly and timely filed all reports and other information
required to be filed with any governmental or regulatory authority in connection
with its Permits, and (b) is not in violation of the terms of any of its
Permits, except for omissions or delays in filings, reports or violations which,
alone or in the aggregate, would not have a Material Adverse Effect on it.
SECTION 4.11 COMPLIANCE WITH INSTRUMENTS. It is not in breach or violation
of or in default in the performance or observance of any term or provision of,
and no event has occurred which, with lapse of time or action by a third party,
could result in a default under its Certificate of Incorporation or By-Laws.
SECTION 4.12 TAXES.
(a) It has (i) duly and timely filed with the appropriate governmental
authorities all Tax Returns (as defined in subsection (c) below) required to
be filed by it, and has not filed for an extension to file any Tax Returns
and such Tax Returns are true, correct and complete in all material
respects, and (ii) duly paid in full or made adequate provision for the
payment of all Taxes (as defined in subsection (b) below) shown to be due on
such Tax Returns. Tax Returns referred to in clause (i) hereinabove have
been examined by the United States Internal Revenue Service (the "IRS") or
the appropriate governmental authority or the period of assessment of the
Taxes in respect of which such Tax Returns were required to be filed has
expired, all deficiencies asserted or assessments made as a result of such
examinations have been paid in full and no proceeding or examination by or
in front of the relevant governmental authority in connection with the
examination of any of the Tax Returns referred to in clause (i) hereinabove
is currently pending. No claim has been made in writing to it by any
authority in a jurisdiction where it does not file a Tax Return that it is
or may be subject to Tax in such jurisdiction. No waiver of statutes of
limitation have been given by or requested in writing to it with respect to
any Taxes. It has not agreed to any extension of time with respect to any
Tax deficiency. The liabilities and reserves for Taxes reflected in its
balance sheet as of December 31, 1994 will be adequate to cover all Taxes
for all periods ending on or prior to such respective dates, except for the
payment of such taxes which, alone or in the aggregate, would not have a
Material Adverse Effect on it, and there are no liens for Taxes upon any
property or asset of it, except for liens for Taxes not yet due. There are
no unresolved issues of law or fact arising out of a notice of deficiency,
proposed deficiency or assessment from the IRS or any other governmental
taxing authority with respect to its Taxes
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which, if decided adversely, singly or in the aggregate, would have a
Material Adverse Effect on it. It is not a party to any agreement providing
for the allocation or sharing of Taxes with any entity. It has not, with
regard to any assets or property held, acquired or to be acquired by it,
filed a consent to the application of Section 341(f) of the Internal Revenue
Code of 1986, as amended (the "Code"). It has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or
other third party, except for such taxes which, alone or in the aggregate,
would not have a Material Adverse Effect on it. No Tax is required to be
withheld by it pursuant to Section 1445 of the Code as a result of the
transfer contemplated by this Agreement. As a result of the Merger, it will
not be obligated to make a payment to an individual that would be a
"parachute payment" to a "disqualified individual" as those terms are
defined in Section 28OG of the Code without regard to whether such payment
is reasonable compensation for personal services performed or to be
performed in the future.
(b) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, withholdings,
social security, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the
United States, or any state, local or foreign government or subdivision or
agency thereof whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest,
fines, penalties or additional amounts attributable or imposed or with
respect to any such taxes, charges, fees, levies or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall mean any
return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes.
SECTION 4.13 EMPLOYEE BENEFIT PLANS; ERISA.
(a) At the date hereof, it does not maintain or contribute to any
employee benefit plans, programs, arrangements and practices (such plans,
programs, arrangements and practices being referred to as its "Plans"),
including employee benefit plans within the meaning set forth in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended, and
all regulations promulgated thereunder, as in effect from time to time
("ERISA"), or any written employment contracts providing for an annual base
salary in excess of $100,000 and having a term in excess of one year, which
contracts are not immediately terminable without penalty or further
liability, or other similar arrangements for the provision of benefits
(excluding any "Multiemployer Plan" within the meaning of Section 3(37) of
ERISA or a "Multiple Employer Plan" within the meaning of Section 413(c) of
the Code, and all regulations promulgated thereunder, as in effect from time
to time). Section 4.13(a) of its Disclosure Schedule lists all Multiemployer
Plans and Multiple Employer Plans which it maintains or to which it makes
contributions. It does not have any obligation to create any additional such
plan or to amend any such plan so as to increase benefits thereunder, except
as required under the terms of its Plans, under existing collective
bargaining agreements or to comply with applicable law.
(b) (i) There have been no prohibited transactions within the meaning of
Section 406 or 407 of ERISA or Section 4975 of the Code with respect to any
of its Plans that could result in penalties, taxes or liabilities which,
singly or in the aggregate, could have a Material Adverse Effect on it, (ii)
except for premiums due, there is no outstanding liability in excess of
$25,000, whether measured alone or in the aggregate, under Title IV of ERISA
with respect to any of its Plans, (iii) neither the Pension Benefit Guaranty
Corporation nor any plan administrator has instituted proceedings to
terminate any of its Plans subject to Title IV of ERISA other than in a
"standard termination" described in Section 4041 (b) of ERISA, (iv) none of
its Plans has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, as
of the last day of the most recent fiscal year of each of its Plans
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ended prior to the date of this Agreement, (v) the current present value of
all projected benefit obligations under each of its Plans which is subject
to Title IV of ERISA did not, as of its latest valuation date, exceed the
then current value of the assets of such plan allocable to such benefit
liabilities by more than the amount, if any, disclosed in its latest SEC
Report (based upon reasonable actuarial assumptions currently utilized for
such Plan), (vi) each of its Plans has been operated and administered in all
material respects in accordance with applicable laws during the period of
time covered by the applicable statute of limitations, (vii) each of its
Plans which is intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined by the IRS to be so qualified and
such determination has not been modified, revoked or limited by failure to
satisfy any condition thereof or by a subsequent amendment thereto or a
failure to amend, except that it may be necessary to make additional
amendments retroactively to maintain the "qualified" status of such Plan,
and the period for making any such necessary retroactive amendments has not
expired, (viii) with respect to Multiemployer Plans, it has not, since
December 31, 1982, made or suffered a "complete withdrawal" or a "partial
withdrawal," as such terms are respectively defined in Sections 4203, 4204
and 4205 of ERISA and, to its knowledge, no event has occurred or is
expected to occur which presents a material risk of a complete or partial
withdrawal under said Sections 4203, 4204 and 4205, (ix) there are no
pending or, to its knowledge, threatened or anticipated claims involving any
of its Plans other than claims for benefits in the ordinary course, (x) it
has no current liability in excess of $50,000, whether measured alone or in
the aggregate, for plan termination or withdrawal (complete or partial)
under Title IV of ERISA based on any plan to which any entity that would be
deemed one employer with it under Section 4001 of ERISA or Section 414 of
the Code contributed during the period of time covered by the applicable
statute of limitations (its "Controlled Group Plans"), and it does not
reasonably anticipate that any such liability will be asserted against it,
none of its Controlled Group Plans has an "accumulated funding deficiency"
(as defined in Section 302 of ERISA and 412 of the Code), and none of its
Controlled Group Plans has an outstanding funding waiver which could result
in the imposition of liens, excise taxes or liability on it in excess of
$25,000 whether measured alone or in the aggregate, and (xi) none of its
Plans provide welfare benefits to employees and/or their dependents
subsequent to termination of employment except as required by Title I, Part
6 of ERISA or applicable state insurance laws.
SECTION 4.14 CERTAIN AGREEMENTS.
(a) As of the date hereof, it is not a party to any oral or written (i)
consulting or similar agreement with any present or former director, officer
or employee or any entity controlled by any such person not terminable on
thirty days' or less notice involving the payment of not more than $100,000
per annum, (ii) agreement with any executive officer or other key employee,
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving it of the nature
contemplated by this Agreement, (iii) agreement with respect to any
executive officer or other key employee of it providing any term of
employment or compensation guarantee extending for a period longer than one
year and for the payment in excess of $100,000 per annum, or (iv) agreement
or plan, including any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be
calculated on the basis of the transactions contemplated by this Agreement.
(b) It is not indebted for money borrowed, either directly or
indirectly, from any of its officers, directors, or any Affiliate (as
defined below), in any amount whatsoever, nor are any of its officers,
directors, or Affiliates indebted for money borrowed from it; nor are there
any transactions of a continuing nature between it and any of its officers,
directors, or Affiliates (other than by or through the regular employment
thereof by it) not subject to cancellation which will continue beyond the
Effective Time, including, without limitation, use of its assets for
personal benefit with or without adequate compensation. For purposes of this
Agreement, the term
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"Affiliate" shall mean any person that, directly or indirectly, through one
or more intermediaries, controls or is controlled by, or is under common
control with, the person specified. As used in the foregoing definition, the
term (i) "control" shall mean the power through the ownership of voting
securities, contract or otherwise to direct the affairs of another person
and (ii) "person" shall mean an individual, firm, trust, association,
corporation, partnership, government (whether federal, state, local or other
political subdivision, or any agency, or bureau of any of them) or other
entity.
SECTION 4.15 LABOR CONTROVERSIES. It is not a party to any collective
bargaining agreements. There are no controversies pending or, to its knowledge,
threatened between it and any representatives of any of its employees. To its
knowledge, there are no organizational efforts presently being made involving
any of the presently unorganized employees of it. It has complied in all
material respects with all laws relating to the employment of labor, including,
without limitation, any provisions thereof relating to wages, hours, collective
bargaining, and the payment of social security and similar taxes. No person has,
to its knowledge, asserted that it is liable for any arrears of wages or any
taxes or penalties for failure to comply with any of the foregoing.
SECTION 4.16 ENVIRONMENTAL MATTERS. It is and at all times has been in
compliance with all applicable requirements of Environmental Laws (as defined
below) in connection with the ownership, operation and conditions of its
business, except such instances of non-compliance that, both individually and in
the aggregate, would not have a Material Adverse Effect on it. To its knowledge,
there are no PCB's, underground storage tanks (as defined by Environmental
Laws), asbestos materials or asbestos containing materials in any property
leased, owned or operated by it. It has not released, transported or arranged
for the disposal of any hazardous substance at any facility, location or site,
except in material compliance with all applicable laws. To its knowledge, no
conditions exist or have occurred as a result of which or in connection with
which it could be held liable for damages, response or remedial costs, fines,
penalties, sanctions or equitable relief under any Environmental Laws, except
for such damages, costs, fines, penalties, sanctions or relief which, alone or
in the aggregate, would not have a Material Adverse Effect on it. As used in
this Section 4.16, "Environmental Laws" means any federal, state or local
statute, regulation, ordinance, permit, order, judgment, decree or decision
relating to health, safety or the environment. "Release" means any spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, active disposal or passive disposal (including the
abandonment or discarding of barrels, containers or other closed receptacles
containing any hazardous substances). "Hazardous substance" means (a) any
"hazardous substance" as defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, ("CERCLA") and any
implementing regulations, (b) any hazardous or toxic substance, waste or
material within the meaning of any other federal, state or local statute,
regulation, ordinance or decision, (c) any pollutant, contaminant or special
waste regulated by any Environmental Laws, or (d) petroleum, crude oil or any
fraction thereof.
