<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PPT VISION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1413345
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10321 WEST 70TH STREET
EDEN PRAIRIE, MINNESOTA 55344
(612) 996-9500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
---------------
JOSEPH C. CHRISTENSON
PRESIDENT
PPT VISION, INC.
10321 WEST 70TH STREET
EDEN PRAIRIE, MINNESOTA 55344
(612) 996-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
THOMAS G. LOVETT IV, ESQ. HENRY D. KAHN, ESQ.
ROBERT E. TUNHEIM, ESQ. LAWRENCE R. SEIDMAN, ESQ.
LINDQUIST & VENNUM P.L.L.P. PIPER & MARBURY L.L.P.
4200 IDS CENTER 53 WALL STREET
MINNEAPOLIS, MINNESOTA 55402 NEW YORK, NY 10005
TELEPHONE: (612) 371-3211 TELEPHONE: (212) 858-8900
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
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<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.10 par
value per share....... 1,840,000 $17.25 $31,740,000 $10,945
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</TABLE>
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(1) Includes 240,000 shares of Common Stock issuable which may be purchased by
the Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) and based on the average of the high and low sales
prices for the Registrant's Common Stock on May 13, 1996 as reported on
the Nasdaq National Market.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
PPT VISION, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-2 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<C> <S> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus.... Inside Front Cover Page; Available
Information; Incorporation of Certain
Documents by Reference; Outside Back Cover
Page of Prospectus
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds............... Use of Proceeds
5. Determination of Offering
Price........................ Not Applicable
6. Dilution...................... Not Applicable
7. Selling Security Holders...... Not Applicable
8. Plan of Distribution.......... Outside Front Cover Page; Underwriting
9. Description of Securities to
be Registered................ Price Range of Common Stock; Dividend
Policy; Description of Capital Stock
10. Interests of Named Experts and
Counsel...................... Not Applicable
11. Information with Respect to
the Registrant............... Prospectus Summary; Risk Factors; Price
Range of Common Stock; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Principal Shareholders; Description of
Capital Stock; Available Information;
Incorporation of Certain Documents by
Reference
12. Incorporation of Certain
Information by Reference..... Incorporation of Certain Documents by
Reference
13. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities.................. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
May 15, 1996
1,600,000 Shares
[ PPT VISION, INC. LOGO ]
Common Stock
--------
All of the shares offered hereby are being sold by PPT Vision, Inc. ("PPT
VISION" or the "Company"). The Company's Common Stock is traded on the Nasdaq
National Market under the symbol "PPTV." On May 13, 1996, the last reported
sale price as quoted on the Nasdaq National Market was $17.75 per share. See
"Price Range of Common Stock."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
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<S> <C> <C> <C>
Per Share........................ $ $ $
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Total(2)......................... $ $ $
</TABLE>
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(1) Before deducting expenses of the offering estimated at $ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
240,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland on or about ,
1996.
Alex. Brown & Sons Piper Jaffray Inc.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
[Pictures]
[In upper left-hand corner, next to the name "PPT VISION", is a photo containing
pictures of individuals using PPT VISION systems]
[At the left margin, the following text appears:
Machine Vision Systems
PPT VISION is a leading designer, manufacturer, marketer and integrator of a
complete family of machine vision systems for end user manufacturers, system
integrators and machine builders. The Company's machine vision systems are used
for a broad range of manufacturing applications, including electronic and
mechanical assembly verification, verification of printed characters, packaging
integrity, surface flaw detection and gauging and measurement tasks. The
Company's systems are sold principally throughout North America, Europe and the
Far East to various industries, including electronics, pharmaceutical, medical,
automotive, consumer products and plastics.
[Series of three photos appear along right-hand side of page under the caption
"Three Complete Systems" - Top photo is picture of Passport 440 machine vision
system; Middle photo is picture of Passport 240 machine vision system; Bottom
photo is picture of Scout machine vision system]
The following text accompanies the photos:
Three Complete Systems
All PPT VISION systems are capable of operating at inspection speeds of over
12,000 parts per minute.
Passport(TM) 440
PPT VISION's top-of-the-line industrial-cased system. Designed to operate with
up to four asynchronously functioning cameras for multiple inspection views and
complex imaging tasks.
