<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
/X/ Filed by the Registrant
/ / Filed by a Party other than the Registrant
Check the Appropriate Box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
ROBOTIC VISION SYSTEMS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
Copies of all communications to:
IRA I. ROXLAND, Esq.
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, New York 10022
(212) 688-7000
<PAGE> 2
[RVSI LOGO]
ROBOTIC VISION SYSTEMS, INC.
5 SHAWMUT ROAD
CANTON, MASSACHUSETTS 02021
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 1999
------------------------
To the Stockholders of
ROBOTIC VISION SYSTEMS, INC.:
NOTICE IS GIVEN that the annual meeting of stockholders of ROBOTIC VISION
SYSTEMS, INC., a Delaware corporation, will be held at The Hilton at Dedham
Place, 25 Allied Drive, Dedham, Massachusetts 02026, on Thursday, June 10, 1999
at the hour of 10:00 a.m., for the following purposes:
1) To elect eight directors of the Company for the ensuing year.
2) To consider and vote upon a proposal to authorize the issuance of
shares of common stock of the Company pursuant to the terms of an
$11,000,000 private placement of the Company's equity securities with
certain institutional investors and their agent completed on February 23,
1999.
3) To consider and vote upon a proposal to amend the Company's
certificate of incorporation to increase the authorized number of shares of
common stock from 50,000,000 to 75,000,000.
4) To ratify the selection of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending September 30, 1999.
5) To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 28, 1999 are
entitled to notice of and to vote at the meeting or any adjournment thereof.
Frank D. Edwards
Secretary
Canton, Massachusetts
May 3, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED
PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY AND PROMPTLY
RETURN IT IN THE PRE-ADDRESSED ENVELOPE PROVIDED FOR THAT PURPOSE. ANY
STOCKHOLDER MAY REVOKE HIS PROXY AT ANYTIME BEFORE THE MEETING BY GIVING WRITTEN
NOTICE TO SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY ATTENDING
THE MEETING AND VOTING IN PERSON.
<PAGE> 3
ROBOTIC VISION SYSTEMS, INC.
5 SHAWMUT ROAD
CANTON, MASSACHUSETTS 02021
-------------------------
PROXY STATEMENT
-------------------------
INTRODUCTION
This Proxy Statement is being mailed on or about May 3, 1999 to all
stockholders of record of the Company at the close of business on April 28, 1999
in connection with the solicitation by the board of directors of proxies for the
annual meeting of stockholders to be held at The Hilton at Dedham Place, 25
Allied Drive, Dedham, Massachusetts 02026 on Thursday, June 10, 1999.
SOLICITATION OF PROXIES
Proxies will be solicited by mail, and all expenses of preparing and
soliciting such proxies will be paid by the Company. Beacon Hill Partners, Inc.
has been retained to solicit proxies on behalf of the board at an anticipated
cost of $3,000 plus expenses. The Company has also arranged for reimbursement,
at the rate suggested by The Nasdaq Stock Market, Inc., of brokerage houses,
nominees, custodians and fiduciaries for the forwarding of proxy materials to
the beneficial owners of shares held of record. Proxies may also be solicited by
directors, officers and employees of the Company, but such persons will not be
specifically compensated for such services.
All proxies properly executed and received by the persons designated as
proxy will be voted on all matters presented at the meeting in accordance with
the specific instructions of the person executing such proxy or, in the absence
of specified instructions, will be voted for the named nominees to the board and
in favor of the proposals to
- authorize the issuance of shares of common stock pursuant to the terms of
the February 1999 private placement
- amend the Company's certificate of incorporation to provide for an
increase in the number of authorized shares of common stock from
50,000,000 to 75,000,000
- ratify the selection of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending September 30, 1999
The board does not know of any other matter that may be brought before the
meeting but, in the event that any other matter should come before the meeting,
or any nominee should not be available for election, the persons named as proxy
will have authority to vote all proxies not marked to the contrary in their
discretion as they deem advisable.
MANNER OF VOTING
Stockholders may vote their proxies by mail. Stockholders who hold their
shares through a bank or broker can also vote via the Internet if this option is
offered by the bank or broker. Any stockholder may revoke his proxy, whether he
votes by mail or the Internet, at any time before the meeting by written notice
to such effect received by the Company at the address set forth above, attn:
corporate secretary, by delivery of a subsequently dated proxy or by attending
the meeting and voting in person.
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VOTE REQUIRED
The total number of shares of the Company's common stock outstanding as of
the record date was 26,202,461. The common stock is the only class of securities
of the Company entitled to vote, each share being entitled to one non-cumulative
vote. Only stockholders of record as of the close of business on the record date
will be entitled to vote. A majority of the shares of common stock outstanding
and entitled to vote, or 13,101,231 shares, must be present at the meeting in
person or by proxy in order to constitute a quorum for the transaction of
business. Abstentions and broker nonvotes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
Assuming the presence of a quorum, an affirmative vote of a majority of the
shares of common stock present and voting, in person or by proxy, at the meeting
is required to pass upon each of the matters presented except that the proposal
to amend the Company's certificate of incorporation requires the affirmative
vote of holders of a majority of all outstanding common stock entitled to vote
at the meeting.
ABSTENTIONS AND NONVOTES
Abstentions will be counted in tabulations of the votes cast on each of the
proposals presented at the meeting, whereas broker nonvotes will not be counted
for purposes of determining whether a proposal has been approved. "Broker
nonvotes" are proxies received from brokers who, in the absence of specific
voting instructions from beneficial owners of shares held in brokerage name,
have declined to vote such shares in those instances where discretionary voting
by brokers is permitted.
A list of stockholders entitled to vote at the meeting will be available at
the Company's offices, 5 Shawmut Road, Canton, Massachusetts, for a period of
ten days prior to the meeting and at the meeting itself for examination by any
stockholder.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of the Company's common stock as of the record date by (i) each director of the
Company, (ii) each person known by the Company to own beneficially 5% or more of
the Company's common stock, (iii) each officer or former officer named in the
summary compensation table elsewhere in this proxy statement and (iv) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER(1) OWNED(2) OF CLASS
---------------------- ------------ --------
<S> <C> <C>
Pat V. Costa...................................... 238,927(3) 1.0%
Frank A. DiPietro................................. 56,770(4) *
Jay M. Haft....................................... 489,546(5) 2.0%
Tomas Kohn........................................ 51,155(6) *
Donald J. Kramer.................................. 24,654(7) *
Mark J. Lerner.................................... 86,855(8) *
Howard Stern...................................... 82,978(9) *
Robert H. Walker.................................. 80,825(10) *
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER(1) OWNED(2) OF CLASS
---------------------- ------------ --------
<S> <C> <C>
John J. Arcari.................................... 20,000(11) *
Steven J. Bilodeau................................ 10,000(11) *
9 Merriman Point Road
Center Sandwich, NH 03227
Curtis W. Howes................................... 10,502(12) *
Earl H. Rideout................................... 33,302(13) *
Fisher Capital, Ltd., Wingate Capital Ltd.,
Citadel Limited Partnership, GLB Partners, L.P.,
Citadel Investment Group, L.L.C., Wellington
Partners Limited Partnership, Kensington Global
Strategies Fund Ltd. and Kenneth Griffin(14)
c/o Citadel Limited Partnership
225 West Washington St.
9th Floor
Chicago, IL 60606............................... 2,118,217(15) 8.1%
All current executive officers and directors as a
group (15 persons).............................. 1,195,848(16)(17) 4.6%
</TABLE>
- -------------------------
* Denotes less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner is 5
Shawmut Road, Canton, Massachusetts 02021.
(2) Except as otherwise indicated, includes shares underlying currently
exercisable options and warrants as well as those options and warrants
which will become exercisable within 60 days of the record date. Except as
otherwise indicated, the named persons herein have sole voting and
dispositive power with respect to beneficially owned shares.
(3) Includes 207,326 shares underlying options and 1,601 vested shares held
under the Company's retirement investment plan.
(4) Includes 3,000 shares underlying options; also includes 31,770 shares owned
of record by Mr. DiPietro's spouse.
(5) Includes 25,000 shares underlying options; also includes, 398,100 shares
owned of record by Mr. Haft's spouse and 7,666 shares held indirectly in a
retirement trust.
(6) Includes 3,000 shares underlying options; also includes 1,684 shares owned
of record by Mr. Kohn's spouse.
(7) Includes 11,802 shares underlying options; also includes 10,000 shares held
indirectly in an irrevocable trust with Mr. Kramer's spouse as trustee. Mr.
Kramer disclaims any interest in these shares.
(8) Includes 78,855 shares underlying warrants held by Morgen, Evan & Company,
Inc., of which Mr. Lerner is the principal owner; also includes 8,000
shares underlying options.
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<PAGE> 6
(9) Includes 30,000 shares underlying options and 6,148 vested shares held
under the Company's retirement investment plan.
(10) Includes 29,113 shares underlying options and 17,632 shares indirectly in a
retirement account.
(11) Represents shares underlying options.
(12) Includes 10,002 shares underlying options.
(13) Includes 32,994 shares underlying options and 308 vested shares held under
the Company's retirement investment plan.
(14) Represents shares held by a "group," within the meaning of Section 13(d)(3)
of the Securities Exchange Act, as reflected in Schedule 13G, filed with
the SEC on March 3, 1999. According to this Schedule, Fisher Capital, Ltd.
and Wingate Capital Ltd., as well as Wellington Partners Limited
Partnership and Global Strategies Fund Ltd., are controlled by Citadel
Limited Partnership, which in turn is controlled by GLB Partners, L.P.,
Citadel Investment Group and Kenneth Griffin.
(15) Includes 1,741,294 shares underlying certain prepaid common stock purchase
warrants, based upon an assumed exercise price of $4.02 per share, and
376,923 shares underlying certain incentive stock purchase warrants, whose
respective terms are discussed elsewhere in this proxy statement. The
prepaid warrants are not exercisable prior to August 19, 1999; the
incentive warrants are currently exercisable at an exercise price of $4.02
per share.
(16) Includes an aggregate of 474,426 shares underlying options and warrants.
(17) Includes an aggregate of 8,057 vested shares held in the Company's
investment retirement plan.
4
<PAGE> 7
COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors, and persons who own more than 10% of the Company's
common stock, to file reports of ownership and changes in ownership with the
SEC. Officers, directors and greater than 10% stockholders are required by SEC
rule to furnish the Company 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 such forms were
required for those persons, the Company believes that during the fiscal year
ended September 30, 1998, all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with except that
Messrs. Howes, O'Brien and Rideout were each not timely in the filing of one
monthly report of one transaction.