SECTION 4.17 [INTENTIONALLY LEFT BLANK]
SECTION 4.18 NASDAQ; NO APPRAISAL RIGHTS. Its Common Stock is, and at the
Effective Time will be, designated as a national market security on the NASDAQ
National Market, in the case of Parent, or designated for listing in the NASDAQ
Small-Cap Market System, in the case of the Company. None of its (and in the
case of Parent, none of Subsidiary's) stockholders will be entitled to appraisal
rights under Delaware law in connection with the Merger.
SECTION 4.19 CONTRACTS, ETC.
(a) Section 4.19(a) of its Disclosure Schedule hereto consists of a true
and complete list of all contracts, agreements, commitments and other
instruments (whether oral or written) to which it is a party that (i)
involve an expenditure by it or require the performance of services or
delivery of goods to, by, through, on behalf of or for the benefit of it,
which in each case, relates to a contract, agreement, commitment or
instrument that requires payments in excess of $100,000 per year and
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(ii) involve an obligation for the performance of services or delivery of
goods by it that cannot, or in reasonable probability will not, be performed
within thirty days from the dates as of which these representations are
made.
(b) All of the contracts, agreements, commitments and other instruments
described in Section 4.19 of its Disclosure Schedule are valid and binding
upon it and, to its knowledge, the other parties thereto and are in full
force and effect and, to the knowledge of the Company, enforceable in
accordance with their terms, and neither it nor, to its knowledge, any other
party to any such contract, agreement, commitment or other instrument has
breached any provision of, and, to its knowledge, no event has occurred,in
each case, which, with the lapse of time or action by a third party, could
result in a default under the terms thereof which, alone or in the
aggregate, would provide the basis for a claim against it in excess of
$100,000, and, to its knowledge, there are no existing facts or
circumstances which would prevent its contracts and agreements for the sale
of goods by it from maturing in due course into fully collectible accounts
receivable. Neither it nor to its knowledge, any of its stockholders, has
received any payment from any contracting party in connection with or as an
inducement for entering into any contract, agreement, commitment or
instrument except for payment for actual services rendered or to be
rendered, or goods sold or to be sold, by it or such stockholder, as the
case may be.
SECTION 4.20 INTELLECTUAL PROPERTY
(a) Section 4.20(a) of its Disclosure Schedule hereto sets forth a
complete and correct list of all patents, material unpatented inventions set
forth or described in writing, trademarks, servicemarks, service names,
brand names and copyrights, registrations thereof and applications therefor,
material to its business, together with a complete list of all licenses
granted by or to it with respect to any of the above. All such patents,
material unpatented inventions, trademarks, tradenames, servicemarks,
service names, brand names and copyrights are owned by, or licensed to, it,
and in the case of such as are owned by it, are free and clear of all liens,
claims, security interests and encumbrances of any nature whatsoever. It is
not currently in receipt of any written notice of any violation or
infringements by it of, and it is not knowingly violating or infringing, the
rights of others in any patent, unpatented invention, trademark, tradename,
servicemark, copyright, trade secret, know-how, design, process or other
intangible asset.
(b) (i) Section 4.20(b)(i) of its Disclosure Schedule contains a
complete and accurate list of all computer software owned by it (other than
"off-the-shelf" software that has not been customized for its use) (its
"Owned Software"). It has exclusive title to its Owned Software, free and
clear of all claims, including claims or rights of employees, agents,
consultants, customers, licensees or other parties involved in the
development, creation, documentation, marketing, maintenance, enhancement or
licensing of such computer software. Its Owned Software is not dependent on
any Licensed Software (as defined in subsection (ii) below) in order to
operate fully in the manner in which it is intended. None of its Owned
Software has been published or disclosed to any other parties, except
pursuant to contracts requiring such other parties to keep such Owned
Software confidential. To its knowledge, no such other party has breached
any such obligation of confidentiality.
(ii) Section 4.20(b)(ii) of its Disclosure Schedule contains a
complete and accurate list of all software under which it is a licensee,
lessee or otherwise has obtained the right to use software and it pays a
royalty for the use of such software (its "Licensed Software"). Section
4.20(b)(ii) of its Disclosure Schedule also sets forth a list of all
license fees, rents, royalties or other charges that it is required or
obligated to pay with respect to Licensed Software. It has the right and
license to use its Licensed Software, free and clear of any limitations
or encumbrances, except as may be set forth in its license agreement with
respect thereto. It is in material compliance with all provisions of any
license, lease or other similar agreement pursuant to which it has rights
to use its Licensed Software. None of its Licensed Software has been
incorporated into or made a part of its Owned Software or any other of
its
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Licensed Software. It has not published or disclosed any of its Licensed
Software to any other party except, in the case of its Licensed Software
which it leases or markets to others, in accordance with and as permitted
by any license, lease or similar agreement relating to such Licensed
Software and except pursuant to contracts requiring such other parties to
keep such Licensed Software confidential. To its knowledge, no party to
whom it has disclosed Licensed Software has breached such obligation of
confidentiality.
(iii) The Owned Software and Licensed Software, together with any
"off-the-shelf" software that has not been customized for its use,
constitute all software material to its business (its "Software"). The
transactions contemplated herein will not cause a breach of default under
any licenses, leases or similar agreements relating to its Software or
impair its ability to use its Software subsequent to the Effective Time
in the same manner as its Software is currently used. It is not knowingly
infringing any intellectual property rights of any other person or entity
with respect to its Software, and, to its knowledge, no other person or
entity is infringing any of its intellectual property rights with respect
to its Software.
SECTION 4.21 CUSTOMERS. Section 4.21 of its Disclosure Schedule attached
hereto sets forth a true and correct list of each of its customers that, within
the preceding twelve months, accounted for an aggregate amount of its gross
revenue equal to 5% or more of its revenues. It has not received any written
notice that any such customer has taken or contemplates taking any steps which
could disrupt the business relationship of it with such customer and would
result in the material diminution in the value of its business as a going
concern.
SECTION 4.22 INSURANCE. Section 4.22 of its Disclosure Schedule sets forth
a true and correct list of all insurance policies held by it (indicating the
insurer, type, amount and term of coverage, deductible, and additional named
insureds with respect to each such policy and identifies all claims currently
pending under any of such insurance policies. All of these policies are in full
force and effect and all premiums due thereon have been paid or accrued and
there are no retroactive experience-based premium adjustment features in any
policy.
SECTION 4.23 BOOKS, RECORDS AND ACCOUNTS. Its books, records and accounts
fairly and accurately in all material respects reflect its transactions and
dispositions of assets, and its system of internal accounting controls is
sufficient to assure that: (a) transactions are executed in accordance with
management's authorization; (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles, and to maintain accountability for assets; (c) access to
assets is permitted only in accordance with management's authorization; and (d)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 4.24 ACCOUNTING MATTERS. Neither it nor, to its knowledge, any of
its Affiliates has, through the date of this Agreement, or will have as of the
Effective Time, taken or agreed to take any action that would prevent Parent
from accounting for the business combination to be effected by the Merger as a
pooling of interests.
SECTION 4.25 BROKERS AND FINDERS. Except for the fees and expenses payable
to its Financial Advisor, neither it nor, to its knowledge, any of its
Affiliates, has employed any investment banker, broker, finder, consultant or
intermediary in connection with the transactions contemplated by this Agreement
which would be entitled to any investment banking, brokerage, finder's or
similar fee or commission in connection with this Agreement or the transactions
contemplated hereby.
SECTION 4.26 DISCLOSURE. No statement contained herein or in any
certificate, schedule, list, exhibit or other instrument furnished to the other
pursuant to the provisions hereof contains or will contain any untrue statement
of any material fact or omits or will omit to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
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ARTICLE V
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Company as follows (subject in
each case to such exceptions as are set forth or cross-referenced in Parent's
attached Disclosure Schedule in the labeled Section corresponding to the caption
of the representation or warranty to which such exceptions relate):
SECTION 5.1 ORGANIZATION AND QUALIFICATION
(a) Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted.
(b) Subsidiary is qualified to do business and is in good standing in
each jurisdiction in which the properties owned, leased or operated by it or
the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified and in good standing
will not have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of Parent on a consolidated basis.
(c) True, accurate and complete copies of Subsidiary's Certificate of
Incorporation and By-laws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to the
Company.
SECTION 5.2 OWNERSHIP OF SUBSIDIARY; NO PRIOR ACTIVITIES; ASSETS OF
SUBSIDIARY.
(a) Subsidiary was formed by Parent solely for the purpose of engaging
in the transactions contemplated hereby. The authorized capital stock of
Subsidiary consists of 1,000 shares of Subsidiary Common Stock, of which
1,000 shares are issued and outstanding, all of which are owned beneficially
and of record by Parent.
(b) As of the date hereof and the Effective Time, 100% of the capital
stock of Subsidiary is and will be owned directly by Parent. Further, there
are not as of the date hereof and there will not be at the Effective Time
any outstanding or authorized options, warrants, calls, rights, commitments
or any other agreements of any character to which Subsidiary is a party, or
by which Subsidiary may be bound, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of capital stock or any securities or
rights convertible into, exchangeable for, or evidencing the right to
subscribe for or acquire, any shares of capital stock of Subsidiary.
(c) As of the date hereof and the Effective Time, except for obligations
or liabilities incurred in connection with its incorporation or organization
and the transactions contemplated thereby and hereby, Subsidiary has not and
will not have incurred, directly or indirectly through any subsidiary or
affiliate, any obligations or liabilities or engaged in any business or
activities of any type or kind whatsoever or entered into any agreements,
instruments, commitments, or other arrangements with any person or entity.
(d) Parent will take all action necessary to ensure that Subsidiary at
no time prior to the Effective Time owns any asset other than an amount of
cash necessary to incorporate Subsidiary and to pay the expenses of the
Merger attributable to Subsidiary if the Merger is consummated.
SECTION 5.3 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Subsidiary has full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.
Subsidiary's execution and delivery of this Agreement, and the consummation
by Subsidiary of the transactions contemplated hereby, have been duly
authorized by Subsidiary's Board of Directors and sole stockholder,
respectively, and no other corporate proceedings on the part of Subsidiary
are necessary to authorize Subsidiary's execution and delivery of this
Agreement and consummation by Subsidiary of the transactions
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contemplated hereby. This Agreement has been duly and validly executed and
delivered by Subsidiary, and constitutes a valid and binding agreement of
Subsidiary enforceable against Subsidiary in accordance with its terms,
except that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) The execution and delivery of this Agreement by Subsidiary does not,
and the consummation by Subsidiary of the transactions contemplated hereby
will not, violate, conflict with or result in a breach of any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination
or acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
Subsidiary under any of the terms, conditions or provisions of (i)
Subsidiary's Certificate of Incorporation or By-Laws, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to
Subsidiary or any of its properties or assets, or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which Subsidiary is now a party or by which Subsidiary or any of its
properties or assets may be bound, excluding from the foregoing clauses (ii)
and (iii), such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens, security interests, charges or
encumbrances that would not, in the aggregate, have a Material Adverse
Effect on Parent.