Passport(TM) 240
PPT VISION's industrial-cased two camera system. Passport 240 is widely used in
the electronic connector, metal stamping, and automotive components industries.
Scout(TM)
The Scout is designed for industrial applications that do not require rugged
enclosures. Scout is capable of running two cameras with similar speed and power
to the Passport 240.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING."
PPT VISION(R), Passport(TM) and Scout(TM) are trademarks of the Company.
2
<PAGE>
[Across middle of the gatefold, under the heading "How Machine Vision Works" and
a series of numbered headings pointing to various features on the photo (text is
provided below), is a photo of the machine vision inspection process]
How Machine Vision Works
PPT VISION's machine vision systems consist of a combination of proprietary
computer software and hardware, cameras and lighting, working together to
capture and analyze images of moving parts to determine the quality of
manufactured parts and control manufacturing processes.
Lighting and Optics
Camera, lens and lighting options are configured to capture a high definition
image of each part as it passes the camera.
PPT VISION Capabilities:
. Image parts that vary in size, shape, surface texture, color, etc.
. Provide cost effective, flexible and long lasting lighting solutions.
. Integrate high precision lens and camera for accurate measurement of intricate
part details.
Image Acquisition
The camera's image of the part is sent electronically to the vision system
framegrabber where it is converted to a digital image ready for processing.
PPT VISION Capabilities:
. High-speed image capture of parts "on-the-fly".
. Ability to capture up to four images at the same time.
. Ability to capture only a part of the image if required.
Image Processing
The vision system image processor measures critical part features and compares
the digital image to a preset standard that has been programmed into the system.
PPT VISION Capabilities:
. Provide a wide range of inspection algorithms for many different applications.
. Process the image in a few thousandths of a second.
. Make the system easy and intuitive to program through a proprietary graphical
user interface.
Outputs
The results of the inspection are sent to the production-line controller which
may mark or reject the failed part or shut down the production line.
PPT VISION Capabilities:
. Provide output signals to a wide variety of production line controllers.
. Output the results at high speed to keep up with the production line.
. Provide data to the host manufacturing control system to enable improvement in
the production process over time.
Results
Increase in cost-effective and efficient manufacturing through:
. 100% inspection to eliminate shipping of defective product and reduce scrap
product.
. Removal of defective parts from the assembly process.
. Continuous data collection to spot trends in the production process and adjust
equipment before defective products are produced.
. Ongoing improvement of the manufacturing process and product quality.
[To the right of such photo is a diagram of charts showing results of machine
vision inspection process]
[Across the bottom of the page, under the heading "Where PPT VISION Systems Are
Used", is a series of four photos, each depicting a PPT VISION machine vision
system inspecting parts, with the following text below such photos:]
Where PPT VISION Systems Are Used
By meeting industry demands for 100% inspection of stamped parts at speeds of
over 12,000 parts per minute, PPT VISION sets the industry standard for
processing power. Subpixel accuracy is achieved with the Line Gauge Tool.
PPT VISION's new, proprietary line of LED lighting products are an example of
the Company's commitment to innovation and providing complete solutions for end-
users. Lighting is a critical element of a complete on-line machine vision
solution.
Date, lot code and mark verification for the pharmaceutical, medical, and
electronics industries is a rapidly emerging application for machine vision. PPT
VISION's Optical Character Verification (OCV) Tool is employed to meet industry
standards for 100% on-line inspection.
Inspection of electronic connectors using the Connector Tool is one of the
Company's most widely applied technologies.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and financial statements and notes
thereto appearing elsewhere or incorporated by reference in this Prospectus.
THE COMPANY
PPT VISION is a leading designer, manufacturer, marketer and integrator of a
complete family of machine vision systems for end user manufacturers, system
integrators and machine builders. The Company's machine vision systems consist
of a combination of proprietary computer software and hardware, cameras and
lighting, working together to capture and analyze images of moving parts to
determine the quality of manufactured parts and control manufacturing
processes. PPT VISION's systems enable manufacturers to achieve 100% on-line
inspection, thus achieving zero defect production, in situations where
previously only random sampling or less precise human inspection was used as a
means of monitoring quality. In addition to functioning as a quality control
tool, PPT VISION systems provide manufacturers a window on their manufacturing
processes by producing real-time statistical process control feedback. This
allows manufacturers to take earlier corrective action to improve their
manufacturing process.