ELECTION OF DIRECTORS
Eight directors are to be elected at the 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 the Company by each nominee, his age and his tenure as a director.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES PRESENTLY HELD
NAME AGE WITH THE COMPANY SINCE
- ---- --- ------------------------------------ -----
<S> <C> <C> <C>
Pat V. Costa..................... 55 Chairman, president and chief 1984
executive officer
Frank A. DiPietro................ 72 Director 1992
Jay M. Haft...................... 63 Director 1977
Tomas Kohn....................... 58 Director 1997
Donald J. Kramer................. 66 Director 1995
Mark J. Lerner................... 46 Director 1994
Howard Stern..................... 61 Senior vice president and director 1981
Robert H. Walker................. 63 Director 1990
</TABLE>
PAT V. COSTA has served as president, chief executive officer and board
chairman since 1984. Previously and from 1977, Mr. Costa was employed by GCA
Corporation, most recently in the capacity of executive vice president. GCA was
engaged in the manufacturing of various electronic instrumentation equipment and
systems.
FRANK A. DIPIETRO began his career with GM in 1944. During his forty-six
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, most recently for the
University of Michigan in evaluating laser applications in the global auto
industry. At the time of his retirement, Mr. DiPietro held the position of
director of manufacturing engineering, Chevrolet-Pontiac-Canada car group, for
GM.
JAY M. HAFT has been a practicing attorney for over 30 years and a
strategic and financial consultant for growth stage companies. Mr. Haft also
serves as chairman of NCT Group, and as vice chairman of DCap, Inc., both public
companies whose respective securities are traded on the Nasdaq Small Cap Market.
He is a managing general partner of Gen Am "1" Venture Fund, an international
venture capital fund. Mr. Haft is also a director of numerous other public and
private corporations. From 1989 until 1994, he was
5
<PAGE> 8
a partner of Parker Duryee Rosoff & Haft in New York, New York. He is currently
of counsel to such firm.
TOMAS KOHN has been a professor of management at Boston University's School
of Management in the undergraduate, MBA, and executive MBA programs since 1988.
Dr. Kohn is the chairman of Conduit del Ecuador, a steel tubing manufacturer,
and a member of the board of directors of Ideal-Alambrec, a steel wire
manufacturer, both in Quito, Ecuador. He has held these positions since 1974 and
1972, respectively. From 1987 until the Company's acquisition of Computer
Identics Corp. in August 1996, Dr. Kohn was a member of Computer Identics' board
of directors, and its Chairman since 1992. From 1986 until 1995, Dr. Kohn was a
member of the board of directors of N.V. Bekaert S.A., the world's largest
independent steel wire manufacturer. N.V. Bekaert was a major shareholder of
Computer Identics.
DONALD J. KRAMER was chairman of Acuity Imaging, Inc. from January 1994
until the Company's acquisition of Acuity in September 1995. Mr. Kramer served
as a director of Itran Corp. from 1982 until its merger with Automatix, Inc. in
January 1994, at which time the merger survivor assumed the Acuity name. Mr.
Kramer is a private investor and was a special limited partner of TA Associates,
a private equity capital firm located in Boston, Massachusetts, from January
1990 to March 1996. For the previous five years, Mr. Kramer was a general
partner of TA Associates. In January 1997, Mr. Kramer was elected to the board
of publicly-owned Micro Component Technology, Inc. Mr. Kramer is also a director
of several privately held companies.
MARK J. LERNER has been president of Morgen, Evan an investment banking
firm which focuses on Japanese-U.S. transactions, since 1992. Previously 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 the
Company since December 1984. Previously and from 1981, he was vice president of
the Company.
ROBERT H. WALKER was, before his retirement in March 1998, executive vice
president and secretary-treasurer of the Company, a position he held since
December 1986. From 1984 to 1986 he was senior vice president of the Company.
From 1983 to 1985 he also served as treasurer. Mr. Walker is a director of Tel
Instrument Electronics Corporation, a publicly-owned company.
6
<PAGE> 9
IDENTIFICATION OF EXECUTIVE OFFICERS
(Excludes executive officers who are also directors)
<TABLE>
<CAPTION>
PRINCIPAL
NAME AGE POSITION OCCUPATION
- ---- --- -------- ----------
<S> <C> <C> <C>
Frank D. Edwards............... 44 Vice president, Joined RVSI in March 1999 as
secretary and corporate vice president of
treasurer finance and chief financial
officer. Before joining RVSI,
and since 1986, he was
employed by Electronic
Designs, Inc. Most recently,
until that company's merger
with Bowmar Instrument
Corporation in October 1998,
he was senior vice president
and chief financial officer
and a member of its board.
Curtis W. Howes................ 48 Vice president Joined RVSI in May 1997 as
corporate vice president of
automatic identification.
Before joining RVSI and since
November 1991, he was
employed by Intermec
Corporation, most recently as
general manager of Intermec's
imaging systems division,
which designed, manufactured
and sold vision-based
products for symbology
reading.
John S. O'Brien................ 45 Vice president Joined RVSI in February 1997
as corporate vice president
of human resources.
Previously and from 1990, he
was vice president, human
resources and chief financial
officer of Charles River Data
Systems, an imbedded systems
developer and manufacturer in
Farmingham, MA.
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL
NAME AGE POSITION OCCUPATION
- ---- --- -------- ----------
<S> <C> <C> <C>
Earl H. Rideout................ 52 Senior vice Has been corporate senior
president vice president of RVSI's
semi-conductor equipment
group since January 1997.
Previously and from 1989 he
was vice president/general
manager of RVSI's electronics
division.
Neal H. Sanders................ 49 Vice president Joined RVSI in February 1999
as corporate vice president
of corporate communications
and investor relations.
Previously and from 1980
through 1998, he held
comparable positions at
Analog Devices, Inc., Bolt
Beranek and Newman, Inc.,
Information Analysts, Inc.,
and Microdyne Corporation.
</TABLE>
Executive officers are elected annually by the board to hold office until
the first meeting of the board following the next annual meeting of stockholders
and until their successors are chosen and qualified.
INFORMATION CONCERNING THE BOARD
The board held thirteen meetings during the year ended September 30, 1998,
nine of which were conducted by telephone. All directors were present at the
non-telephonic meetings, except for Mr. Haft who was absent from one meeting. No
director missed more than three telephonic meetings.
The stock option committee of the board reviews and implements appropriate
action with respect to all matters pertaining to stock options granted under the
Company's stock option plans. The stock option committee is currently composed
of Messrs. DiPietro and Haft. The stock option committee held twenty-one
meetings, including actions taken by unanimous written consent in lieu of
meetings, during fiscal 1998. All then incumbent members were present at each of
these meetings.
The audit committee of the board is charged with the review of the
activities of the Company's independent auditors (including, but not limited to,
fees, services and scope of audit). The audit committee is presently composed of
Messrs. Costa, DiPietro and Haft, Mr. Costa being an ex officio, non-voting
member. The audit committee met twice during the 1998 fiscal year. All then
incumbent members were present at each of these meetings.
The Company does not have a nominating committee, charged with the search
for and recommendation to the board of potential nominees for board positions
nor does the Company have a compensation committee charged with reviewing and
recommending to the board compensation programs for the Company's officers.
These functions are performed by the board as a whole.
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<PAGE> 11
APPROVAL OF ISSUANCE OF SHARES OF COMMON STOCK
PURSUANT TO TERMS OF PRIVATE PLACEMENT
TO CERTAIN INSTITUTIONAL INVESTORS AND THEIR AGENT
PRIVATE PLACEMENT
On February 23, 1999, the Company completed a private placement of its
equity securities consisting of 5-year prepaid common stock warrants with a
stated value of $11,000,000 and 5-year incentive common stock purchase warrants
to purchase 592,307 shares of common stock of the Company upon payment of an
exercise price of $4.02 per share. These securities were sold to four
institutional investors, being, respectively, Fisher Capital, Ltd., Wingate
Capital Ltd., Zanett Lombardier Ltd. and Omnicron Partners, L.P.
At the closing, the Company received gross proceeds of $11,000,000 from the
issuance of the prepaid warrants and the incentive warrants, and net proceeds of
approximately $10,000,000, after the payment of costs and expenses related to
the placement, including $979,000 paid to The Zanett Corporation, an affiliate
of Zanett Lombardier Ltd., as compensation for its services as placement agent.
The Company also issued to the placement agent 5-year incentive warrants to
purchase 629,915 shares of common stock at an exercise price of $4.02 per share.
The placement was conducted as a private offering pursuant to regulation D under
the Securities Act.
The market price of the Company's common stock on the placement closing
date was $3.03 per share. On April 28, 1999, the market price was $1.97 per
share.
The minimum number of shares of common stock issuable at the time the
prepaid warrants first become fully exercisable on May 19, 2000 will be
2,736,318, based upon their stated value of $4.02 per share. The determination
of the actual number of shares issuable upon exercise will be based upon whether
or not the market price of the Company's common stock is higher or lower than
$4.02 per share at the time of exercise. The greater the difference between
$4.02 and a lower market price at the time of exercise of the prepaid warrants,
the higher will be the number of shares issuable upon exercise. There is no
limitation upon the number of shares issuable upon exercise of the prepaid
warrants.
REASONS FOR PLACEMENT
The Company sold securities in the private placement in order to obtain
funds to meet its needs for additional working capital. Since August 1998, the
Company has considered a variety of proposals to obtain additional working
capital, either in the form of equity financing or of indebtedness subordinated
to the Company's existing bank credit agreement. The board has evaluated several
different financing proposals, which contemplated among other alternatives the
Company's issuance of convertible subordinated indebtedness, its issuance of
subordinated indebtedness together with common stock purchase warrants, or its
sale of common stock. The board believes that the private placement completed on
February 23, 1999 affords to the Company the most favorable terms of the several
proposals the Company had considered, in terms of
- the financing being made available in one installment on a timely basis
- the absence of restrictive covenants on the conduct of the Company's
business
- a lesser immediate dilutive effect on the relative position of the
holders of common stock prior to the placement, although as noted below
the board recognizes the
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<PAGE> 12
possibility of substantial future dilution should the market price of the
common stock be significantly below $4.02 per share at the time the
prepaid warrants become exercisable and thereafter through their
expiration on February 22, 2004.
- The ability to limit future dilutive effect by having the right, under
certain circumstances, to redeem the prepaid warrants in the event the
market price of the common stock is less than $4.02 per share, although
the board recognizes that the value of this redemption right is
predicated upon the availability of adequate financial resources to
effectuate such redemption, which cannot be assured.
In determining whether or not to proceed with the placement, the board took
note of certain possible disadvantages which could arise as a consequence of the
issuance of the prepaid warrants including, among others
- the potential for increased dilution
- the potential for increased number of shares available for public sale
- the potential for a change of control
The board attempted to negotiate a limit on the number of shares of common
stock issuable upon exercise of the prepaid warrants, but the investors were
unwilling to accept any such limitation.