(c) No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by Subsidiary or the consummation by Subsidiary of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or
obtained, as the case may be, would not, in the aggregate, have a Material
Adverse Effect on Parent.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME. Each of Parent
(for itself and the Subsidiary) and the Company hereby covenants and agrees as
follows, from and after the date of this Agreement and until the Effective Time,
except as otherwise specifically consented to in writing by the other party:
(a) It shall conduct its business in the ordinary and usual course of
business and consistent with past practice;
(b) It shall not (i) split, combine or reclassify its outstanding
capital stock or declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise, (ii) spin-off any assets or
businesses, (iii) engage in any transaction for the purpose of effecting a
recapitalization, or (iv) engage in any transaction or series of related
transactions which has a similar effect to any of the foregoing;
(c) It shall not issue, sell, pledge or dispose of, or agree to issue,
sell pledge or dispose of, any additional shares of, or any options,
warrants or rights of any kind to acquire any shares of its capital stock of
any class or any debt or equity securities convertible into or exchangeable
for such capital stock or amend or modify the terms and conditions of any of
the foregoing, except that it (i) may issue shares upon exercise of
outstanding options, warrants or stock purchase rights and (ii) grant
options, warrants and stock purchase rights, and issue shares upon exercises
thereof, in accordance with past practices in numbers and exercise prices
consistent therewith;
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(d) It shall not (i) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock, other than as required by the
governing terms of such securities, (ii) take any action (either before or
after the Effective Time) which would jeopardize the treatment of the Merger
as a "reorganization" within the meaning of Section 368(a) of the Code or as
a "pooling of interests" for accounting purposes, (iii) take or fail to take
any action which action or failure to take action would cause the Company or
its stockholders (except to the extent that any stockholders receive cash in
lieu of fractional shares) to recognize gain or loss for federal income tax
purposes as a result of the consummation of the Merger, (iv) make any
acquisition of any material assets (except in the ordinary course of
business) or businesses, (v) sell any material assets (except in the
ordinary course of business) or businesses, or (vi) enter into any contract,
agreement, commitment or arrangement to do any of the foregoing;
(e) It shall use reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of its present
officers and key employees, and preserve the goodwill and business
relationships with suppliers, distributors, customers, and others having
business relationships with it, and not engage in any action, directly or
indirectly, with the intent to impact adversely the transactions
contemplated by this Agreement;
(f) It shall confer on a regular basis with one or more representatives
of the other to report on material operational matters and the general
status of ongoing operations; and
(g) it shall file with the SEC all forms, statements, reports and
documents (including all exhibits, amendments and supplements thereto)
required to be filed by it pursuant to the Exchange Act.
SECTION 6.2 ADDITIONAL COVENANTS OF THE COMPANY. The Company hereby
covenants and agrees, from and after the date of this Agreement and until the
Effective Time, except as otherwise specifically consented to in writing by
Parent, the Company shall:
(a) not amend or propose to amend its Certificate of Incorporation or
By-Laws;
(b) not incur of become contingently liable with respect to any
indebtedness for borrowed money, except in the ordinary course of business
or pursuant to the revolving credit arrangements referred to in Section
4.14(b) of its Disclosure Schedule or any successor arrangements thereto;
(c) not enter into or amend in any material respect any material
employment, severance, or special pay arrangement with respect to
termination of employment or other similar material arrangements or
agreements with any directors, officers or key employees;
(d) not increase the rate of remuneration payable to any of its
directors or key officers, or, except in the ordinary course of business
consistent with past practices, to any other employees or other
representatives, or agree to do so;
(e) not adopt, enter into or amend in any material respect any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare of any
employee or retiree, except as required to comply with changes in applicable
law; and
(f) use its best efforts to maintain in force the insurance coverage
described in Section 4.22 of its Disclosure Schedule.
SECTION 6.3 ACQUISITION TRANSACTIONS; BREAK-UP FEES.
(a) After the date hereof and prior to the earlier of (i) the Effective
Time, (ii) termination of this Agreement as provided in Article IX hereof or
(iii) September 30, 1995, unless Parent shall otherwise agree in writing,
the Company shall not initiate, solicit, negotiate, encourage, or provide
confidential information to facilitate, and the Company shall (A) use its
best efforts to cause any officer, director or employee of, or any attorney,
accountant or other agent retained by,
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the Company and (B) use its best efforts to cause any investment banker
retained by the Company, not to initiate, solicit, negotiate, encourage, or
provide confidential information to facilitate, any proposal or offer to
acquire all or substantially all of the business and properties of the
Company, or capital stock of the Company, whether by merger, purchase of
assets, tender offer or otherwise, whether for cash, securities or any other
consideration or combination thereof (such transactions being referred to
herein as "Acquisition Transactions"); provided, however, that the Company
may furnish (on terms including confidentiality terms, substantially similar
to those set forth in that certain Confidentiality Agreement between Parent
and the Company (the "Confidentiality Agreement")) information concerning
its business, properties or assets to a corporation, partnership, person or
other entity or group (a "Potential Acquirer") if (1) the Company's Board of
Directors is advised by its financial advisor that such Potential Acquirer
has the financial wherewithal to consummate an Acquisition Transaction that
would yield a higher value to the Company's stockholders than will the
Merger, (2) the Company's Board of Directors determines that such Potential
Acquirer is reasonably likely to submit a bona fide offer to consummate an
Acquisition Transaction on terms that would yield such a higher value to the
Company's stockholders if provided with confidential information about the
Company, and (3) after consultation with counsel, the Company's Board of
Directors determines that the failure to provide such confidential
information would constitute a breach of its fiduciary duty to stockholders
of the Company. Following receipt of a bona fide offer from a Potential
Acquirer proposing an Acquisition Transaction which offer the Board of
Directors of the Company determines would likely yield a higher value to the
Company's stockholders than will the Merger, the Company may, with respect
to such Potential Acquirer, negotiate and take any of the actions otherwise
prohibited by this Section 6.3 if, in the opinion of the Board of Directors
of the Company after consultation with counsel, the failure to negotiate
with such Potential Acquirer would constitute a breach by the Board of
Directors of its fiduciary duty to the stockholders of the Company. In the
event the Company shall determine to provide any information as described
above, or shall receive any offer relating to an Acquisition Transaction, it
shall promptly notify Parent (a "Notice of Proposal") as to the fact that
information is to be provided or that an offer relating to an Acquisition
Transaction has been received and shall furnish to Parent the identity of
the recipient of such information or the proponent of such offer or
proposal, if applicable, and, if an offer or proposal has been received, a
description of the material terms thereof. The Company may enter into a
definitive agreement for an Acquisition Transaction with a Potential
Acquirer with which it is permitted to negotiate pursuant to this Section
6.3; provided, however that, at least one business day prior to the
Company's execution thereof the Company shall have notified Parent in
writing (a "Notice of Agreement") indicating the Company's intent to enter
into such agreement and describing all of the material terms of such
agreement. Following the execution of such a definitive agreement, Parent or
the Company may terminate this Agreement in accordance with Article IX
hereof, subject to the following fee and expense reimbursement provisions of
this Section 6.3.
(b) If (1) the Company fails to effect a Merger within 156 days of the
date of this Agreement, other than as a result of a Parent Notification, a
Parent Adverse Change or a Parent Breach (each as defined in Section 9.1
hereof), or any other condition set forth in this Agreement required to be
satisfied by Parent to effect the Merger set forth in Article VIII of this
Agreement, and (2) a proposal for an Acquisition Transaction from other than
Parent is accepted by the Board of Directors of the Company or, if
applicable, by the holders of 51% or more of the outstanding Company Common
Stock (irrespective of whether or not such acceptance is then binding upon
the initiator of the Acquisition Transaction so long as it is ultimately so
binding), in each case prior to or within 90 days of the termination of this
Agreement, or if earlier, 246 days after the date of this Agreement, or if
such a proposal is so accepted after the expiration of such 90 or 246-day
period, but resulted from the Company commencing to seek offers for an
Acquisition Transaction within 20 calendar days after the date of
termination of this Agreement, then the Company shall promptly (i) issue to
Parent a six-month option, which shall be immediately exercisable, to
acquire such number of shares of Company Common Stock as shall equal 10% of
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the outstanding Company Common Stock as of the date of such acceptance,
after giving effect to the exercise of such option, at an exercise price of
$11.107 per share (subject to proportionate adjustment in the event of any
stock dividend, stock split, reverse stock split, or other recapitalization
or similar change with respect to Company Common Stock) (the "Topping
Option"), and (ii) giving credit to the Company for any other payments to
Parent made pursuant to Section 9.1 hereof and/or this Section 6.3, pay
Parent the sum of $500,000 (the "Parent Breakup Fee"), together with up to
$450,000 of the reasonable outside legal, accounting and investment banking
fees and disbursements and printing expenses incurred in connection with the
preparation, execution and delivery of this Agreement and the transactions
contemplated hereby (subject to such $450,000 maximum, "Transaction
Expenses") by Parent; provided, however, that if the aggregate value of the
accepted Acquisition Transaction proposal does not exceed $30,000,000, then,
in such event, the Parent Breakup Fee shall be $750,000 rather than
$500,000. In the event a proposal for an Acquisition Transaction is so
accepted within such time periods by the holders of 30% or more but less
than 51% of the shares of Company Common Stock (the "Tender Acceptance"),
then, should Parent elect not to proceed with the Merger, giving credit for
any other payments to Parent made pursuant to Section 9.1 and/or this
Section 6.3, the Company shall promptly pay Parent the Parent Breakup Fee
(but in no event more than $500,000) and Parent's Transaction Expenses;
provided, however, that if within 12 months of the Tender Acceptance, the
person which initiated such Acquisition Transaction shall acquire such
additional number of shares of Company Common Stock as shall increase such
person's equity interest in the Company to at least 51% or shall effectuate
a transaction which, directly or indirectly, will afford such person
ownership or control of all or substantially all of the assets or business
of the Company, then the Company shall promptly (i) issue to Parent the
Topping Option (the number of shares covered by which shall be computed as
of the date of the Tender Acceptance), and (ii) if the aggregate value of
all consideration paid by such person for all assets and interests of and in
the Company acquired by it does not exceed $30,000,000, pay to Parent an
additional $250,000 of Parent Breakup Fee.