The Company's machine vision systems are used for a broad range of
manufacturing applications, including electronic and mechanical assembly
verification, verification of printed characters, packaging integrity, surface
flaw detection and gauging and measurement tasks. The Company's systems are
sold principally throughout North America, Europe and the Far East to various
industries, including electronics, pharmaceutical, medical, automotive,
consumer products and plastics. Major manufacturing end users of PPT VISION
systems include AMP, Abbott Labs, Berg Electronics, Chrysler, the Delphi
Electronic Division of General Motors, Imation, Johnson & Johnson, Kemet,
Molex, Siemens and 3M.
PPT VISION believes that it has a leadership position as the most vertically
integrated developer of machine vision systems and solutions for a wide range
of manufacturing applications. Through this approach, PPT VISION can rapidly
and cost-effectively provide machine vision system solutions to a wide variety
of manufacturing end users while enabling them to concentrate their engineering
and manufacturing expertise on the products they manufacture. PPT VISION's
library of machine vision software tools enables end users to implement machine
vision solutions to a growing number of manufacturing applications quickly and
cost effectively.
The Company has pioneered the development of an icon-based, graphical user
interface programming system for machine vision applications operating in the
Microsoft(R) Windows(TM) environment through its Vision Program Manager
("VPM"). VPM enables users to program PPT VISION systems to perform desired
image analysis and processing functions by creating a flowchart of icons linked
together, thereby enabling reduced implementation cost and time, as well as
increased flexibility in operation. In contrast, other machine vision systems
require users to write a computer program in a programming language such as C
or to use a complex, pull-down menu-based system. The Company's proprietary
hardware architecture is capable of capturing and processing full frame video
images at a rate of 3,600 images per minute in both strobed and shuttered
modes. Most competitors are limited to capturing full frame images at 1,800
images per minute, which is the industry standard. Much higher inspection rates
are achieved through the use of the Company's exclusive partial scanning
technology and split-screen imaging, which enables inspection speeds of over
12,000 parts per minute.
The machine vision market is rapidly growing and highly fragmented. Key
drivers of the expansion in the machine vision market include the growth and
demand for machine vision systems in the semiconductor and electronics
industries and global competitive trends which have led manufacturers worldwide
to dramatically redesign manufacturing processes in order to reduce costs and
increase
3
<PAGE>
productivity and quality. The Automated Imaging Association ("AIA") estimates
that the North American market for machine vision systems in 1995 was
approximately $900 million, with worldwide levels estimated at approximately
$2.3 billion. The AIA expects this market to grow at approximately 15% per year
through the year 2000. The AIA estimates that there are over 200 machine vision
companies based in North America, over 70% of which had annual revenues of less
than $5.0 million in 1995.
PPT VISION was incorporated in Minnesota in 1981. The Company's executive
offices are located at 10321 West 70th Street, Eden Prairie, MN 55344. Its
telephone number is (612) 996-9500.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby............ 1,600,000 shares
Common Stock to be outstanding after
the offering.......................... 5,279,717 shares(1)
Use of proceeds........................ For working capital associated with
expanded sales and international
distribution, research and product
development and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol.......... PPTV
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL
YEAR ENDED OCTOBER 31, 30,
------------------------------------ -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues.............. $2,889 $4,294 $5,935 $6,587 $9,750 $3,995 $6,347
Gross profit.............. 1,454 2,439 3,396 3,561 5,308 2,108 3,776
Income (loss) from
operations............... (205) 296 439 (253) 879 66 1,127
Net income (loss)......... (207) 338 435 (213) 1,347 89 1,178
Net income (loss) per
share.................... $(0.10) $ 0.12 $ 0.13 $(0.06) $ 0.37 $ 0.03 $ 0.31
Weighted average common
and common equivalent
shares outstanding....... 1,982 2,899 3,236 3,455 3,650 3,497 3,825
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1996
---------------------
ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $5,351 $31,563
Total assets............................................ 7,404 33,616
Long-term debt.......................................... -0- -0-
Shareholders' equity.................................... 6,530 32,742
</TABLE>
- --------
(1) Does not include 235,299 shares of Common Stock issuable upon exercise of
outstanding options under the Company's 1988 Stock Option Plan as of April
30, 1996, of which 193,936 are currently exercisable. See "Capitalization,"
"Description of Capital Stock--Outstanding Stock Options" and Note 6 of
Notes to Financial Statements.