These and other possible disadvantages are more fully discussed under
"Possible Disadvantages of Approval" elsewhere in this proxy statement.
WHY THE COMPANY IS REQUESTING SHAREHOLDER APPROVAL OF THIS PROPOSAL
The board wishes to have the option to issue shares of common stock upon
exercise of the prepaid warrants and the incentive warrants without regard to
the limits of Nasdaq rule 4310(c)(25) which provides that the Company must
obtain shareholder approval before issuance, at a price per share below the
greater of market or book value, of common stock, or securities convertible into
common stock, having voting power equal to or greater than 20% or more of the
outstanding common stock.
Although the prepaid warrants are not fully exercisable until May 19, 2000,
if one were to assume such exercise occurred on April 28, 1999, a total of
5,729,788 shares would have been issuable to the holders of the prepaid
warrants, based upon an assumed exercise price of $1.919792 per share,
calculated in the manner set forth under "Description of Warrants -- Prepaid
Warrants," below. However, until such time as this proposal is approved by
shareholders, the number of shares that may be issued to the holders of the
prepaid warrants is limited to an aggregate of 4,972,695.
Under the terms of the prepaid warrants, if this proposal is not approved
and the Nasdaq rule prevents a holder from exercising his prepaid warrant in
full, the holder may elect to require the Company to redeem his prepaid warrant
at a default amount, calculated in the manner set forth under "Description of
Warrants -- Prepaid Warrants."
The board believes that absent shareholder approval of the proposal, this
Nasdaq Rule could result in a forced cash payment by the Company at a time when
the Company might not have, and could not obtain, the resources necessary to
make such payment. The board desires to have the ability to retain cash for the
use of the Company for other purposes.
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<PAGE> 13
DESCRIPTION OF WARRANTS
The following summary presents and describes all material terms of both the
prepaid warrants and the incentive warrants.
PREPAID WARRANTS
- The prepaid warrants are designated as "prepaid" in view of the fact that
their stated value of $4.02 per underlying share was paid by the investors at
the time of their purchase rather than upon their exercise.
- The prepaid warrants, subject to certain limitations described below, may
be exercised into that number of shares of common stock determined by dividing
the stated value of the prepaid warrants, plus, in the Company's discretion, an
amount equal to any accrued but unpaid premium, by the exercise price, which was
arrived at by arms-length negotiation between the Company and the investors,
being the lessor of
- a fixed exercise price of $4.02 or
- a market price equal to 95% of the average of the three lowest closing
bid prices, as reported on the National Market System, in the 20
consecutive trading day period ending on the trading day immediately
preceding the exercise date, which 20 day period may be increased under
certain circumstances as set forth in the prepaid warrants.
As a result, if the market price is less than the fixed exercise price, the
exercise price will fluctuate depending on the closing bid price of the
Company's common stock. As a consequence, the number of shares of common stock
into which the prepaid warrants may be exercised may fluctuate on a daily basis
based solely on the market price for the common stock.
- The prepaid warrants become exercisable to the extent of 25% of their
stated value on August 19, 1999, increasing by an additional 25% of the stated
value each 90-day period thereafter, so that on May 19, 2000, the prepaid
warrants will be fully exercisable. The exercisability of the prepaid warrants
may be accelerated, among other events, upon the occurrence of
- certain mergers between the Company and other entities in which the
Company is not the survivor
- the disposition of all or substantially all of the Company's assets
- the announcement by a third party of a tender or exchange offer for no
less than half of the Company's then outstanding common stock or of its
intention to replace a majority of the board
- an event of default as specified in the prepaid warrants
- The prepaid warrants accrue a premium at the rate of 7% per annum, which,
at the Company's option, can be paid either in cash or added to their stated
value.
- The prepaid warrants contain provisions pursuant to which their fixed
exercise price will be adjusted upon the occurrence of certain events, including
the failure by the Company to have an effective registration statement under the
Securities Act covering resales of those shares of common stock issuable upon
exercise of the prepaid warrants. In addition, subject to certain exceptions, if
the Company issues common stock or any securities convertible into or
exchangeable for shares of common stock at a conversion or exchange rate based
on a discount to the market price of the common stock at the time of issuance of
the common stock or other securities, the fixed exercise price after such
issuance shall be adjusted downward proportionately in accordance with a
standard anti-dilution formula.
11
<PAGE> 14
- The prepaid warrants provide that upon exercise no holder may receive
shares of common stock to the extent that the total number of shares of common
stock beneficially owned by the holder and its affiliates would result in
beneficial ownership of shares in excess of 10.0% (4.99% in the case of certain
investors) of the then outstanding common stock of the Company. This limitation
may be waived upon the request of the holder of the affected prepaid warrant and
with the concurrence of the Company and the holders of those prepaid warrants
representing a majority of the shares of common stock issuable upon exercise of
all prepaid warrants.
- The default amount, which the Company may be required to pay to the
holders of prepaid warrants to redeem such warrants if this proposal is not
approved by shareholders, is the greater of
- 105% of the stated value of the prepaid warrant to be purchased
inclusive of accrued but unpaid premium, or
- A sum derived by dividing (A) the total of the prepaid warrant amount
plus accrued interest and unpaid premium by (B) the exercise price in
effect on the date the Company receives notice of default and
multiplying the result by the highest closing bid price of the common
stock during the default period.
On April 28, 1999, the default amount was $1,065.75 for each $1,000 of prepaid
warrant, or an aggregate of $11,723,250.
If the Company fails to pay the default amount, then such holder, with the
consent of the holders of at least 50% of the outstanding amount of the prepaid
warrants, can require the Company to terminate its listing of the common stock
on the Nasdaq National Market and cause the common stock to be traded on the
over-the-counter electronic bulletin board, in order to enable the Company to
issue shares of common stock in excess of this limitation.
- At the placement closing, the Company reserved 5,967,125 shares of common
stock for future issuances upon exercises of the prepaid warrants. If the number
of shares of common stock so reserved is less than 135% of the number of shares
issuable upon exercise of the prepaid warrants for any 3 consecutive trading
days, then the Company is required to take action to increase this reservation
to 165%. The Company is also required to further increase such reservation to
200% if this proposal is approved by shareholders. In the event that the Company
fails to effect such increase within 90 days, any holder can require the Company
to purchase the prepaid warrants at the default amount. In addition, such holder
can elect to require the Company to convert all or any portion of the default
amount into common stock at the lowest exercise price in effect during the
pendency of the default.
Had the prepaid warrants been fully exercised at an assumed exercise price of
$1.919792 per share on April 28, 1999 and had shareholders also approved this
proposal, the number of shares then issuable upon exercise would have been
5,729,788 and the requisite reservation to cover such exercise would have been
11,459,576 shares, respectively.
- If shareholders approve both this proposal and the proposal to amend the
Company's certificate of incorporation to increase the authorized shares of
common stock, discussed elsewhere in this proxy statement, the Company shall
have the right, exercisable on no more than four occasions, to call for
redemption a pro rata amount of the prepaid warrants if, during the 20-day
trading period immediately preceding the date of the Company's notice of
redemption, the average closing bid price, and on the date of giving notice of
redemption the closing bid price, of the Company's common stock is less than
12
<PAGE> 15
$4.02 per share, subject to anti-dilution adjustment, at a cash price equal to
120% of the stated value of the prepaid warrants called for redemption,
inclusive of accrued premium.
- In the event the exercise price of the prepaid warrants is less than
$2.50 per share at any time that a holder has requested exercise, the Company
may elect to redeem the prepaid warrants for a cash sum equal to the result
obtained by multiplying the stated value of the prepaid warrant, plus accrued
premium and any unpaid default payments, divided by the exercise price, by the
closing bid price of the common stock on the date of notice of redemption.
- On February 19, 2004, the prepaid warrants, to the extent not previously
exercised, will be automatically exercised in their totality, subject to the
share limitation unless such limitation is waived by the holders.
INCENTIVE WARRANTS
At the placement closing, the Company issued to the investors and to the
placement agent incentive warrants to purchase 592,307 and 629,915 shares of
common stock, respectively, at an exercise price, negotiated on an arms length
basis between the Company and the investors, of $4.02 per share. By way of
contrast with the prepaid warrants, whose stated value of $4.02 per share was
paid to the Company at the placement closing, the exercise price of the
incentive warrants is payable only at the time, if ever, that their holders
request issuance of their underlying shares. The inventive warrants may be
exercised at any time during their 5-year term. The incentive warrants are
transferable subject to compliance with applicable securities laws. The
aggregate beneficial ownership by holders of shares of common stock issuable
upon exercises of the incentive warrants is limited in the same manner as the
prepaid warrants.
The incentive warrants provide for a downward adjustment of their exercise
price in the event that, subject to certain exceptions, the Company issues
common stock or securities convertible into or exercisable for common stock at a
price below the average closing bid prices for shares of the common stock for
the 5 trading days immediately preceding the relevant issuance date.
REGISTRATION RIGHTS
The Company has agreed to file a registration statement with the SEC
covering the shares of common stock issuable upon the exercise of the prepaid
warrants and the incentive warrants. The Company will be penalized in the event
that
- the registration statement is not declared effective by the SEC by August
19, 1999.
- if, after a filed registration statement has been declared effective by
the SEC, sales of covered common stock cannot be made for any reason
outside of the control of the investors.
- the common stock is not listed or included for quotation on The Nasdaq
National Market, the New York Stock Exchange or the American Stock
Exchange.
The penalties to be paid by the Company to the investors in the event of
each default will be $33,000 per day and must be paid in cash unless the
investors elect to receive such payments in shares of common stock.
Copies of the prepaid warrants were filed as exhibits to the Company's
current report on form 8-K dated and filed with the SEC on February 24, 1999 and
the preceding summarization of these documents is qualified in its entirety by
reference to such exhibits.
13
<PAGE> 16
POSSIBLE DISADVANTAGES OF APPROVAL
- - POTENTIAL FOR INCREASED DILUTION
If shareholders approve this proposal, the number of shares of common stock
that ultimately may be issued upon the exercise of the prepaid warrants may be
significantly greater than the maximum number of shares of common stock
currently permitted to be issued in connection with their exercise. The
following table illustrates the effect of various exercise prices on the number
of shares that may be issued, assuming the prepaid warrants are exercised at the
following exercise prices, without calculating the number of shares issuable in
connection with accrued and unpaid premium amounts:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
ASSUMED OF COMMON STOCK OUTSTANDING
EXERCISE ISSUABLE UPON COMMON STOCK
PRICE(1) EXERCISE(2) UPON EXERCISE(3)
- -------- ---------------- ----------------
<S> <C> <C>
$4.02(4)..................................... 2,736,319 9.9%
$3.50........................................ 3,142,858 11.2%
$3.00........................................ 3,666,667 12.8%
$2.50(5)..................................... 4,400,000 15.0%
$2.00(5)..................................... 5,500,000 18.1%
$1.50(5)..................................... 7,333,334 22.8%
</TABLE>
- -------------------------
(1) Generally, the exercise price will be the lower of the fixed exercise price
($4.02 per share) or the fluctuating market price. Therefore, there is no
minimum exercise price, and, unless the number of outstanding shares of
common stock is reduced by a reverse stock split or other capital stock
reducing event, the exercise price will not exceed $4.02 per share.