(c) Notwithstanding the foregoing provisions of this Section 6.3 or any
other provision hereof, in no event shall either party be required to pay
Transaction Expenses of the other party in excess of $450,000.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 ACCESS TO INFORMATION. Each of Parent and the Company shall
afford to the other and the other's accountants, counsel, financial advisors and
other representatives full access during normal business hours throughout the
period prior to the Effective Time to all properties, books, contracts,
commitments and records (including, but not limited to, Tax Returns) of it and,
during such period, shall furnish promptly (a) a copy of each report, schedule
and other document filed or received by it during such period pursuant to the
requirements of federal or state securities laws or filed by it during such
period with the SEC in connection with the transactions contemplated by this
Agreement or which may have a material effect on its business, properties or
personnel and (b) such other information concerning its business, properties and
personnel as the other shall reasonably request; provided, however, that, no
investigation pursuant to this Section 7.1 shall affect any representation or
warranty made herein or the conditions to the obligations of the respective
parties to consummate the Merger. All non-public documents and information
furnished to Parent or to the Company, as the case may be, in connection with
the transactions contemplated by this Agreement shall be deemed to have been
received pursuant to and shall be subject to the provisions of the
Confidentiality Agreement, except that Parent and the Company may disclose such
information as may be necessary in connection with seeking the Parent Required
Statutory Approvals, the Parent Stockholders' Approval, the Company Required
Statutory Approvals and the Company Stockholders' Approval. The Company shall
promptly advise Parent, and Parent shall promptly advise the Company, in
writing, of
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any change or the occurrence of any event after the date of this Agreement
having, or which, insofar as can reasonably be foreseen, in the future may have,
any Material Adverse Effect on the Company or Parent, as the case may be.
SECTION 7.2 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS. Parent
and the Company shall prepare and file with the SEC as soon as is reasonably
practicable after the date hereof the Proxy Statement/Prospectus and shall use
all reasonable efforts to have the Registration Statement declared effective by
the SEC as promptly as practicable. Parent shall also take any action required
to be taken under applicable state blue sky or securities laws in connection
with the issuance of Parent Common Stock. Parent and the Company shall promptly
furnish to each other all information, and take such other actions, as may
reasonably be requested in connection with any action by any of them in
connection with the preceding sentence and shall cooperate with one another and
use their respective best efforts to facilitate the expeditious consummation of
the transaction contemplated by this Agreement. The Registration Statement shall
contain a resale prospectus covering all shares of Parent Common Stock to be
acquired by Affiliates of the Company. It shall be a condition to the obligation
of either Parent or the Company to mail the Proxy Statement/Prospectus to its
stockholders that Parent or the Company, as the case may be, have received the
opinion of its respective Financial Advisor to the effect that, as of the date
of such opinion (which shall be in no event earlier than July 11, 1995), the
Exchange Ratio is fair, from a financial point of view, to its stockholders. A
copy of such opinion shall be delivered to the other prior to the mailing of the
Proxy Statement/ Prospectus.
SECTION 7.3 STOCKHOLDERS' APPROVAL. The Company shall use its best efforts
to obtain stockholder approval and adoption (the "Company Stockholders'
Approval") of this Agreement and the transactions contemplated hereby as soon as
practicable following the date upon which the Registration Statement is declared
effective by the SEC. Subject to the fiduciary duties of the Board of Directors
of the Company under applicable law, the Company shall, through its Board of
Directors, recommend to the holders of Company Common Stock approval of this
Agreement and the transactions contemplated by this Agreement. Parent, in its
capacity as the sole stockholder of Subsidiary, has approved and adopted this
Agreement and the transactions contemplated by this Agreement upon its execution
hereof. Parent shall use its best efforts to obtain stockholder approval and
adoption (the "Parent Stockholders' Approval") of this Agreement and the
transactions contemplated hereby as soon as practicable following the date upon
which the Registration Statement is declared effective by the SEC. Subject to
the fiduciary duties of the Board of Directors of Parent under applicable law,
Parent shall, through its Board of Directors, recommend to the holders of Parent
Common Stock approval of this Agreement and the transactions contemplated by
this Agreement.
SECTION 7.4 MANAGED OFFERING OF AFFILIATES' SHARES. Parent will exert its
best efforts, as soon as practicable subsequent to the Effective Time, subject
to then prevailing market conditions, to arrange for a managed offering of all
shares of Parent Common Stock received by Affiliates of the Company as a result
of the Merger through an underwriter to be selected by Parent and reasonably
satisfactory to a majority in interest of the Company's Affiliates so receiving
Parent Common Stock.
SECTION 7.5 NASDAQ NATIONAL MARKET. Parent use its best efforts to effect,
at or before the Effective Time, authorization for quotation on the NASDAQ
National Market, upon official notice of issuance, of the shares of Parent
Common Stock to be issued pursuant to the Merger.
SECTION 7.6 AGREEMENT TO COOPERATE. Subject to the terms and conditions
herein provided, each of the parties hereto shall cooperate and use their
respective best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its reasonable efforts to obtain
all necessary or appropriate waivers, consents and approvals and SEC "no-action"
letters, to effect all necessary registrations, filings and submissions and to
lift any injunction or other legal bar to the Merger (and, in such case, to
proceed with the Merger as expeditiously as possible), subject, however, to
obtaining the Required Statutory Approvals
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and the Company Stockholders' Approval and the Parent Stockholders' Approval;
and PROVIDED, that nothing in this Section 7.6 shall affect any responsibility
or obligation specifically allocated to any party in this Agreement.
SECTION 7.7 PUBLIC STATEMENTS. The parties shall consult with each other
prior to issuing any press release or any written public statement with respect
to this Agreement or the transactions contemplated hereby and shall not issue
any such press release or written public statement prior to such consultation,
except that prior review and approval shall not be required if, in the
reasonable judgment of the party seeking to issue such release or public
statement, prior review and approval would prevent the timely dissemination of
such release or statement in violation of applicable law, rule, regulation or
policy of the NASDAQ National Market.
SECTION 7.8 CORRECTIONS TO THE PROXY STATEMENT/PROSPECTUS AND REGISTRATION
STATEMENT. Prior to the date of approval of the Merger by stockholders of the
Company and by the stockholders of Parent, each of the Company, Parent and
Subsidiary shall correct promptly any information provided by it to be used
specifically in the Proxy Statement/Prospectus and Registration Statement that
shall have become false or misleading in any material respect and shall take all
steps necessary to file with the SEC and have declared effective or cleared by
the SEC any amendment or supplement to the Proxy Statement/Prospectus or the
Registration Statement so as to correct the same and to cause the Proxy
Statement/Prospectus as so corrected to be disseminated to the stockholders of
the Company and/or stockholders of Parent, in each case to the extent required
by applicable law.
SECTION 7.9 AGREEMENTS OF AFFILIATES. By July 22, 1995, each of the
Company and Parent shall identify in a letter to the other, after consultation
with outside counsel, all Persons who it believes may be deemed to be
"affiliates" of it (and/or, in the case of Parent, of Subsidiary), as that term,
in the case of the Company, is (i) defined for purposes of paragraphs (c) and
(d) of Rule 145 under the Securities Act or (ii) used in and for purposes of
Accounting Series, Releases 130 and 135, as amended, of the SEC, and in the case
of Parent and Subsidiary, is used in and for purposes of Accounting Series
Releases 130 and 135, as amended, of the SEC. Each of the Company and Parent
shall use its best commercially reasonable efforts to cause each Person who is
so identified by it as a possible Affiliate, to deliver to it, at least 30 days
prior to the Closing Date, an executed copy of an Affiliate's Agreement
substantially in the form of the attached Exhibit IV-1 or IV-2, as applicable
(each an "Affiliate's Agreement"), and shall promptly provide a copy of each
such Affiliate's Agreement to the other. Prior to the Closing Date, each of the
Company and Parent shall amend and supplement its letter referred to above and
shall use all reasonable efforts to cause each additional person who is
identified therein as a possible affiliate to execute and deliver a copy of the
applicable Affiliate's Agreement in accordance with the foregoing.
SECTION 7.10 ASSURANCES RELATING TO TAX MATTERS CERTIFICATE. Each of
Parent and the Company shall use all reasonable efforts to obtain, as promptly
as is practicable following the date hereof and in any event prior to the
Effective Time, such oral or written assurances as it reasonably deems
sufficient to enable it to execute and deliver to the other a certificate
substantially in the form of that attached as an exhibit to the tax matters
opinion of the other party's tax counsel referred to in Sections 8.2(i) and
8.3(g) hereof.
SECTION 7.11 DISCLOSURE SUPPLEMENTS. From time to time prior to the
Effective Time, and in any event immediately prior to the Effective Time, each
of Parent and the Company shall promptly supplement or amend its Disclosure
Schedule with respect to any matter hereafter arising that, if existing,
occurring, or known at the date of this Agreement, would have been required to
be set forth or described in such Disclosure Schedule or that is necessary to
correct any information in such Disclosure Schedule that is or has become
inaccurate. Notwithstanding the foregoing, if any such supplement or amendment
discloses a Material Adverse Effect, the conditions to the other party's
obligations to consummate the Merger set forth in Article VIII hereof shall be
deemed not to have been satisfied.
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SECTION 7.12 SATISFACTION OF CONDITIONS PRECEDENT. Each of the parties
shall use its best efforts to cause the satisfaction on or before September 30,
1995, of the conditions precedent contained in Article VIII of this Agreement
that impose obligations on it or require action on its part or on the part of
any of its stockholders or Affiliates.
ARTICLE VIII
CONDITIONS
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) The Company shall have obtained the Company Stockholders' Approval;
(b) Parent shall have obtained the Parent Stockholders' Approval;
(c) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect;
(d) No preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in effect (each party agreeing to use its
reasonable efforts to have any such injunction, order or decree lifted);
(e) No action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency in the United States which would prevent the consummation of the
Merger, and
(f) All governmental and third party consents, orders and approvals
legally required for the consummation of the Merger and the transactions
contemplated hereby (including without limitation all Required Statutory
Approvals) shall have been obtained and be in effect at the Effective Time
without any material limitations or conditions.
(g) As of the Closing Date, all blue sky filings as may be required in
order for the offer, issuance and sale of all of the shares of Parent Common
Stock to be issued pursuant to Section 3.1(a) hereof, all of the options and
stock purchase rights to purchase Parent Common Stock to be issued pursuant
to Section 3.1(c) hereof, and all of the shares of Parent Common Stock
issuable upon exercise of such options and stock purchase rights,
respectively, to be in full compliance with all applicable state securities
laws and regulations shall have been made and shall be in effect and not
subject to any suspension, revocation, or stop order, as may be required in
order for the offer, issuance and sale of all such securities to be legally
permitted under all such laws and regulations.