(2) Adjusted to reflect the sale of 1,600,000 shares offered by the Company
hereby and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
Unless otherwise indicated, all information in this Prospectus (i) assumes
that the Underwriters' over-allotment option is not exercised and (ii) gives
effect to a three-for-two stock split which occurred on April 5, 1996. As used
herein, a "fiscal year" means a year ending October 31.
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus.
Technological Change and New Product Development. The market for the
Company's products is characterized by rapidly changing technology. The
Company's future success will continue to depend upon its ability to enhance
its current products and to develop and introduce new products that keep pace
with technological developments and evolving industry standards, respond to
changes in customer requirements and achieve market acceptance. Any failure by
the Company to anticipate or respond adequately to technological developments
and customer requirements, or any significant delays in product development or
introduction, could have a material adverse effect on the Company's business,
results of operations, financial condition and liquidity. In addition, there
can be no assurance the new products and services or product and service
enhancements, if any, developed by the Company will achieve market acceptance.
See "Business--PPT VISION Strategy" and "--Research and Product Development."
Dependence Upon Principal Customers. During each of the past several years,
the Company has had one or more customers that accounted for ten percent or
more of its net revenues. During the fiscal year ended October 31, 1995 and
the six months ended April 30, 1996 sales to one customer, Simac Masic B.V., a
European distributor for the Company, represented 17% and 14%, respectively,
of net revenues. In addition, direct sales to AMP, Inc. represented 10% of net
revenues for fiscal 1995. The Company also realizes substantial additional
sales to AMP, Inc. indirectly through other channels, including systems
integrators, machine builders and international distributors. The loss of, or
significant curtailment of purchases by, any of the Company's principal
customers could have a material adverse effect on the Company's results of
operations. See "Business--Markets and Customers."
Cyclicality of Capital Spending by Customers. A significant portion of the
Company's revenues are derived from sales to various segments of the
electronic component industry, such as metal stamping, electronic connectors
and passive components. The markets for these segments, and for the electronic
component industry in general, can be cyclical, resulting in varying amounts
of capital spending. Any significant downturn in capital spending in these
markets, or in any other markets served by the Company's products, could have
a material adverse effect on the Company's business and results of operations.
Management of Growth. The Company's revenues increased 48% in fiscal 1995
compared with fiscal 1994 and have increased at an average annual rate of 30%
over the past five years. The Company's future success will depend on the
ability of its officers and key employees to manage growth successfully
through maintenance of appropriate operational, financial and management
information systems and to attract, retain, motivate and effectively manage
its employees. If the Company's management is unable to manage growth
effectively, the Company's business, results of operations, financial
condition and liquidity could be materially and adversely affected.
Proprietary Technology. The Company relies heavily on its image acquisition
and image processing hardware designs, along with proprietary software
technology. Although the Company has been issued patents in the past on
certain of its technology and has patents pending on new technologies, it
currently relies most heavily on protecting its proprietary information as
trade secrets. There can be no assurance that the steps taken by the Company
will be adequate to prevent misappropriation of its technology by third
parties or will be adequate under the laws of some foreign countries, which
may not protect the Company's proprietary rights to the same extent as do laws
of the United States. In addition, the possibility exists that others may
"reverse engineer" the Company's products in order to determine their method
of operation and then introduce competing products. Further, many high
5
<PAGE>
technology markets, including segments of the machine vision industry, are
characterized by the existence of a large number of patents and frequent
litigation for financial gain that is based on patents with broad, and often
questionable, application. As the number of the Company's products increases,
the markets in which its products are sold expands and the functionality of
those products grows and overlaps with products offered by competitors. As a
result, the Company believes that it may become increasingly subject to
infringement claims in the future. Although the Company does not believe any
of its products or proprietary rights infringe upon the rights of third
parties, there can be no assurance that infringement claims will not be
asserted against the Company in the future or that any such claims will not
require the Company to enter into royalty arrangements or result in costly
litigation. See "Business--Patents and Trademarks."