(2) Calculated by dividing the $11,000,000 aggregate stated value of the prepaid
warrants by the assumed exercise price (column 1 of this table). No effect
has been given to the possible issuance of up to 1,222,222 shares of common
stock upon exercise of the incentive warrants as their exercise price of
$4.02 is equal to or greater than the assumed exercise prices.
(3) Assumes that the number of shares of common stock outstanding after the
issuance of the number of shares set forth in column 2 of this table is the
sum of the 26,202,461 shares outstanding as of the record date and the
number of shares set forth in column 2 of this table.
(4) If the shareholders approve the proposals to, respectively, authorize the
issuance of common stock pursuant to the terms of the securities issued in
the private placement, and approve the proposal to increase the authorized
number of shares of common stock from 50,000,000 to 75,000,000, the Company
will have the right, exercisable upon no more than four occasions, to redeem
the prepaid warrants at a redemption price of 120% of the prepaid amount,
inclusive of accrued and unpaid premium whenever the warrant exercise price
is less than $4.02 per share.
(5) If the exercise price of the prepaid warrants for which a notice of exercise
has been given is $2.50 or less, the Company may elect to redeem such
prepaid warrants for cash. There can be no assurance that the Company will
have the necessary cash resources to effect such redemption.
- - POTENTIAL FOR INCREASED NUMBER OF SHARES AVAILABLE FOR PUBLIC SALE
Approval could result in a greater number of shares of common stock
becoming eligible for sale in the public market. The Company is required to keep
in effect registration statements which would permit the public offer and sale
of all of the shares of
14
<PAGE> 17
common stock issued or issuable upon the exercise of the prepaid warrants and
the incentive warrants. Such sales, or anticipation of the possibility of such
sales, represents an overhang on the market and could depress the market price
of the common stock.
- - POTENTIAL FOR A CHANGE OF CONTROL
Approval could, depending on the market prices of the common stock during
the periods prior to the exercise of the prepaid warrants, result in the
issuance of a large number of shares of common stock, thereby possibly resulting
in a change of control of the Company if the exercising holders were to retain
such shares rather than sell them.
- - POTENTIAL FOR DISCOURAGING CERTAIN CHANGES OF CONTROL
The potential for the issuance of a large number of shares of common stock
following approval might tend to have the effect of delaying, deferring or
preventing a change in control of the Company or discouraging tender offers for
the Company.
- - POTENTIAL EFFECTS ON THE COMPANY'S ABILITY TO OBTAIN FUTURE EQUITY CAPITAL
Approval may impede the Company's ability to obtain additional equity
capital in the future because of the first two factors cited above.
The board considered these disadvantages and concluded that they were
outweighed by the advantages gained by the Company from the placement. The board
considered the financing alternatives available to the Company and determined
that the terms of the placement were the most favorable available to the Company
within the requisite time period. The proceeds were needed to fund the Company's
immediate needs for additional working capital.
CONSEQUENCES IF SHAREHOLDER APPROVAL IS NOT OBTAINED
If this proposal is not approved, both the terms of the prepaid warrants
and Nasdaq rule 4310(e)(25) will prohibit the Company from issuing more than
4,972,695 shares of common stock upon the exercise of the prepaid warrants.
Consequently, the Company may be required from time to time to purchase prepaid
warrants at the default amount if the share limitation requirement prevents a
holder from exercising his prepaid warrants in full. Further, the Company will
be required to purchase all then outstanding prepaid warrants on February 19,
2004 for cash.
The Company has limited available financial resources with which to satisfy
this contingent obligation to purchase prepaid warrants and there can be no
assurance that the Company will have such resources on February 19, 2004, or on
an earlier date should the holders of prepaid warrants attempt to exercise them
in full and the share limitation prevents such exercise.
A holder of prepaid warrants who cannot exercise his warrant in full, with
the consent of the holders of a majority of the prepaid warrants, alternatively
can elect to require the Company to delist from the Nasdaq national market, seek
qualification of the common stock on the over-the-counter electronic bulletin
board and issue to the holder the full number of shares of common stock issuable
upon exercise of the prepaid warrants.
If either this proposal or the following proposal to amend the certificate
of incorporation to increase the number of shares of common stock of the Company
authorized for issuance is not approved, the Company will not have the right to
redeem the prepaid warrants if the exercise price fell below $4.02.
15
<PAGE> 18
VOTE REQUIRED; BOARD RECOMMENDATION
Approval of this proposal requires the affirmative vote of the holders of a
majority of the outstanding shares of common stock entitled to vote at the
meeting.
A broker who holds shares in street name will not be entitled to vote on
this proposal without instructions from the beneficial owner. Stockholders are
urged to mark the boxes on the proxy card to indicate how their shares will be
voted.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
The board has unanimously approved an amendment to the Company's
certificate of incorporation to increase the number of shares of common stock
which the Company shall be authorized to issue from 50,000,000 to 75,000,000.
WHY THE COMPANY IS REQUESTING APPROVAL OF THIS PROPOSAL
The Company is requesting approval of this proposal because the terms of
the placement require it to seek shareholder approval for an increase in
authorized capitalization of not less than 25,000,000 shares of common stock.
The board believes such action to be in the best interests of the Company so as
to make a sufficient number of additional shares available to satisfy the
Company's obligations under the prepaid warrants and the incentive warrants, as
well as for future employee benefit programs, possible acquisitions and
financings and other corporate purposes.
The Company presently has a limited number of shares not reserved for
future issuance. In addition to the 26,202,461 shares of common stock
outstanding on the record date, 21,820,246 shares of common stock are, reserved
for issuance upon exercise of the prepaid warrants, the incentive warrants and
other outstanding common stock purchase warrants and options and the shareholder
rights plan. The 1,977,293 shares of common stock remaining for further issuance
is not sufficient, in the judgment of the board, for possible future issuances
of common stock. If the certificate of incorporation is not amended to increase
the number of shares of common stock authorized for issuance, the Company will
be severely restricted in its ability to issue equity securities should it
require additional financing. Moreover, under the terms of its existing credit
agreement, the Company would need to obtain the consent of its lending banks if
it were to incur additional indebtedness to satisfy its operating requirements.
Additionally, if this proposal or the proposal described earlier in this
proxy statement for approval of the issuance of shares of common stock pursuant
to the February 1999 private placement is not approved, the Company will not
have the right to redeem the prepaid warrants if the market price fell below
$4.02.
The authorization of additional shares is desirable to permit the board to
satisfy the Company's obligations under the prepaid warrants should the market
price decline at the time of exercise and also to permit the board to issue
shares of common stock for other valid corporate purposes.
The additional shares of common stock may be issued from time to time as
the board may determine without further action by the stockholders. With the
exception of issuances
16
<PAGE> 19
of common stock upon future exercises of the prepaid warrants and the incentive
warrants and of options granted pursuant to the Company's employee benefit
plans, as well as upon future exercises of certain other outstanding common
stock purchase warrants, no issuances of any additional shares of common stock
authorized by the proposed amendment are presently contemplated. The Company
does not currently have any agreements, arrangements or understandings with
respect to any acquisition, financing, stock split or dividend.
Stockholders do not currently possess, nor upon the adoption of the
proposed amendment will then acquire, preemptive rights which would entitle such
persons, as a matter of right, to subscribe for the purchase of any securities
of the Company.
A broker who holds shares in street name will not be entitled to vote on
this proposal 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 meeting.
However, since this proposal requires the affirmative vote of at least a
majority of the shares of common stock outstanding as of the 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 matters to be considered at
the meeting. Stockholders are urged to mark the boxes on the proxy card to
indicate how their shares will be voted.
VOTE REQUIRED; BOARD RECOMMENDATION
Approval of this proposal requires the affirmative vote of the holders of a
majority of the shares of common stock.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
17
<PAGE> 20
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
Set forth below is the aggregate compensation for services rendered in all
capacities to the Company during its fiscal years ended September 30, 1998, 1997
and 1996 by its chief executive officer, each of its four other most highly
compensated executive officers whose compensation exceeded $100,000 during its
fiscal year ended September 30, 1998 and two other executive officers who would
have been disclosed had they been employed at the fiscal year end.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------- -------------------- ---------
OTHER LONG ALL
ANNUAL RESTRICTED NUMBER TERM OTHER
NAME AND COMPEN- STOCK OF INCENTIVE COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS(1) SATION AWARDS OPTIONS PAYOUTS SATION(2)
- ------------------ ---- ------ -------- ------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pat V. Costa................ 1998 $315,016 $55,000 -- -- -- -- $2,400
Chief executive 1997 293,478 $50,000 -- -- -- -- $2,375
officer 1996 252,801 $85,000 -- -- -- -- $2,250
John J. Arcari(3)........... 1998 $175,008 $ 5,000 -- -- -- -- --
Former chief
financial officer
Curtis Howes................ 1998 $143,616 $20,000 -- -- -- -- $ 300
Vice president
Earl H. Rideout............. 1998 $150,010 $25,000 -- -- -- -- $2,400
Senior vice 1997 143,318 $25,000 -- -- -- -- $2,400
president 1996 122,747 $40,000 -- -- -- -- $2,250
Howard Stern................ 1998 $165,006 $30,000 -- -- -- -- $2,400
Senior vice 1997 159,625 $30,000 -- -- -- -- $2,375
president 1996 144,544 $60,000 -- -- -- -- $2,250
Steven J. Bilodeau(4)....... 1998 $232,497 $50,000 -- -- -- -- $2,400
Former executive 1997 206,545 $45,000 -- -- -- -- $2,375
vice president 1996 167,280 $75,000 -- -- -- -- $2,250
Robert H. Walker(5)......... 1998 $151,362 $35,000 -- -- -- -- $2,400
Former senior 1997 159,625 $35,000 -- -- -- -- $2,375
vice president 1996 142,229 $60,000 -- -- -- -- $2,250
</TABLE>
- -------------------------
(1) Represents amounts earned in the prior fiscal year which were paid in the
fiscal year shown. There were no bonuses earned for the fiscal year ended
September 30, 1998.
(2) Represents accrued and vested payments under the Company's retirement
investment plan.