SECTION 8.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE
MERGER. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following additional conditions:
(a) Parent and Subsidiary shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of Parent
and Subsidiary contained in this Agreement shall be true and correct in all
material respects on and as of (i) the date made and (ii) the Closing Date
(except in the case of representations and warranties expressly made solely
with reference to a particular date); and the Company shall have received a
certificate of the Chairman of the Board and Chief Executive Officer, the
President or a Vice President of Parent and of the President and Chief
Executive Officer or a Vice President of Subsidiary to that effect;
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(b) The Company shall have received an opinion from Parker Duryee Rosoff
& Haft, counsel to Parent and Subsidiary, dated the Closing Date,
substantially in the form set forth in Exhibit V hereto;
(c) The Company shall have received "comfort" letters from Deloitte &
Touche LLP, independent public accountants for Parent and Subsidiary, dated
the date of the Proxy Statement/ Prospectus, the effective date of the
Registration Statement and the Closing Date (or such other date reasonably
acceptable to the Company) with respect to certain financial statements and
other financial information included in the Registration Statement in
customary form;
(d) The Company shall have received an opinion from each of Deloitte &
Touche LLP, independent public accountants for Parent, and Arthur Andersen
LLP, independent certified public accountants for the Company, dated the
Closing Date, addressed to the Company, each in form and substance
reasonably satisfactory to the Company, stating that the Merger will qualify
as a "pooling of interests" transaction under generally accepted accounting
principles;
(e) The Company shall have received all of the Affiliate's Agreements
contemplated by Section 7.9 to have been received by it.
(f) Parent shall have furnished to the Company such additional
certificates, opinions and other documents as the Company may have
reasonably requested as to any of the conditions set forth in this Section
8.2.
(g) The Company shall have received an opinion of Fechtor Detwiler &
Co., Inc., or another nationally recognized investment banking firm, dated
as of the Closing Date, that the Exchange Ratio is fair, from a financial
point of view, to the Company's public stockholders;
(h) All of the shares of Parent Common Stock to be issued or issuable in
connection with the Merger (including shares subject to Company Options and
Company Stock Purchase Rights pursuant to Section 3.1(c) hereof) shall have
been authorized for listing on the NASDAQ National Market upon official
notice of issuance;
(i) The Company shall have received an opinion of Bingham Dana & Gould,
dated the Effective Time, to the effect that (i) the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code; (ii) each of Parent, Subsidiary and the Company
will be a party to the reorganization within the meaning of Section 368(b)
of the Code, (iii) no gain or loss will be recognized by the Company as a
result of the Merger, and (iv) no gain or loss will be recognized by a
stockholder of the Company as a result of the Merger with respect to Company
Common Stock converted solely into Parent Common Stock. In rendering such
opinion, Bingham Dana & Gould may receive and rely upon representations
contained in certificates of Parent, Subsidiary, the Company and certain
stockholders of the Company; and
(j) Since the date of this Agreement there shall not have been any
Material Adverse Effect with respect to Parent, the likelihood of which was
not previously disclosed to the Company by the Parent.
(k) The Company shall have received from Parent an executed original of
a certificate substantially in the form of the attached Exhibit VI.
(l) All proceedings in connection with the Merger and the other
transactions contemplated by this Agreement and all agreements, instruments,
certificates, and other documents delivered to the Company by or on behalf
of Parent or Subsidiary pursuant to this Agreement shall be reasonably
satisfactory to the Company and its counsel.
SECTION 8.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUBSIDIARY TO EFFECT
THE MERGER. Unless waived by Parent, the obligations of Parent and Subsidiary
to effect the Merger shall be subject to the fulfillment at or prior to the
Closing Date of the additional following conditions:
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(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects on and as of (i) the date made and (ii) the Closing Date (except in
the case of representations and warranties expressly made solely with
reference to a particular date); and Parent shall have received a
Certificate of the President and Chief Executive Officer or of a Vice
President of the Company to that effect;
(b) Parent shall have received an opinion from Bingham Dana & Gould,
counsel to the Company, dated the Closing Date, substantially in the form
set forth in Exhibit VII hereto;
(c) Parent shall have received "comfort" letters from Arthur Andersen &
Co., LLP, independent certified public accountants for the Company, dated
the date of the Proxy Statement/ Prospectus, the effective date of the
Registration Statement and the Closing Date (or such other date reasonably
acceptable to Parent) with respect to certain financial statements and other
financial information included in the Registration Statement in customary
form;
(d) Parent shall have received an opinion from each of Deloitte & Touche
LLP, independent public accountants for Parent, and Arthur Andersen LLP,
independent certified public accountants for the Company, dated the Closing
Date, addressed to Parent, each in form and substance reasonably
satisfactory to Parent, stating that the Merger will qualify as a "pooling
of interests" transaction under generally accepted accounting principles;
(e) Parent shall have received all of the Affiliate's Agreements
contemplated by Section 7.9 to have been received by it.
(f) Parent shall have received an opinion of Janney Montgomery Scott
Inc., or another nationally recognized investment banking firm, dated as of
the Closing Date, that the Exchange Ratio is fair, from a financial point of
view, to Parent's public stockholders.
(g) Parent shall have received an opinion of Parker Duryee Rosoff &
Haft, dated the Effective Time, to the effect that (i) the Merger will be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code; (ii) each of Parent, Subsidiary and
the Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code; (iii) no gain or loss will be recognized by the
Company, Parent or Subsidiary as a result of the Merger, and (iv) no gain or
loss will be recognized by a stockholder of the Company as a result of the
Merger with respect to Company Common Stock converted solely into Parent
Common Stock. In rendering such opinion, Parker Duryee Rosoff & Haft may
receive and rely upon representations contained in certificates of Parent,
Subsidiary, the Company, and certain stockholders of the Company,
respectively;
(h) The Company shall have furnished to Parent such additional
certificates, opinions and other documents as Parent may have reasonably
requested as to any of the conditions set forth in this Section 8.3.
(i) Since the date of this Agreement there shall not have been any
Material Adverse Effect with respect to the Company, the likelihood of which
was not previously disclosed to the Parent by the Company.
(j) Parent shall have received from the Company an executed original of
a certificate substantially in the form of the attached Exhibit VIII.
(k) All proceedings in connection with the Merger and the other
transactions contemplated by this Agreement and all agreements, instruments,
certificates, and other documents delivered to Parent by or on behalf of the
Company pursuant to this Agreement shall be reasonably satisfactory to
Parent and its counsel.
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<PAGE>
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the stockholders
of the Company and/or Parent:
(a) by mutual consent of Parent and the Company;
(b) unilaterally by Parent upon the occurrence of a Material Adverse
Effect with respect to the Company, the likelihood of which was not
previously disclosed to Parent by the Company prior to the date of this
Agreement, (a "Company Adverse Change"), whereupon absent the Company's
fraud or gross negligence in failing to disclose such to Parent neither
party shall have any obligation to the other for Transaction Expenses;
(c) unilaterally by the Company upon the occurrence of a Material
Adverse Effect with respect to Parent, the likelihood of which was not
previously disclosed to the Company by Parent prior to the date of this
Agreement, (a "Parent Adverse Change"), whereupon absent Parent's fraud or
gross negligence in failing to disclose such to the Company neither party
shall have any obligation to the other for Transaction Expenses;
(d) unilaterally by Parent in the event of the Company's material breach
when made of any material representation or warranty of the Company
contained in this Agreement, or the Company's willful failure to comply with
or satisfy any material covenant or condition of Company contained in this
Agreement (each a "Company Breach"), or if the Company fails to obtain the
Company Stockholders' Approval;
(e) unilaterally by the Company in the event of Parent's material breach
when made of any material representation or warranty contained in this
Agreement, or Parent's willful failure to comply with or satisfy any
material covenant or condition of Parent contained in this Agreement (each a
"Parent Breach"), or if Parent fails to obtain the Parent Stockholders'
Approval (the "Adverse Stockholders' Vote");
(f) unilaterally by the Company if at any time when the provisions of
this Agreement are in effect, the Company shall notify Parent (a "Company
Notification") that the Company elects not to proceed with the Merger (other
than as a result of a Parent Adverse Change or a Parent Breach or the
Company's failure to obtain the Company Stockholders' Approval), in which
event, subject to the provisions of Section 6.3(b), the Company shall
promptly pay Parent $500,000, together with Parent's Transaction Expenses;
(g) unilaterally by Parent if at any time when the provisions of this
Agreement are in effect, the Parent shall notify the Company in writing (a
"Parent Notification") that Parent elects not to proceed with the Merger
Transaction (other than as a result of a Company Adverse Change or a Company
Breach or Parent's failure to obtain Parent Stockholders' Approval), in
which event Parent shall promptly pay the Company $500,000, together with
the Company's Transaction Expenses;
(h) unilaterally by either Parent or the Company if the Merger
Transaction is not consummated for any reason not specified or referred to
in the preceding provisions of this Section 9.1 by the close of business on
September 30, 1995 whereupon, subject to Section 6.3(b), neither party shall
have any obligation to the other for Transaction Expenses.
Notwithstanding the provisions of Section 6.3 hereof or any other provision
hereof, in no event shall either party be required to pay Transaction Expenses
of the other in excess of $450,000.
SECTION 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 9.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of either the Company, Parent, Subsidiary (except as set forth in
this Section 9.2 and in Section 6.3 (with respect to certain fees, expense
reimbursement,
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<PAGE>
options and rights due to Parent thereunder), the penultimate sentence of
Section 7.1 (with respect to confidential and non-public information), and
Sections 9.1 and 9.5, which shall survive such termination). Nothing in this
Section 9.2 shall relieve any party from liability for any breach of this
Agreement.
SECTION 9.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto and in
compliance with applicable law.
SECTION 9.4 WAIVER. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
SECTION 9.5 EXPENSES. Except as otherwise provided in Section 9.1 and
Section 6.3, whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
respective representations, warranties, obligations, agreements, and promises of
the parties contained in this Agreement and in any schedule, certificate, or
other document delivered pursuant to this Agreement, other than those that by
their terms are to be performed or otherwise are to apply after the Effective
Time, shall terminate as of, and shall not survive, the Effective Time.
SECTION 10.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally (effective upon
delivery), mailed by registered or certified mail (return receipt requested)
(effective three business days after mailing), sent by a reputable overnight
courier service for next business day delivery (effective the next business day)
or sent via facsimile (effective upon receipt of the telecopy in complete,
readable form) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to Parent or Subsidiary to:
Robotic Vision Systems, Inc.
425 Rabro Drive East
Hauppauge, New York 11788
Attention: Pat V. Costa, Chairman, President and CEO
FAX: (516) 273-1167
with a copy to:
Parker, Duryee, Rosoff & Haft
529 Fifth Avenue
New York, New York 10017
Attention: Ira I. Roxland, Esq.
FAX: (212) 972-9487
(b) If to the Company, to:
Acuity Imaging, Inc.