(3) Mr. Arcari joined the Company in August 1997 as Vice President -- Finance.
He resigned from the Company in March 1999.
(4) Mr. Bilodeau resigned from the Company in June 1998.
(5) Mr. Walker retired from the Company in March 1998.
18
<PAGE> 21
OPTION GRANTS IN LAST FISCAL YEAR
Set forth below is information with respect to grants of stock options
during the fiscal year ended September 30, 1998 by the Company to each of the
named persons in the summary compensation table, above.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR SHARE DATE VALUE(1)
- ---- ---------- ------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Curtis W. Howes............. 16,667 $4.13 5/05/03 $14,601
Curtis W. Howes............. 16,667 4.13 7/01/03 16,808
Earl H. Rideout............. 7,743 4.13 7/22/05 11,182
Earl H. Rideout............. 34,263 3.19 9/01/04 66,662
Howard Stern................ 30,000 4.13 6/26/08 71,523
Steven J. Bilodeau.......... 10,000 4.13 6/26/01 16,714
Robert H. Walker............ 15,000 4.13 6/26/04 37,784
------- ---
130,340 4.7%
</TABLE>
- -------------------------
(1) Computed in accordance with the Black-Scholes option pricing model utilizing
the following assumptions: volatility of 70%, risk-free interest rate of
4.3% and an expected life of five years.
OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Set forth below is further information with respect to the unexercised and
exercised options to purchase the Company's common stock under the Company's
stock option plans.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS AT THE-MONEY OPTIONS AT
ACQUIRED SEPTEMBER 30, 1998 SEPTEMBER 30, 1998(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pat V. Costa........... -- -- 207,326 309,699 $200,131 --
John J. Arcari......... -- -- 20,000 80,000 -- --
Curtis W. Howes........ -- -- -- 33,334 -- --
Earl H. Rideout........ -- -- 32,994 42,006 38,056 --
Howard Stern........... 20,830 $30,786 15,000 60,970 -- --
Steven J. Bilodeau..... -- -- 37,973 172,027 -- --
Robert H. Walker....... -- -- 26,113 38,228 -- --
</TABLE>
- -------------------------
(1) Based on the exercise of 13,061 shares at $2.56 fair market value on the
date of exercise less the $1.00 per share cost to exercise and the exercise
of 7,769 shares at $2.56 fair market value on the date of exercise less the
$1.22 per share cost to exercise.
(2) Based on the September 30, 1998 fair market value of $2.69 less the cost to
exercise.
19
<PAGE> 22
PENSION BENEFITS
The following table sets forth the estimated annual plan benefits payable
upon retirement in 1999 at age sixty-five after fifteen, twenty, twenty-five,
thirty and thirty-five years of credited service to the Company.
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$100,000.................... $19,824 $26,432 $33,041 $33,041 $33,041
125,000.................... 25,525 34,033 42,541 42,541 42,541
150,000.................... 31,225 41,633 52,041 52,041 52,041
175,000.................... 33,505 44,673 55,841 55,841 55,841
200,000.................... 33,505 44,673 55,841 55,841 55,841
225,000.................... 33,505 44,673 55,841 55,841 55,841
250,000.................... 33,505 44,673 55,841 55,841 55,841
300,000.................... 33,505 44,673 55,841 55,841 55,841
400,000.................... 33,505 44,673 55,841 55,841 55,841
500,000.................... 33,505 44,673 55,841 55,841 55,841
</TABLE>
The amount of compensation covered by the Company's pension plan is
determined in accordance with rules established by the internal revenue service
and includes all dollar items shown on the summary compensation table with the
exception of 401(k) contributions. Effective with the fiscal year beginning
October 1, 1998, for purposes of calculating the pension benefit, earnings are
limited to $160,000, as adjusted for any cost of living increases authorized by
the internal revenue code. This earnings limit will continue to be $160,000 for
calendar year 1999.
At September 30, 1998, Messrs. Costa, Rideout and Stern had, respectively,
14, 10 and 27 years of credited service with the Company.
A participant in the pension plan will receive retirement income based on
23% of his final average salary up to his applicable social security covered
compensation level plus 38% of any excess, reduced proportionately for less than
twenty-five years of credited service at normal retirement at age 65, subject to
the $160,000 limit described above. Final average salary is defined in the
pension plan as the average of a participant's total compensation during the
five consecutive calendar years in the ten calendar year period prior to his
normal retirement date which produces the highest average. A participant is 100%
vested in his accrued pension benefit after five years of service as defined in
the pension plan.
REPORT ON OPTION REPRICING
The Company's stock option plans were established as an employment
incentive to retain persons necessary for the development and financial success
of the Company. In June 1998, as a result of the decrease in the market price of
the Company's common stock during the preceding months and recognizing that
previously granted stock options had lost much of their value in motivating
employees to remain with the Company and share in its overall financial goals,
the board, pursuant to authority granted under the plans, approved the repricing
of 2,169,141 options, including 54,411 options granted to certain executive
officers. Such repricing was effected by offering to grant a reduced number of
new options
20
<PAGE> 23
at an exercise price of $4.13 per share, which was the fair market value of the
Company's common stock on June 26, 1998, in exchange for the old options, based
on a 2:3 replacement ratio. New options covering 1,446,399 shares were issued in
replacement of old option, representing approximately 67% of the aggregate
number of shares issuable under the old options. New option shares that would
have vested by December 26, 1998 before the repricing would vest by the same
date. The remaining shares will vest in accordance with the schedule in the old
options. However, new options for Mr. Rideout will not become exercisable until
the earlier of (i) July 22, 2004 or (ii) until the market price of the Company's
common stock first equals or exceeds $18.25. All of the new options will expire
on the date specified in the old options. The repricing of the old options
reduced the total number of shares of the Company's common stock underlying all
outstanding options immediately prior to such repricing by 722,742. Messrs.
Costa, Arcari and Stern did not participate in the option repricing action.
21
<PAGE> 24
TEN-YEAR OPTION REPRICING
The following table summarizes all repricings of options held by any
executive officer of the Company during the Company's last ten fiscal years:
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET EXERCISE OPTION TERM
UNDERLYING PRICE AT PRICE AT REMAINING
OPTIONS NEW TIME OF TIME OF AT DATE OF
REPRICED NUMBER REPRICING REPRICING NEW REPRICING OR
DATE OF OR OF OR OR EXERCISE AMENDMENT
NUMBER AND POSITION REPRICING AMENDED OPTIONS AMENDMENT AMENDMENT PRICE IN YEARS
- ------------------- --------- ---------- ------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pat V. Costa.................. 6/26/98 -- -- -- -- -- --
Chief executive officer 7/22/97 400,000 309,699 $14.13 $18.25 $14.13 4.5
3/26/92 56,668 56,668 $ 1.22 $ 4.06 $ 1.22 0.1
12/12/91 113,332 113,332 $ 1.00 $ 4.06 $ 1.00 0.4
Curtis W. Howes............... 6/26/98 25,000 16,667 $ 4.13 $10.88 $ 4.13 4.8
Vice president 6/26/98 25,000 16.667 $ 4.13 $12.75 $ 4.13 5.0
John S. O'Brien............... 6/26/98 20,000 13,334 $ 4.13 $10.81 $ 4.13 4.8
Vice president
Earl H. Rideout............... 6/26/98 11,614 7,743 $ 4.13 $14.13 $ 4.13 7.1
Senior vice president 7/22/97 15,000 11,614 $14.13 $18.25 $14.13 4.5
3/26/92 9,990 9,990 $ 1.22 $ 5.50 $ 1.22 1.9
12/12/91 20,010 20,010 $ 1.00 $ 5.50 $ 1.00 2.2
Howard Stern.................. 6/26/98 -- -- -- -- -- --
Senior vice president 7/22/97 40,000 30,970 $14.13 $18.25 $14.13 4.5
3/26/92 22,754 22,754 $ 1.22 $ 4.06 $ 1.22 0.1
12/12/91 45,576 45,576 $ 1.00 $ 4.06 $ 1.00 0.4
Steven J. Bilodeau............ 6/26/98 -- -- -- -- -- --
Former executive vice
president 7/22/97 100,000 77,425 $14.13 $18.25 $14.13 4.5
7/22/97 75,000 67,286 $14.13 $15.75 $14.13 5.6
3/26/92 13,900 13,900 $ 1.22 $ 4.06 $ 1.22 0.3
3/26/92 11,000 11,000 $ 1.22 $ 4.06 $ 1.22 0.8
3/26/92 42 42 $ 1.22 $ 4.19 $ 1.22 1.8
12/12/91 19,958 19,958 $ 1.00 $ 4.19 $ 1.00 2.1
12/12/91 10,000 10,000 $ 1.00 $ 4.25 $ 1.00 3.5
12/12/91 20,000 20,000 $ 1.00 $ 6.44 $ 1.00 1.8
Robert H. Walker.............. 6/26/98 -- -- -- -- -- --
Former executive vice
president 7/22/97 30,000 23,228 $14.13 $18.25 $14.13 4.5
3/26/92 2,511 2,511 $ 1.22 $ 4.06 $ 1.22 0.8
3/26/92 14,000 14,000 $ 1.22 $ 6.44 $ 1.22 1.5
12/12/91 4,489 4,489 $ 1.00 $ 4.06 $ 1.00 1.1
12/12/91 28,580 28,580 $ 1.00 $ 4.06 $ 1.00 0.4
</TABLE>
22
<PAGE> 25
EMPLOYMENT AGREEMENTS
Mr. Pat Costa is employed as chief executive officer and president of the
Company under an indefinite term agreement which currently provides for an
annual base salary of $315,000. 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 the Company.
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 following termination at any time within such twelve-month
period. In the event of the occurrence of a change in control of the Company (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 board
chairman, 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.
The Company has also granted certain rights in the event of termination of
employment to Messrs. Howes, Rideout and Stern. Specifically, in the event of
involuntary termination other than for cause, each officer will be given three
months severance pay and continued benefits, with the exception of Mr. Rideout
whose employment agreement allows for six months severance pay. In addition, the
Company has agreed to provide a maximum of one hundred days' advance written
notice to Mr. Stern in the event the Company should desire to terminate his
employment other than for cause. In such event, he shall be entitled to exercise
all outstanding stock options, regardless of when otherwise exercisable, during
a specified period following such termination.
DIRECTORS' COMPENSATION
The business of the Company is managed under the direction of the Company's
board. The board consists of a single class of directors who are elected for a
term of one year, such term beginning and ending at each annual meeting of
stockholders.