9 Townsend West
Nashua, New Hampshire 03063
Attention: Ofer Gneezy, President
FAX: (603) 598-4684
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<PAGE>
with a copy to:
Bingham Dana & Gould
150 Federal Street
Boston, Massachusetts
Attention: David L. Engel, Esq.
FAX: (617) 951-8736
SECTION 10.3 INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.4 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
(including without limitation a letter agreement dated as of January 31, 1995,
as amended on March 30 and April 24, 1995, between Parent and the Company, but
excluding the Confidentiality Agreement); (ii) shall not be assigned by
operation of law or otherwise, and any attempt to do so shall be void; and (iii)
shall be governed in all respects, including validity, interpretation and
effect, by the laws of the State of Delaware (without giving effect to the
provisions thereof relating to conflicts of law).
SECTION 10.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement. In pleading or proving this
Agreement, it shall not be necessary to produce or account for more than one
fully executed original.
SECTION 10.6 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 10.7 CAPTIONS. The captions of sections and subsections of this
Agreement are for reference only, and shall not affect the interpretation or
construction of this Agreement.
SECTION 10.8 ADDITIONAL DEFINED TERMS. As used in this Agreement, the
following defined terms have the respective meanings ascribed to them below.
"Financial Advisor" when used with respect to Parent or the Company, means
Janney Montgomery Scott Inc., in the case of Parent, and Fechtor, Detwiler &
Co., Inc., in the case of the Company.
"Material Adverse Effect" means, with respect to a party, a material adverse
effect on the business, operations, properties, assets, condition (financial or
otherwise), results of operations, or prospects of it and its Subsidiaries, on a
consolidated basis, or on its ability to consummate the transactions
contemplated hereby; PROVIDED that, as to the Company, a Material Adverse Effect
shall not be deemed to have occurred as a result of any facts or circumstances
disclosed on the Disclosure Schedule of the Company attached hereto as Annex A
or if (i) as to its first and second fiscal quarters of 1995, its results of
operations reflect an aggregate operating loss (without giving effect to
expenses of the Merger) of no more than $700,000 in both such quarters and (ii)
its results of operations or projected results of operations (as projected in
good faith by the Company) for its third fiscal quarter of 1995, reflect or
project (as applicable) an operating loss (without giving effect to expenses of
the Merger) of no more than $500,000 for such fiscal quarter; and a Material
Adverse Effect shall be deemed to have occurred (the likelihood of which had not
been previously disclosed to Parent by the Company prior to the date of the
Merger Agreement), if the Company's results of operations or projected results
of operations (as projected in good faith by the Company) for its third fiscal
quarter of 1995 reflect or project (as applicable) an operating loss (without
giving effect to expenses of the Merger) in excess of $500,000 for such fiscal
quarter.
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<PAGE>
"Person" means a natural person, corporation, an association, a partnership,
an organization, a business, a government or political subdivision thereof, a
governmental agency or any other entity.
"SEC Reports", when used with respect to Parent or the Company, means:
(i) in the case of Parent, (A) its Annual Reports on Form 10-K for its
fiscal years ended September 30, 1994, 1993 and 1992, respectively, each as
filed with the SEC, (B) its annual reports to stockholders for the two most
recent years, each as provided to its stockholders, (C) all proxy and
information statements relating to (1) all meetings of its stockholders
(whether annual or special) and (2) all actions by written consent in lieu
of a meeting of its stockholders, in each case from December 31, 1991 until
the date of this Agreement, (D) its Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994, (E) all other reports or registration
statements filed by Parent with the SEC since December 31, 1991 (other than
registration statements on Form S-8), and (F) any Quarterly Report on Form
10-Q delivered to the Company pursuant to the final sentence of Section
4.5(a) hereof, but in each case only from and after the time of such
delivery; and
(ii) in the case of the Company, (A) its Annual Reports on Form 10-K or
KSB for its fiscal years ended December 31, 1994, 1993, 1992 and 1991,
respectively, each as filed with the SEC, (B) its annual reports to
stockholders for the two most recent years, each as provided to its
stockholders, (C) all proxy and information statements relating to (1) all
meetings of its stockholders (whether annual or special) and (2) all actions
by written consent in lieu of a meeting of its stockholders, in each case
from December 31, 1991 until the date of this Agreement, (D) its Quarterly
Reports on Form 10-QSB for the quarters ended April 2, July 2 and October 1,
1994, respectively, (E) all other reports or registration statements filed
by the Company with the SEC since December 31, 1991 (other than registration
statements on Form S-8), and (F) any Annual Report on Form 10-KSB and any
Quarterly Report on Form 10-QSB, in each case as delivered to Parent
pursuant to the final sentence of Section 4.5(a) hereof, but in each case
only from and after the time of such delivery.
IN WITNESS WHEREOF, Parent, Subsidiary and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
<TABLE>
<S> <C>
ATTEST: ROBOTIC VISION SYSTEMS, INC.
/s/ Robert H. Walker By: /s/ Pat V. Costa
- ---------------------------------------- ----------------------------------------
Name: Robert H. Walker Name: Pat V. Costa
Title: Secretary Title: Chairman,
ATTEST: RVSI ACQUISITION CORP.
/s/ Robert H. Walker By: /s/ Pat V. Costa
- ---------------------------------------- ----------------------------------------
Name: Robert H. Walker Name: Pat V. Costa
Title: Secretary Title: President
ATTEST: ACUITY IMAGING INC.
/s/ John A. Rogers By: /s/ Ofer Gneezy
- ---------------------------------------- ----------------------------------------
Name: John A. Rogers Name: Ofer Gneezy
Title: VP -- Finance Title: President
</TABLE>
A-28
<PAGE>
EXHIBIT B
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
SECTION 262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251, Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock which, at the
record date fixed to determine the stockholders entitled to receive notice
of and to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 stockholders; and
further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation;
b. Shares of stock of any other corporation which at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 stockholders;
c. Cash in lieu of fractional shares of the corporations described
in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of
fractional shares described in the foregoing subparagraphs a., b. and c.
of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is
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<PAGE>
a constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy
or vote against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective date
of such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand
in writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom
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<PAGE>
agreements as to the value of their shares have not been reached by the
surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective
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<PAGE>
date of the merger or consolidation as provided in subsection (e) of this
section or thereafter with the written approval of the corporation, then the
right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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<PAGE>
EXHIBIT C
[LETTERHEAD OF JANNEY MONTGOMERY SCOTT INC.]
July 20, 1995
Board of Directors
Robotic Vision Systems, Inc.
425 Rabro Drive, East
Hauppauge, New York 11788
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of outstanding shares of common stock ("Stockholders") of
Robotic Vision Systems, Inc. ("RVSI" or the "Company") of the exchange ratio
(the "Exchange Ratio") in the proposed merger pursuant to the Agreement and Plan
of Reorganization dated as of April 27, 1995 as last amended as of July 11, 1995
("Merger Agreement") entered into by and among RVSI, Acuity Imaging, Inc.
("Acuity") an a wholly owned subsidiary of RVSI (the "Proposed Transaction").
The terms and conditions of the Proposed Transaction are more fully set forth in
the Merger Agreement.
Janney Montgomery Scott Inc. ("JMS"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with the preparation of fairness opinions, mergers and
acquisitions, rights offerings, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate, and other purposes.
In connection with our opinion, we have reviewed the Merger Agreement,
certain financial and other information of RVSI and Acuity, including certain
internal analyses, reports, forecasts and other information. We have held
discussions with senior management of RVSI and Acuity concerning the current
operations, financial condition and prospects of each of RVSI and Acuity and the
companies on a combined basis. We have also held discussions with senior
management of RVSI concerning the strategic and operating benefits anticipated
by RVSI in the Proposed Transaction. In addition, we have (i) reviewed the price
and trading histories of RVSI common stock and Acuity common stock and compared
those prices and trading histories with those of publicly traded companies
deemed relevant; (ii) compared the financial positions and operating results of
RVSI and Acuity with those of publicly traded companies we deemed relevant;
(iii) compared certain financial terms of the Proposed Transaction to certain
financial terms of selected other business combinations we deemed relevant; (iv)
analyzed the pro forma financial effects of the Proposed Transaction; and, (v)
conducted such other financial studies, analyses and investigations, and
reviewed such other factors, as we deemed relevant.
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<PAGE>
Robotic Vision Systems, Inc.
Page 2
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for purposes of this
opinion. With respect to financial projections, we assumed that they have been
reasonably prepared on bases reflecting the best currently available information
and judgements of the future financial performance of RVSI and Acuity. We have
not made any independent valuation or appraisal of the assets or liabilities of
the Company, nor have we been furnished with such valuations or appraisals. We
have assumed the Proposed Transaction will be accounted for under the
pooling-of-interests method of accounting and will be treated as a tax free
reorganization.
Our opinion is necessarily based on financial, economic, market and other
conditions as they exist on, and information made available to us as of, the
date hereof. It should be understood that, although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or reaffirm
this opinion. Furthermore, we express no opinion as to the price or trading
range at which the RVSI stock will trade subsequent to the date of our opinion.
Payment of JMS' fee is not contingent upon the conclusion reported.
It should be understood that this letter is for the information of the Board
of Directors only in connection with its consideration of the Proposed
Transaction and does not constitute a recommendation to any stockholder as to
how such stockholder should vote on the Proposed Transaction, and may not be
used for any other purpose without our prior written consent. We hereby consent,
however, to the inclusion of this opinion as an exhibit to any proxy or
registration statement distributed in connection with the Transaction.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, the Exchange Ratio is fair, from a financial point of view to the
Stockholders of RVSI.
Sincerely yours,
JANNEY MONTGOMERY SCOTT INC.
By: /s/ Herbert M. Gardner
-----------------------------------
Herbert M. Gardner
Senior Vice President
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EXHIBIT D
[LETTERHEAD OF FECHTOR, DETWILER & CO., INC.]
July 17, 1995
Board of Directors
Acuity Imaging, Inc.
9 Townsend West
Nashua, New Hampshire 03063
Gentlemen:
As described in the Agreement and Plan of Merger and Reorganization dated as
of April 27, 1995, as amended as of July 11, 1995, between Robotic Vision
Systems, Inc. ("RVSI") and Acuity Imaging, Inc. ("Acuity"), RVSI and Acuity have
proposed to merge a wholly owned subsidiary of RVSI with and into Acuity and to
convert each Acuity share into 0.766 shares of RVSI Common Stock, subject to the
payment of cash adjustments in lieu of the issuance of fractional shares, with
the provision that, if the average closing price for RVSI shares for the 20 day
period preceding the special meeting of RVSI's shareholders exceeds $14.50 or is
less than $10.00, the Exchange Ratio will be adjusted as provided in Section
1(b) of the First Amendment to Agreement and Plan of Merger and Reorganization
dated as of July 11, 1995.
You have asked Fechtor, Detwiler & Co., Inc. ("Fechtor, Detwiler") for its
opinion as investment bankers as to whether the Exchange Ratio as defined in the
First Amendment to the Agreement and Plan of Merger and Reorganization is fair,
from a financial point of view, to Acuity's shareholders. Fechtor, Detwiler, as
part of its investment banking business, is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
initial public offerings, private placements, and valuations for estate,
corporate and other purposes.
In forming our opinion, we have, among other things:
1) Reviewed the Agreement and Plan of Merger and Reorganization dated as of
April 27, 1995 and the First Amendment to Agreement and Plan of Merger
and Reorganization dated as of July 11, 1995;
2) Reviewed share price and trading volumes for Acuity's shares from
November 4, 1994 through July 14, 1995;
3) Reviewed Acuity's 1995 Business Plan dated February 13, 1995;
4) Reviewed with management Acuity's financial projections dated 7/13/95
for the balance of the fiscal year ending December 31, 1995 and fiscal
year ending December 31, 1996;
5) Reviewed Acuity's Forms 10-KSB, as filed with the SEC, for 1993 and
1994;
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Board of Directors
Acuity Imaging, Inc.
July 17, 1995
Page 2
6) Reviewed Acuity's Forms 10-QSB, as filed with the SEC for the quarterly
periods ending April 2, 1994, July 2, 1994, October 1, 1994 and April 1,
1995;
7) Reviewed with management of Acuity its operations, financial condition
and future prospects;
8) Visited Acuity's Nashua, New Hampshire facility;
9) Reviewed share price and trading volume for RVSI's shares from November
4, 1994 through July 14, 1995;
10) Reviewed RVSI's Forms 10-K, as filed with the SEC, for the fiscal years
ended September 30, 1992 and September 30, 1993, and Form 10-K/A for the
fiscal year ended September 30, 1994;
11) Reviewed RVSI's Forms 10-Q, as filed with the SEC, for the quarterly
periods ending December 31, 1991, March 31, 1992, June 30, 1992, December
31, 1992, March 31, 1993, June 30, 1993, December 31, 1993, March 31,
1994, June 30, 1994, December 31, 1994 and March 31, 1995;
12) Reviewed RVSI's Form S-1, as filed with the SEC, dated March 11, 1994;
13) Reviewed with management of RVSI its operations, financial condition and
future prospects;
14) Reviewed with management RVSI's financial projections dated 6/19/95 for
the balance of the fiscal year ending September 30, 1995;
15) Visited RVSI's Hauppauge, New York facility;
16) Reviewed the Merger Due Diligence Report prepared by Arthur Andersen;
17) Conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all information provided to us by Acuity and RVSI, and we have
not assumed any responsibility for independent verification of such information
or any independent valuation or appraisal of any of the assets of Acuity or
RVSI.
Based on the foregoing, it is our opinion as investment bankers, that the
Exchange Ratio is fair, from a financial point of view, to the Acuity
shareholders.
This letter is solely for the information of the Acuity Board of Directors
to assist in the determination of the fairness of the merger and is not to be
used, circulated or quoted without our express consent.
Very truly yours,
FECHTOR, DETWILER & CO., INC.
By: /s/ Andre Daniel-Dreyfus
- --------------------------------------------------------------------------------
Andre Daniel-Dreyfus
SENIOR VICE PRESIDENT
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EXHIBIT E
ROBOTIC VISION SYSTEMS, INC.
AMENDED AND RESTATED 1991 STOCK OPTION PLAN
Robotic Vision Systems, Inc. (the "Company") hereby amends and restates the
Robotic Vision Systems, Inc. 1991 Stock Option Plan in its entirety (the
Company's 1991 Stock Option Plan, as amended and restated, is hereinafter
referred to as the "Plan").
1. PURPOSE. The Plan is intended to amend and restate in its entirety the
Company's 1991 Stock Option Plan. The Plan is intended to recognize the
contributions made to the Company or an Affiliate by employees of the Company or
any Affiliate (as hereinafter defined), members of the Board of Directors of the
Company or an Affiliate, and certain consultants and advisors to the Company or
any Affiliate, to provide such persons with additional incentive to devote
themselves to the future success of the Company or an Affiliate, and to improve
the ability of the Company or an Affiliate to attract, retain, and motivate
individuals upon whom the Company's sustained growth and financial success
depend, by providing such persons with an opportunity to acquire or increase
their proprietary interest in the Company through receipt of rights to acquire
the Company's Common Stock, $.01 par value (the "Common Stock").
2. DEFINITIONS. Unless the context clearly indicates otherwise, the
following terms shall have the following meanings:
(a) "Affiliate" means a corporation which is a parent corporation or a
subsidiary corporation with respect to the Company within the meaning of
Section 424(e) or (f) of the Code.
(b) "Board of Directors" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Board of Directors or the committee designated
by the Board of Directors in accordance with the provisions set forth in
Section 3 of the Plan.
(e) "Company" means Robotic Vision Systems, Inc., a Delaware
corporation.
(f) "Disability" shall have the meaning set forth in Section 22(e)(3) of
the Code.
(g) "Fair Market Value" shall have the meaning set forth in Subsection
8(b) of the Plan.
(h) "ISO" means an Option granted under the Plan which is intended to
qualify as an "incentive stock option" within the meaning of Section 422(b)
of the Code.
(i) "Non-qualified Stock Option" means an Option granted under the Plan
which is not intended to qualify, or otherwise does not qualify, as an
"incentive stock option" within the meaning of Section 422(b) of the Code.
(j) "Option" means either an ISO or a Non-qualified Stock Option
granted under the Plan.
(k) "Optionee" means a person to whom an Option has been granted under
the Plan, which Option has not been exercised and has not expired or
terminated.
(l) "Option Document" means the document described in Section 8 of the
Plan which sets forth the terms and conditions of each grant of Options.
(m) "Option Price" means the price at which Shares may be purchased upon
exercise of an Option, as calculated pursuant to Subsection 8(b) of the
Plan.
(n) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.
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(o) "Shares" means the shares of Common Stock of the Company which are
the subject of Options.
3. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE. The Plan shall be administered by a committee composed
of two or more of the members of the Company's Board of Directors. The
Company's Board of Directors in its sole discretion may elect ("Alternative
Administration") to have the Plan administered by either (i) providing that
the Committee be composed of directors who are not eligible to receive
options under the Plan, or (ii) designating two committees to operate and
administer the Plan, one of such committees composed of two or more
directors who are not eligible to receive Options under the Plan to operate
and administer the Plan with respect to each person who is a "Principal
Officer" (as defined below), and the other such committee composed of two or
more directors (which may include directors who are also employees,
consultants or advisors of the Company) to operate and administer the Plan
with respect to each person other than a "Principal Officer." Any of such
committees designated by the Board of Directors is referred to as the
"Committee." As used herein, the term "Principal Officer" means a person who
is an "officer" of the Company, within the meaning of Rule 16a-1(f)
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor regulation.
(b) MEETINGS. The Committee shall hold meetings at such times and
places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous
consent of the members of the Committee shall be the valid acts of the
Committee.
(c) GRANTS. The Committee shall from time to time, in its discretion,
direct the Company to grant Options pursuant to the terms of the Plan. The
Committee shall have plenary authority to (i) determine the Optionees to
whom, the times at which, and the price at which Options shall be granted,
(ii) determine the type of Option to be granted and the number of Shares
subject thereto, and (iii) approve the form and terms and conditions of the
Option Documents; all subject, however, to the express provisions of the
Plan. In making such determinations, the Committee may take into account the
nature of the Optionee's services and responsibilities, the Optionee's
present and potential contribution to the Company's success and such other
factors as it may deem relevant. The interpretation and construction by the
Committee of any provisions of the Plan or of any Option granted under it
shall be final, binding and conclusive.
(d) EXCULPATION. No member of the Board of Directors shall be
personally liable for monetary damages for any action taken or any failure
to take any action in connection with the administration of the Plan or the
granting of Options under the Plan, provided that this Subsection 3(c) shall
not apply to (i) any breach of such member's duty of loyalty to the Company
or its stockholders, (ii) acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (iii) acts or
omissions that would result in liability under Section 174 of the General
Corporation Law of the State of Delaware, as amended, and (iv) any
transaction from which the member derived an improper personal benefit.
(e) INDEMNIFICATION. Service on the Committee shall constitute service
as a member of the Board of Directors of the Company. Each member of the
Committee shall be entitled without further act on his part to indemnity
from the Company to the fullest extent provided by applicable law and the
Company's Certificate of Incorporation and/or By-laws in connection with or
arising out of any action, suit or proceeding with respect to the
administration of the Plan or the granting of Options thereunder in which he
or she may be involved by reason of his or her being or having been a member
of the Committee, whether or not he or she continues to be a member of the
Committee at the time of the action, suit or proceeding.
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(f) LIMITATIONS ON GRANTS OF OPTIONS TO CONSULTANTS AND ADVISORS. With
respect to the grant of Options to consultants and advisors, bona fide
services shall be rendered by consultants and advisors, and such services
must not be in connection with a capital raising transaction.
4. GRANTS UNDER THE PLAN. Grants under the Plan may be in the form of a
Non-qualified Stock Option, an ISO or a combination thereof, at the discretion
of the Committee.
5. ELIGIBILITY. All employees and members of the Board of Directors of,
and (subject to Section 4) consultants and advisors to, the Company or an
Affiliate shall be eligible to receive Options hereunder. The Committee, in its
sole discretion, shall determine whether an individual qualifies as an employee,
consultant or advisor.
6. SHARES SUBJECT TO PLAN. The aggregate maximum number of Shares for
which Options may be granted pursuant to the Plan is two million two hundred
thousand (2,200,000), subject to adjustment as provided in Section 9 of the
Plan. The Shares shall be issued from authorized and unissued Common Stock or
Common Stock held in or hereafter acquired for the treasury of the Company. If
an Option terminates or expires without having been fully exercised for any
reason, the Shares for which the Option was not exercised may again be the
subject of one or more Options granted pursuant to the Plan.
7. TERM OF THE PLAN. The Plan (as amended and restated) was approved by
the Board of Directors on December 14, 1994, and, provided it is approved on or
before December 13, 1995 by a majority of the votes cast at a duly called
meeting of the stockholders at which a quorum representing a majority of all
outstanding voting stock of the Company is, either in person or by proxy,
present and voting, shall be effective as of the date of approval by
stockholders. No Option may be granted under the Plan after December 11, 2001.
8. OPTION DOCUMENTS AND TERMS. Each Option granted under the Plan shall be
a Non-qualified Stock Option unless the Option shall be specifically designated
at the time of grant to be an ISO for federal income tax purposes. If any Option
designated as an ISO is determined for any reason not to qualify as an incentive
stock option within the meaning of Section 422 of the Code, such Option shall be
treated as a Non-qualified Stock Option for all purposes under the provisions of
the Plan. Options granted pursuant to the Plan shall be evidenced by the Option
Documents in such form as the Committee shall from time to time approve, which
Option Documents shall comply with and be subject to the following terms and
conditions and such other terms and conditions as the Committee shall from time
to time require which are not inconsistent with the terms of the Plan.