During the fiscal year ended September 30, 1998, directors who were not
otherwise employees of the Company were compensated at the rate of $1,500 for
attendance at each one-day and $2,500 for each two-day meeting of the board or
any of its committees, $750 for attendance at any second meeting held during the
same day and $200 for participation at a telephonic meeting or execution of a
consent in lieu of a meeting. In addition, outside directors are granted stock
options periodically, typically on a yearly basis.
REPORT ON EXECUTIVE COMPENSATION
The Company does not have a compensation committee charged with reviewing
and recommending to the board compensation programs for the Company's executive
officers. These functions are performed by the board as a whole.
COMPENSATION PHILOSOPHY
The Company believes that executive compensation should:
- provide motivation to achieve strategic goals by tying executive
compensation to Company performance, as well as affording recognition of
individual performance,
- provide compensation reasonably comparable to that offered by other high-
technology companies in a similar industry, and
23
<PAGE> 26
- align the interests of executive officers with the long-term interests of
the Company's stockholders through the award of equity purchase
opportunities.
The Company's compensation plan is designed to encourage and balance the
attainment of short-term operational goals, as well as the implementation and
realization of long term strategic initiatives. As greater responsibilities are
assumed by an executive officer, a larger portion of compensation is "at risk".
This philosophy is intended to apply to all management.
COMPENSATION PROGRAM
The Company's executive compensation program has three major components:
base salary, short-term incentive bonus payments and long-term equity
incentives.
Compensation packages offered to executive officers are based primarily on
the recommendations of nationally recognized compensation and benefits
consulting firms hired by the Company. The Company seeks to position total
compensation at or near the median levels of other high-tech companies in a
similar industry.
Individual performance reviews are generally conducted annually. Increases
in fiscal year 1998 were based on an individual's sustained performance,
compensation study recommendations and the achievement of the Company's revenue,
profit and earnings per share goals. The Company does not assign specific
weighting factors when measuring performance; rather, subjective judgment and
discretion is exercised in light of the Company's overall compensation
philosophy.
Base salary is determined by evaluating individual responsibility levels
utilizing independent compensation surveys to determine appropriate salary
ranges and evaluating the individual performance.
Short-term incentive bonus payments, generally, are paid to executive
officers on an annual basis. The award of bonuses and their size, in substantial
part, are linked to predetermined earnings targets, creating direct linkage
between pay and Company profitability. Such payments are generally made at the
beginning of the fiscal year following the one for which the executive's
performance was evaluated. No bonuses were awarded to any executive officer for
fiscal 1998.
The board believes that executive officers who are in a position to make a
substantial contribution to the long term success of the Company and to build
stockholder value should have a significant equity stake in the Company's
on-going success. Accordingly, one of the Company's principal motivational
methods has been the award of stock options. In addition to financial benefits
to executive officers, if the price of the Company's common stock during the
term of any such option increases beyond such option's exercise price, the
program also creates an incentive for executive officers to remain with the
Company since options generally vest and become exercisable over a five-year
period and the first increment is not exercisable until one year after the date
of grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Costa's compensation is determined substantially in conformance with
the compensation philosophy, discussed above, that is applicable to all of the
Company's executive officers. Performance is measured against defined financial,
operational, and strategic objectives. In establishing Mr. Costa's base salary
and bonus, the board takes into account the Company's performance against both
its own objectives and the industry of
24
<PAGE> 27
which it is a part, as well as Mr. Costa's contribution to the Company's near-
and long-term objectives.
Fiscal 1998 was an extraordinarily difficult year for the Company as well
as for the semiconductor industry. The industry entered the fiscal year
anticipating growth but, by March 1998, the Asian economic crisis had plunged
semiconductor manufacturers and suppliers into a severe downturn, which did not
abate during the year. The board believes Mr. Costa was instrumental in managing
the Company through a series of difficulties brought about by this industry
recession. Mr. Costa demonstrated leadership in reacting quickly to changes in
the industry and in ensuring that the Company did not lose its strategic focus.
Mr. Costa's base compensation reflects the board's belief that he is a valuable
asset to the Company. Because the Company did not achieve its financial goals
for fiscal 1998, Mr. Costa did not earn a bonus for that fiscal year.
TAX CONSIDERATIONS
Section 162(m) of the internal revenue code generally limits the
deductibility of compensation in excess of $1 million paid to a Company's
executive officer. Certain performance-based compensation is excluded by section
162(m)(4)(C) of the code in determining whether the $1 million limit applies.
Currently the total compensation, including salary, bonuses and excludable stock
options for any of the named executives does not exceed this limit. If in the
future this regulation becomes applicable to the Company, the board will not
necessarily limit executive compensation to that which is deductible, but will
consider alternatives to preserving the deductibility of compensation payments
and benefits to the extent consistent with its overall compensation objectives
and philosophy.
SUMMARY
The Board will continue to review the Company's compensation programs to
assure such programs are consistent with the objective of increasing stockholder
value.
THE BOARD OF DIRECTORS
<TABLE>
<S> <C>
Pat V. Costa, Chairman
Frank A. DiPietro Mark J. Lerner
Donald J. Kramer Howard Stern
Jay M. Haft Robert H. Walker
Tomas Kohn
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended September 30, 1998, the following officers
participated in discussions concerning executive officer compensation: Pat V.
Costa, John J. Arcari, Howard Stern and Robert H. Walker. Each of the named
participants recused himself in discussions concerning his own compensation.
25
<PAGE> 28
STOCK PERFORMANCE
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Company's common stock during the five years
ended September 30, 1998 with the total return on the standard & poor's 500
composite index and the NASDAQ non-financial index. The comparison assumes $100
was invested on September 30, 1993 in the Company's common stock and in each of
the foregoing indices and assumes reinvestment of dividends.
FIVE YEAR CUMULATIVE PERFORMANCE
[Five Year Cumulative Performance Line Graph]
<TABLE>
<CAPTION>
RVSI S NASDAQ NON-FINANCIAL
- ---- - --------------------
<S> <C> <C>
100 100.00 100.00
163.3 103.70 99.40
620 134.70 138.60
353.3 162.30 161.80
450.1 228.30 217.30
71.7 249.60 219.90
</TABLE>
26
<PAGE> 29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Jay M. Haft, a director of the Company, is of counsel of Parker Duryee
Rosoff & Haft, the Company's general counsel prior to March 1, 1997.
Mr. Mark J. Lerner, a director of the Company, is president of Morgen,
Evan. Mr. Lerner, through Morgen, Evan, provided consultation services relative
to the Company's international marketing and sales efforts. In accordance with
an agreement dated December 1993, which was prior to his becoming a director,
during the fiscal years ended September 30, 1996, September 30, 1997, and
September 30, 1998, the Company compensated Mr. Lerner, through Morgen, Evan, in
cash in the amounts of $87,369, $62,390, and $9,800, respectively, as well as
with four-year warrants, at exercise prices of $12.88, $13.13, and $2.57,
respectively, to acquire an aggregate of 42,434, 2,565, and 18,000 shares of the
common stock, respectively. All warrants were issued at the fair market value of
the common stock on the date of grant. The Company believes that the
compensation paid by it to Morgen, Even, was no greater than what would have had
to be paid to an unaffiliated person for substantially similar services.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The board has selected Deloitte & Touche LLP to audit the accounts of the
Company for the fiscal year ending September 30, 1999. Such firm, which has
served as the Company's independent auditor since 1986, has reported to the
Company 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
the Company'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.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the Company's 1999 annual
meeting of stockholders pursuant to the provisions of Rule 14a-8, promulgated
under the Exchange Act, must be received by the Company's offices in Canton,
Massachusetts by December 9, 1999 for inclusion in the Company's proxy statement
and form of proxy relating to such meeting.
ACCOMPANYING INFORMATION
Accompanying this proxy statement is a copy of the Company's annual report
to shareholders for its fiscal year ended September 30, 1998. Such annual report
includes audited financial statements of the Company for the three fiscal years
ended September 30, 1998. A copy of the Company's quarterly report on form
10-Q/A for the three months ended December 31, 1998, containing unaudited
financial statements for the dates and periods covered thereby, is attached as
an exhibit to this proxy statement.
27
<PAGE> 30
EXHIBIT A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
FOR QUARTER ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 0-8623
</TABLE>
ROBOTIC VISION SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
DELAWARE 11-2400145
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
5 SHAWMUT ROAD, CANTON, MASSACHUSETTS 02021
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (781) 821-0830
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Number of shares of Common Stock outstanding as of February 5, 1999
24,887,195
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE> 31
INTRODUCTORY NOTE
This Amendment on Form 10-Q/A amends the Registrant's Quarterly Report on
Form 10-Q for the three months ended December 31, 1998, as filed by the
Registrant on February 12, 1999, and is being filed to reflect the restatement
of the Registrant's consolidated financial statements (the "Restatement"). The
Restatement reflects the deferral of a gain recorded in connection with the sale
of Aircraft Safety, pending resolution of contingencies. See Note 8 of Notes to
Condensed Consolidated Financial Statements.