(a) NUMBER OF OPTION SHARES. Each Option Document shall state the
number of Shares to which it pertains. An Optionee may receive more than one
Option, which may include Options which are intended to be ISO's and Options
which are not intended to be ISO's, but only on the terms and subject to the
conditions and restrictions of the Plan.
(b) OPTION PRICE. Each Option Document shall state the Option Price
which, for a Non-qualified Stock Option, may be less than, equal to, or
greater than the Fair Market Value of the Shares on the date the Option is
granted and, for an ISO, shall be at least 100% of the Fair Market Value of
the Shares on the date the Option is granted as determined by the Committee
in accordance with this Subsection 8(b); provided, however, that if an ISO
is granted to an Optionee who then owns, directly or by attribution under
Section 424(d) of the Code, shares possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or an
Affiliate, then the Option Price shall be at least 110% of the Fair Market
Value of the Shares on the date the Option is granted. If the Common Stock
is traded in a public market, then the Fair Market Value per share shall be,
if the Common Stock is listed on a national securities exchange or included
in the NASDAQ National Market System, the last reported sale price thereof
on the relevant date, or, if the Common Stock is not so listed or included,
the mean between the last
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reported "bid" and "asked" prices thereof on the relevant date, as reported
on NASDAQ or, if not so reported, as reported by the National Daily
Quotation Bureau, Inc. or as reported in a customary financial reporting
service, as applicable and as the Committee determines.
(c) EXERCISE. No Option shall be deemed to have been exercised prior
to the receipt by the Company of written notice of such exercise and of
payment in full of the Option Price for the Shares to be purchased. Each
such notice shall specify the number of Shares to be purchased and shall
(unless the Shares are covered by a then current and effective registration
statement or qualified Offering Statement under Regulation A under the
Securities Act of 1933, as amended (the "Act")), contain the Optionee's
acknowledgment in form and substance satisfactory to the Company that (a)
such Shares are being purchased for investment and not for distribution or
resale (other than a distribution or resale which, in the opinion of counsel
satisfactory to the Company, may be made without violating the registration
provisions of the Act), (b) the Optionee has been advised and understands
that (i) the Shares have not been registered under the Act and are
"restricted securities" within the meaning of Rule 144 under the Act and are
subject to restrictions on transfer and (ii) the Company is under no
obligation to register the Shares under the Act or to take any action which
would make available to the Optionee any exemption from such registration,
(c) such Shares may not be transferred without compliance with all
applicable federal and state securities laws, and (d) an appropriate legend
referring to the foregoing restrictions on transfer and any other
restrictions imposed under the Option Documents may be endorsed on the
certificates. Notwithstanding the foregoing, if the Company determines that
issuance of Shares should be delayed pending (A) registration under federal
or state securities laws, (B) the receipt of an opinion of counsel
satisfactory to the Company that an appropriate exemption from such
registration is available, (C) the listing or inclusion of the Shares on any
securities exchange or an automated quotation system or (D) the consent or
approval of any governmental regulatory body whose consent or approval is
necessary in connection with the issuance of such Shares, the Company may
defer exercise of any Option granted hereunder until any of the events
described in this sentence has occurred.
(d) MEDIUM OF PAYMENT. An Optionee shall pay for Shares (i) in cash,
(ii) by certified or cashier's check payable to the order of the Company,
(iii) by payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board or (iv) by such other mode of
payment as the Committee may approve. Furthermore, the Committee may provide
in an Option Document that payment may be made in whole or in part in shares
of the Company's Common Stock held by the Optionee for at least six months.
If payment is made in whole or in part in shares of the Company's Common
Stock, then the Optionee shall deliver to the Company certificates
registered in the name of such Optionee representing the shares owned by
such Optionee, free of all liens, claims and encumbrances of every kind and
having an aggregate Fair Market Value on the date of delivery that is at
least as great as the Option Price of the Shares (or relevant portion
thereof) with respect to which such Option is to be exercised by the payment
in shares of Common Stock, endorsed in blank or accompanied by stock powers
duly endorsed in blank by the Optionee. In the event that certificates for
shares of the Company's Common Stock delivered to the Company represent a
number of shares in excess of the number of shares required to make payment
for the Option Price of the Shares (or relevant portion thereof) with
respect to which such Option is to be exercised by payment in shares of
Common Stock, the stock certificate issued to the Optionee shall represent
(i) the Shares in respect of which payment is made, and (ii) such excess
number of shares. Notwithstanding the foregoing, the Committee may impose
from time to time such limitations and prohibitions on the use of shares of
the Common Stock to exercise an Option as it deems appropriate.
(e) TERMINATION OF OPTIONS.
(i) No option shall be exercisable after the first to occur of the
following:
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(A) Expiration of the Option term specified in the Option
Document, which shall occur on or before (1) ten years from the
date of grant, or (2) five years from the date of grant of an ISO
if the Optionee on the date of grant owns, directly or by
attribution under Section 424(d) of the Code, shares possessing
more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or of an Affiliate;
(B) Expiration of three months from the date the Optionee's
employment or service with the Company or its Affiliates
terminates for any reason other than disability or death or as
otherwise specified in Subsection 8(e)(i)(D) or 8(e)(i)(E) below;
(C) Expiration of one year from the date such employment or
service with the Company or its Affiliates terminates due to the
Optionee's Disability or death;
(D) A finding by the Committee, after full consideration of
the facts presented on behalf of both the Company and the
Optionee, that the Optionee has breached his employment or
service contract with the Company or an Affiliate, or has been
engaged in disloyalty to the Company or an Affiliate, including,
without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his employment or
service, or has disclosed trade secrets or confidential
information of the Company or an Affiliate. In such event, in
addition to immediate termination of the Option, the Optionee
shall automatically forfeit all Shares for which the Company has
not yet delivered the share certificates upon refund by the
Company of the Option Price. Notwithstanding anything herein to
the contrary, the Company may withhold delivery of share
certificates pending the resolution of any inquiry that could
lead to a finding resulting in a forfeiture.
(E) The date, if any, set by the Board of Directors as an
accelerated expiration date in the event of the liquidation or
dissolution of the Company.
(ii) Notwithstanding the foregoing, the Committee may extend the
period during which all or any portion of an Option may be exercised
to a date no later than the Option term specified in the Option
Document pursuant to Subsection 8(e)(i)(A), provided that any change
pursuant to this Subsection 8(e)(ii) which would cause an ISO to
become a Non-qualified Stock Option may be made only with the consent
of the Optionee.
(f) TRANSFERS. No Option granted under the Plan may be transferred,
except by will or by the laws of descent and distribution. During the
lifetime of the person to whom an Option is granted, such Option may be
exercised only by him. Notwithstanding the foregoing, a Non-qualified Stock
Option may be transferred pursuant to the terms of a "qualified domestic
relations order," within the meaning of Sections 401(a)(13) and 414(p) of
the Code or within the meaning of Title I of the Employee Retirement Income
Security Act of 1974, as amended.
(g) LIMITATION ON ISO GRANTS. In no event shall the aggregate fair
market value of the shares of Common Stock (determined at the time the ISO
is granted) with respect to which incentive stock options under all
incentive stock option plans of the Company or its Affiliates are
exercisable for the first time by the Optionee during any calendar year
exceed $100,000.
(h) OTHER PROVISIONS. Subject to the provisions of the Plan, the
Option Documents shall contain such other provisions including, without
limitation, provisions authorizing the Committee to accelerate the
exercisability of all or any portion of an Option granted pursuant to the
Plan, additional restrictions upon the exercise of the Option or additional
limitations upon the term of the Option, as the Committee shall deem
advisable.
(i) AMENDMENT. Subject to the provisions of the Plan, the Committee
shall have the right to amend Option Documents issued to an Optionee,
subject to the Optionee's consent if such
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amendment is not favorable to the Optionee, except that the consent of the
Optionee shall not be
required for any amendment made pursuant to Subsection 8(e)(i)(E) or Section
9 of the Plan, as applicable.
9. ADJUSTMENTS ON CHANGES IN CAPITALIZATION. The aggregate number of
Shares and class of shares as to which Options may be granted hereunder, the
number and class or classes of shares covered by each outstanding Option and the
Option Price thereof shall be appropriately adjusted in the event of a stock
dividend, stock split, recapitalization or other change in the number or class
of issued and outstanding equity securities of the Company resulting from a
subdivision or consolidation of the Common Stock and/or, if appropriate, other
outstanding equity securities or a recapitalization or other capital adjustment
(not including the issuance of Common Stock on the conversion of other
securities of the Company which are convertible into Common Stock) affecting the
Common Stock which is effected without receipt of consideration by the Company.
The Committee shall have authority to determine the adjustments to be made under
this Section, and any such determination by the Committee shall be final,
binding and conclusive.
10. AMENDMENT OF THE PLAN. The Board of Directors of the Company may amend
the Plan from time to time in such manner as it may deem advisable.
Nevertheless, the Board of Directors of the Company may not change the class of
individuals eligible to receive an ISO or increase the maximum number of shares
as to which Options may be granted without obtaining approval, within twelve
months before or after such action, by vote of a majority of the votes cast at a
duly called meeting of the stockholders at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person or
by proxy, present and voting on the matter. No amendment to the Plan shall
adversely affect any outstanding Option, however, without the consent of the
Optionee.
11. NO COMMITMENT TO RETAIN. The grant of an Option pursuant to the Plan
shall not be construed to imply or to constitute evidence of any agreement,
express or implied, on the part of the Company or any Affiliate to retain the
Optionee in the employ of the Company or an Affiliate and/or as a member of the
Company's Board of Directors or in any other capacity.
12. WITHHOLDING OF TAXES. Whenever the Company proposes or is required to
deliver or transfer Shares in connection with the exercise of an Option, the
Company shall have the right to (a) require the recipient to remit or otherwise
make available to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery or transfer of
any certificate or certificates for such Shares or (b) take whatever other
action it deems necessary to protect its interests with respect to tax
liabilities. The Company's obligation to make any delivery or transfer of Shares
shall be conditioned on the Optionee's compliance, to the Company's
satisfaction, with any withholding requirement.
13. INTERPRETATION. It is the intent of the Company that, if Alternative
Administration is selected by the Company's Board of Directors, transactions
under the Plan with respect to directors and officers (within the meaning of
Section 16(a) under the Securities Exchange Act of 1934, as amended) satisfy the
conditions of Rule 16b-3. To the extent that any provision of the Plan would
result in a conflict with such conditions, such provision shall be deemed null
and void. This Section shall not be applicable if no class of the Company's
equity securities is then registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended.
14. GOVERNING LAW. The Plan shall be governed by, and all questions
arising hereunder shall be determined in accordance with, the laws of the State
of New York.
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