A-2
<PAGE> 32
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1998
------------- -------------
(AS RESTATED,
SEE NOTE 8)
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........................... $ 2,653 $ 2,421
Accounts receivable, net............................ 30,537 32,367
Inventories......................................... 31,333 36,213
Other current assets................................ 1,467 1,226
--------- ---------
Total current assets........................ 65,990 72,227
Plant and equipment, net............................ 15,265 17,591
Deferred income taxes............................... 8,820 8,820
Goodwill............................................ 5,745 5,847
Other assets........................................ 18,090 17,086
--------- ---------
Total assets................................ $ 113,910 $ 121,571
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable and current portion of long-term
debt............................................. $ 36,000 $ 38,038
Accounts payable.................................... 19,436 21,388
Accrued expenses.................................... 19,636 21,073
Advance payments received........................... 1,284 1,216
--------- ---------
Total current liabilities........................... 76,356 81,715
Long-term debt...................................... 3,029 3,059
STOCKHOLDERS' EQUITY:
Common stock, authorized 50,000 shares, $0.01 par
value; issued and outstanding 24,876 at December
31, 1998 and 24,870 at September 30, 1998........ 249 249
Additional paid-in capital.......................... 168,493 168,493
Accumulated deficit................................. (134,234) (131,962)
Cumulative translation adjustment................... 17 17
--------- ---------
Total stockholders' equity.................. 34,525 36,797
--------- ---------
Total liabilities and stockholders'
equity................................... $ 113,910 $ 121,571
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
A-3
<PAGE> 33
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------- ------------
(AS RESTATED,
SEE NOTE 8)
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues............................................ $29,405 $53,788
Cost of revenues.................................... 16,834 27,745
------- -------
Gross profit...................................... 12,571 26,043
Research and development expenses................... 5,590 6,629
Selling, general and administrative expenses........ 11,216 14,894
Merger expenses..................................... -- 623
------- -------
Income (loss) from operations..................... (4,235) 3,897
Gain on sale of product line........................ (2,798) --
Interest expense, net............................... 835 246
------- -------
Income (loss) before provision for income taxes... (2,272) 3,651
Provision for income taxes.......................... -- 108
------- -------
Net income (loss)................................. $(2,272) $ 3,543
======= =======
Net income (loss) per share:
Basic............................................. $ (0.09) $ 0.14
Diluted........................................... $ (0.09) $ 0.14
Weighted average shares:
Basic............................................. 24,876 24,476
Diluted........................................... 24,876 25,444
</TABLE>
See Notes to Condensed Consolidated Financial Statements
A-4
<PAGE> 34
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
DECEMBER 31, DECEMBER 31,
1998 1997
------------- ------------
(AS RESTATED,
SEE NOTE 8)
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................... $(2,272) $ 3,543
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Gain on sale of product line...................... (2,798) --
Depreciation and amortization..................... 2,632 1,660
Other............................................. -- (20)
Changes in assets and liabilities:
Accounts receivable............................ 1,830 (3,120)
Inventories.................................... 4,432 (9,460)
Other current assets........................... (241) (245)
Other assets................................... (1,748) (3,177)
Accounts payable............................... (1,952) 1,100
Accrued expenses............................... (1,594) 2,323
Advance contract payments...................... 68 (314)
Other long-term liabilities.................... -- (503)
------- -------
Net cash used in operating activities............... (1,643) (8,213)
------- -------
INVESTING ACTIVITIES:
Additions to plant and equipment.................... (46) (1,734)
Proceeds from sale of product line.................. 4,050 --
------- -------
Net cash provided by (used in) investing
activities........................................ 4,004 (1,734)
------- -------
FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and
warrants.......................................... -- 84
Borrowings (repayments) of bank debt................ (2,025) 5,317
Repayments of long-term debt........................ (104) (650)
------- -------
Net cash provided by (used in) financing
activities........................................ (2,129) 4,751
------- -------
Effect of exchange rate changes on cash and cash
equivalents....................................... -- 4
Net increase (decrease) in cash and cash
equivalents....................................... 232 (5,192)
Cash and cash equivalents -- beginning of period.... 2,421 8,811
------- -------
Cash and cash equivalents -- end of period.......... $ 2,653 $ 3,619
------- -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid....................................... $ 835 $ 283
Income taxes paid................................... $ -- $ --
</TABLE>
See Notes to Condensed Consolidated Financial Statements
A-5
<PAGE> 35
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Condensed Consolidated Balance Sheet of Robotic Vision Systems, Inc.
and Subsidiaries (The "Company") as of December 31, 1998, the Condensed
Consolidated Statements of Operations for the three month periods ended December
31, 1998 and 1997 and the Condensed Consolidated Statements of Cash Flows for
the three month periods ended December 31, 1998 and 1997 have been prepared by
the Company, without audit. 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 December 31, 1998
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
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-K for
the year ended September 30, 1998. The results of operations for the period
ended December 31, 1998 are not necessarily indicative of the operating results
for the full year.
INVENTORIES
Inventories at December 31, 1998 and September 30, 1998 consisted of the
following;
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1998
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Raw Materials....................................... $15,498 $17,124
Work-in-Process..................................... 7,532 10,429
Finished Goods...................................... 8,303 8,660
------- -------
Total..................................... $31,333 $36,213
======= =======
</TABLE>
3. NOTES PAYABLE
The Company has a revolving credit agreement with three domestic banks
which is collateralized by substantially all of the domestic tangible and
intangible assets of the Company. The agreement has a term which expires in
March 2000 and borrowings under the agreement currently bear interest at the
prime rate plus two percent. At December 31, 1998, the Company had borrowings of
$35,475,000 outstanding which reflect the maximum commitment under the
agreement. The agreement contains certain financial covenants, including minimum
levels of profitability, liquidity and net worth, with which the Company has not
been in compliance. Under an amendment executed in March 1999, the Company's
banks had agreed to forebear their right to exercise any remedies under this
agreement through April 23, 1999. Accordingly, the borrowings under the
agreement at December 31, 1998 and September 30, 1998 have been classified as
current. On April 22, 1999, the Company renegotiated the terms of its credit
agreement with its three banks.
A-6
<PAGE> 36
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The new agreement sets the facility at $35.4 million and establishes new
covenants for the balance of the term of the agreement, March 18, 2000.
4. SALE OF PRODUCT LINE
In December 1998, the Company sold its Aircraft Safety product line
("Aircraft Safety") to a subsidiary of B.F. Goodrich ("Goodrich") for
$4,500,000, consisting of $4,050,000 in cash paid on closing and $450,000
payable upon the resolution of two items as noted in the next paragraph. The
Company no longer considered this technology a key component of its product
portfolio or future strategic direction. The Company sold certain inventory,
equipment and intellectual property in the transaction. The transaction resulted
in an initial gain of $2,798,000.
During the second quarter of fiscal 1999, the contingency relating to a
portion of the employee retention ($250,000) was resolved and in the third
quarter of fiscal 1999, the remaining contingency relating to employee retention
was resolved ($125,000). These amounts will be recorded as additional gain in
those quarters. At April 20, 1999, the contract novation had not been completed.
5. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted average
number of shares outstanding during each period. Diluted net income per share
reflects the effect of the Company's outstanding stock options and warrants
(using the treasury stock method), except where such options would be
anti-dilutive. For the three months ended December 31, 1997, the assumed number
of potential common shares was 968,000. For the three months ended December 31,
1998, any such potential common shares were anti-dilutive due to the loss for
the period.
6. COMPREHENSIVE INCOME (LOSS)
Effective October 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
Currently, in addition to net income or loss, the only item that the Company
currently records as other comprehensive income or loss is the change in the
cumulative translation adjustment resulting from the changes in exchange rates
and the effect of those changes upon translation of the financial statements of
the Company's foreign operations. For the periods ended December 31, 1998 and
1997, the components of comprehensive income (loss) included net income (loss)
of $(2,272,000) and $3,543,000, respectively, foreign currency translation
adjustment of $0 and $(20,000), respectively, for total comprehensive income
(loss) of $(2,272,000) and $3,790,000, respectively.
7. EQUITY FINANCING
In February 1999, the Company completed an equity-based financing with a
group of institutional investors. Net proceeds from the financing were $10.0
million. The financing was in the form of prepaid and incentive common stock
purchase warrants. Proceeds from the financing are to be used for working
capital requirements.
A-7
<PAGE> 37
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RESTATEMENT
Subsequent to the issuance of the Company's unaudited condensed
consolidated financial statements for the three months ended December 31, 1998,
the Company's Management determined that $450,000 of the gain recorded in
connection with the sale of Aircraft Safety should have been deferred pending
receipt of the proceeds upon resolution of contingencies relating to the
retention of certain employees by Goodrich ($375,000) and the novation of a
certain government contract held by Aircraft Safety to Goodrich ($75,000). As a
result, the unaudited condensed consolidated financial statements for the three
months ended December 31, 1998 have been restated for amounts previously
reported. This change had no effect on the loss from operations of $4,235,000
for the three months ended December 31, 1998.
A summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
1998
-----------------------
AS
PREVIOUSLY AS
REPORTED RESTATED
---------- ---------
<S> <C> <C>
AT DECEMBER 31,
Accrued expenses....................................... $ 19,186 $ 19,636
Accumulated deficit.................................... (133,784) (134,234)
FOR THE THREE MONTHS ENDED DECEMBER 31,
Gain on sale of product line........................... (3,248) (2,798)
Net income (loss)...................................... (1,822) (2,272)
Net loss per share -- Basic............................ ($ 0.07) ($ 0.09)
Net loss per share -- Diluted.......................... ($ 0.07) ($ 0.09)
</TABLE>
A-8
<PAGE> 38
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1997
Results of Operations
The Company's unaudited condensed consolidated financial statements for the
three months ended December 31, 1998 are restated. Subsequent to the issuance of
the Company's unaudited condensed consolidated financial statements for the
three months ended December 31, 1998, the Company's Management determined that
$450,000 of the gain recorded in connection with the sale of Aircraft Safety
should have been deferred pending receipt of the proceeds upon resolution of
contingencies relating to the retention of certain employees by Goodrich
($375,000) and the novation of a certain government contract held by Aircraft
Safety to Goodrich ($75,000). As a result, the unaudited condensed consolidated
financial statements for the three months ended December 31, 1998 have been
restated from amounts previously reported. This change had no effect on the loss
from operations of $4,235,000 for the three months ended December 31, 1998.
Revenues were $29.4 million in the three months ended December 31, 1998
compared to $53.8 million in the three months ended December 31, 1997, a decline
of 45%. The significantly lower revenues year-to-year reflect the effect of the
severe semiconductor industry downturn which began in early calender 1998. In
the three months ended December 31, 1998, revenues for the Company's
Semiconductor Equipment Group were less than half the level of the year earlier
period. Revenues for the Company's Acuity CiMatrix division for 1-D and 2-D
barcode reading and machine vision products were also down 10% from the year
earlier period. In the three months ended December 31, 1998, revenues for the
Company's Semiconductor Equipment Group represented 60% of total revenues,
compared to 76% of total revenues in the three months ended December 31, 1997.
Revenues of $29.4 million in the three months ended December 31, 1998 were
3.5% higher than the fourth quarter of fiscal 1998 revenues of $28.4 million.
Although revenues for Semiconductor Equipment Group were down slightly from the
fourth quarter of fiscal 1998, the Company had a 40% increase in orders for
these products over the preceding quarter. Revenues for the Company's Acuity
CiMatrix division were up approximately 15% sequentially, primarily as a result
of demand for its 1-D tunnel applications for postal service and material
handling applications. In addition, the Company began delivering its new machine
vision platform, Visionscape, during the three months ended December 31, 1998.
Overall, the Company's orders were 30% higher than the fourth quarter of fiscal
1998 and were approximately 110% of revenues in the three months ended December
31, 1998.
The gross profit margin was 42.8% of revenues in the three months ended
December 31, 1998 compared to 48.4% of revenues in the three months ended
December 31, 1997. The lower gross profit margin year-to-year primarily reflects
the impact of proportionately high level of fixed manufacturing costs on the
significantly lower level of revenues. However, the gross profit margin in the
three months ended December 31, 1998 improved 7.4% from the gross profit margin
of 35.4% of revenues, excluding inventory provisions, in the fourth quarter of
fiscal 1998. The sequential improvement was largely a result of a more favorable
product mix, particularly for its
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Semiconductor Equipment Group, largely as a result of new products introduced
during fiscal 1998.
Research and development expenses were $5.6 million, or 19.0% of revenues,
in the three months ended December 31, 1998, compared to $6.6 million, or 12.3%
of revenues, in the three months ended December 31, 1997. The Company has
continued to invest in new product development, including new semiconductor
inspection and component handling systems, as well as enhancing its 1-D barcode
reading products and expanding its new machine vision platform, Visionscape. In
December 1998, the Company's Acuity Cimatrix Division introduced the MXi, the
first hand-held imager for reading digital direct part marks, 1-D barcodes and
new, digital 2-D symbologies, such as the Data Matrix code. This product is a
result of a joint venture with Polaroid Corporation which began in 1997. The MXi
was co-designed and will be manufactured by Polaroid for RVSI's exclusive
distribution. Initial deliveries of the MXi are expected to commence in the
second half of fiscal 1999. In the three months ended December 31, 1998, the
Company capitalized $1.4 million in software
Selling, general and administrative expenses were $11.2 million, or 38.1%
of revenues, in the three months ended December 31, 1998, compared to $14.9
million, or 27.7% of revenues, in the three months ended December 31, 1997. The
lower level of expenses reflects a combination of the expense reduction steps
taken by the Company in fiscal 1998, together with lower variable selling costs
on the lower level of revenues.
Primarily as a result of the expense reduction steps taken by the Company
since April 1998, total operating expenses have been lowered from $23.0 million
in the second quarter of fiscal 1998 to $16.8 million in the first quarter of
fiscal 1999. Compared to the fourth quarter of fiscal 1998, operating expenses
in the first quarter of fiscal 1999 were down $2.5 million.
In December 1998, the Company sold its Aircraft Safety product line to a
subsidiary of B.F. Goodrich for $4.5 million in cash, consisting of $4.05
million in cash paid at closing and $0.45 million paid upon resolution of two
items. The Company no longer considered this technology a key component of its
product portfolio or future strategic direction. The Company sold certain
inventory, equipment and intellectual property in the transaction, resulting in
an initial gain of $2.8 million. Proceeds from the sale were used for working
capital requirements and to repay $2.0 million of outstanding bank debt.
Net interest expense was $0.8 million in the three months ended December
31, 1998, compared to $0.2 million in the three months ended December 31, 1997.
The increase in interest expense primarily reflects the significantly higher
level of bank borrowings in the three months ended December 31, 1998.
There was no tax provision in the three months ended December 31, 1998 due
to the loss for the current fiscal quarter. The tax provision for the three
months ended December 31, 1997 reflected minimum federal and state income taxes.
Excluding the $2.8 million gain from the sale of the Company's Aircraft
Safety product line, the net loss for the three months ended December 31, 1998
was $5.1 million, or $0.20 per share, compared to net income of $3.5 million, or
$0.14 per share, for the three months ended December 31, 1997. Including the
$2.8 million gain, the total net loss for the three months ended December 31,
1998 was $2.3 million, or $0.09 per share.
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<PAGE> 40
Liquidity and Capital Resources
The Company's cash balance increased $0.2 million, to $2.7 million, in the
three months ended December 31, 1998, as a result of $1.6 million of net cash
used in operating activities, $0.1 million of net cash used for additions to
plant and equipment, $4.0 million of net cash provided by the sale of a product
line and $2.1 million of net cash used in financing activities.
The $1.6 million of net cash used in operating activities was primarily a
result of the operating loss for the quarter, after non-cash depreciation and
amortization charges. Although revenues were up sequentially, accounts
receivable declined $1.8 million in the three months ended December 31, 1998 as
a result of the Company's continued focus on asset management. Inventories were
reduced a further $4.4 million in the three months ended December 31, 1998 as
the Company continued to consume short-term excess levels, particularly in its
Semiconductor Equipment Group.
Additions to plant and equipment were $0.2 million in the three months
ended December 31, 1998, which were substantially below depreciation charges of
$1.5 million in the period. The increase in other long-term assets of $1.7
million primarily represents capitalized software development costs in the three
months ended December 31, 1998.
The reductions in accounts payable and accrued expenses, combined, of $3.5
million largely reflects the continued low level of inventory purchases in the
current fiscal period, as well as cash payments of $1.1 million for severance
charges recorded in fiscal 1998.
At December 31, 1998, the Company had borrowings of $35.5 million
outstanding under its revolving credit agreement with its domestic banks,
compared to $37.5 million in borrowings outstanding at September 30, 1998. The
Company is currently not in compliance with the financial covenants under the
agreement. Under an amendment executed in March 1999, the Company's banks have
agreed to forebear their right to exercise any remedies under this agreement
until April 23, 1999. The Company is currently working with its banks to modify
the revolving credit agreement and establish new financial covenants.
In February 1999, the Company completed an equity-based financing with a
group of institutional investors. Net proceeds from the financing were $10.0
million. The financing was in the form of prepaid and incentive common stock
purchase warrants. Proceeds from the financing are to be used for working
capital requirements.
Management believes that through a combination of proceeds from this equity
financing, obtaining additional external capital and cash flow from operations,
the Company will have sufficient liquidity through at least September 30, 1999
to fund its cash requirements.
Effect of Inflation
Management believes that during the three months ended December 31, 1998
the effect of inflation was not material.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This report contains forward-looking statements including statements
regarding, among other items, financing activities and anticipated trends in the
Company's business, which are made pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. These statements are based
largely on the Company's expectations
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<PAGE> 41
and are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond the Company's control. Future events and
actual results could differ materially from those set forth in, contemplated by,
or underlying the forward-looking statements. Statements in this report,
including those set forth in "Risk Factors" below, describe factors, among
others, that could contribute to or cause such differences. The following "Risk
Factors" should be read in conjunction with other risk factors detailed in the
Company's most recent registration statement, annual report on Form 10-K and 10-
K/A, and other filings with the Securities and Exchange Commission.
RISK FACTORS
Fluctuations in the Semiconductor Market
The semiconductor industry, which has been subject to significant market
fluctuations and periodic downturns in the past, is currently still experiencing
weak industry conditions. These weak industry conditions have had an adverse
affect on the revenues and earnings of the Company, as well as other
semiconductor capital equipment companies. Until semiconductor industry
conditions further improve, the Company's revenues and earnings will continue to
be adversely affected.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash equivalents and trade receivables.
The Company places its cash equivalents with high quality financial
institutions, limits the amount of credit exposure to any one institution and
has established investment guidelines relative to diversification and maturities
designed to maintain safety and liquidity. The Company's trade receivables
result primarily from sales to semiconductor manufacturers located in North
America, Japan, the Pacific Rim and Europe. Receivables are mostly from major
corporations, distributors or are supported by letters of credit. The Company
maintains reserves for potential credit losses and such losses have been
immaterial.
The fair value of the Company's notes payable and long-term liabilities is
estimated based on quoted market prices for the same or similar issues or on
current rates offered to the Company for debt of the same remaining maturities.
For all other balance sheet financial instruments, the carrying amount
approximates fair value.
We are exposed to the impact of fluctuation in interest rates, primarily
through our borrowing activities. Our policy has been to use U.S. dollar
denominated borrowings to fund our working capital requirements. The interest
rate on our current borrowings fluctuate with current market rates. The extent
of risk associated with an increase in the interest rate on our borrowings is
not quantifiable or predictable because of the variability of future interest
rates and our future financing requirements. At December 31, 1998, we had bank
borrowings outstanding of $35.3 million and a long-term note payable of $2.25
million which have a variable interest rate. Using a yield to maturity analysis
and assuming an increase in the interest rate on these borrowings of 78 basis
points (10% fluctuation in the rate), interest rate variability on these
borrowings would not have a material effect on our financial results.
We are also exposed to the impact of foreign currency fluctuations. During
fiscal 1998, most local currencies of our international subsidiaries weakened
against the U.S. dollar. Since we translate foreign currencies into U.S. dollars
for reporting purposes, these weakened currencies had a negative, though
immaterial, impact on our results. We also believe that our exposure to currency
exchange fluctuation risk is insignificant because our
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<PAGE> 42
international subsidiaries sell to customers, and satisfy their financial
obligations, almost exclusively in their local currencies. During fiscal 1998,
we did not engage in foreign currency hedging activities. Based on a
hypothetical ten percent adverse movement in foreign currency exchange rates,
the potential losses in future earnings, fair value of risk-sensitive
instruments, and cash flows are immaterial, although the actual effects may
differ materially from the hypothetical analysis.
PART II. OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 -- Financial Data Schedule
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<PAGE> 43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report or amendment thereto to be signed on its
behalf by the undersigned thereunto duly authorized.
ROBOTIC VISION SYSTEMS, INC.
--------------------------------------
(Registrant)
/s/ PAT V. COSTA
--------------------------------------
Pat V. Costa
President and CEO
Dated: April 22, 1999 (Principal Executive Officer)
/s/ FRANK D. EDWARDS
--------------------------------------
Frank D. Edwards
Chief Financial Officer
(Principal Financial and
Dated: April 22, 1999 Accounting Officer)
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<PAGE> 44
ROBOTIC VISION SYSTEMS, INC.
5 Shawmut Road
Canton, Massachusetts 02021
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Pat V. Costa, Frank D. Edwards and Howard
Stern as Proxies, each with the power to appoint his substitute, and hereby
authorizes each of them, and each of them, to represent and vote, as designated
on the reverse side hereof, all the shares of Common Shares of Robotic Vision
Systems, Inc. (the "Company") held of record by the undersigned on April 28,
1999, at the Annual Meeting of Stockholders to be held on Thursday, June 10,
1999 or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3 AND 4.
(To Be Signed on Reverse Side)
<PAGE> 45
1. Election of directors:
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike
such nominee's name from the list at right)
<TABLE>
<CAPTION>
FOR all nominees WITHHOLD AUTHORITY NOMINEES:
<S> <C> <C>
listed at right (except to vote for all nominees Pat V. Costa F.A.
as marked to the listed at right [ ] DiPietro, J.M. Haft,
contrary at right) [ ] T. Kohn, D.J. Kramer,
M.J. Lerner, H. Stern,
R.H. Walker
</TABLE>
2. To consider and vote upon a proposal to authorized the issuance of shares of
common stock pursuant to the terms of an $11,00,000 private placement of the
Company's equity securities with certain institutional investors and their
agent completed on February 23, 1999.
FOR [ ] AGAINST [ ]
3. To consider and vote upon a proposal to amend the Company's certificate of
incorporation to increase the authorized number of shares of common stock
from 50,000,000 to 75,000,000.
FOR [ ] AGAINST [ ]
4. To ratify the selection of Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year ending September 30, 1999.
FOR [ ] AGAINST [ ]
5. To transact such other business as may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
-------------------------------
Signature
Date:
--------------------------
-------------------------------
Signature, if held jointly
<PAGE> 46
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in partnership name by
an authorized person.