Quarterly Fluctuations. The Company has experienced quarterly fluctuations
in operating results and anticipates that these fluctuations will continue.
These fluctuations have been caused by various factors, including the order
flow of its principal customers, the timing and acceptance of new product
introductions and enhancements and the timing of product shipments and
marketing. Future operating results may fluctuate as a result of these and
other factors, including the Company's ability to continue to develop
innovative products, the announcement or introduction of new products by the
Company's competitors, the Company's product and customer mix, the level of
competition and overall trends in the economy. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Quarterly
Comparisons."
Dependence on Outside Contractors and Suppliers. The Company currently
contracts with third party assembly houses for a substantial portion of its
components and assembly needs. Although the Company endeavors to inspect and
internally test most components prior to final assembly, reliance on outside
contractors reduces its control over quality and delivery schedules. The
failure by one or more of these subcontractors to deliver quality components
in a timely manner could have a material adverse effect on the Company's
results of operations. In addition, a number of the components integral to the
functioning of the Company's products are available from only a single
supplier or from a limited number of suppliers. Any interruption in or
termination of supply of these components, or a material change in the
purchase terms, including pricing, of any of these components, or a reduction
in their quality or reliability, could have a material adverse effect on the
Company's business or results of operations. See "Business--Manufacturing."
International Revenue. In the years ended October 31, 1993, 1994 and 1995
and the six months ended April 30, 1996, sales of the Company's products to
customers outside North America accounted for approximately 13%, 27%, 33% and
34%, respectively, of the Company's net revenues. The Company anticipates that
international revenue will continue to account for a significant portion of
its net revenues. The Company's operating results are subject to the risks
inherent in international sales, including various regulatory requirements,
political and economic changes and disruptions, transportation delays and
difficulties in staffing and managing foreign sales operations and distributor
relationships. In addition, fluctuations in exchange rates may render the
Company's products less price competitive relative to local product offerings.
There can be no assurance that these factors will not have a material adverse
effect on the Company's future international sales and, consequently, on the
Company's operating results. See "Business--Sales, Marketing and Customer
Support."
Competition. The Company competes with other vendors of machine vision
systems, many of which may have greater financial and other resources than the
Company. There can be no assurance that the Company will be able to compete
successfully in the future or that the Company will not be required to incur
significant costs in connection with its engineering research, development,
marketing and customer service efforts to remain competitive. Competitive
pressures may result in price erosion or other factors which will adversely
affect the Company's financial performance. See "Business--Competition."
6
<PAGE>
Dependence on Key Personnel. The Company's success depends in large part upon
the continued services of many of its highly skilled personnel involved in
management, research and product development and sales, and upon its ability to
attract and retain additional highly qualified employees. The loss of services
of these key personnel could have a material adverse effect on the Company. The
Company does not have key-person life insurance on any of its employees. See
"Management."
Possible Volatility of Stock Price. The Company believes that factors such as
the announcement of new products by the Company or its competitors, market
conditions in the machine vision industry generally and quarterly fluctuations
in financial results could cause the market price of the Common Stock to vary
substantially. In recent years, the stock market has experienced price and
volume fluctuations that have particularly affected the market prices for many
high technology companies and which often have been unrelated to the operating
performance of such companies. The market volatility may adversely affect the
market price of the Company's Common Stock. See "Price Range of Common Stock."
Anti-Takeover Considerations. Certain anti-takeover provisions of the
Minnesota Business Corporation Act and the ability of the Board of Directors to
issue preferred stock without shareholder approval may have the effect of
delaying or preventing a change in control or merger of the Company, which
could operate to the detriment of other shareholders. See "Description of
Capital Stock--Anti-Takeover Provisions of Minnesota Business Corporation Act."
7
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be $26.2 million, assuming an
offering price of $17.75 per share, and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. The
Company intends to use the net proceeds for working capital associated with
expanded sales and international distribution, research and product development
and other general corporate purposes. The Company may use a portion of the net
proceeds for acquisitions, joint ventures or licensing agreements associated
with businesses, technologies or products complementary to the Company's
business, although no such acquisition, joint venture or licensing agreement is
being negotiated or planned as of the date of this Prospectus. Pending such
uses, the net proceeds are expected to be invested in short-term, investment
grade securities.
PRICE RANGE OF COMMON STOCK
Since December 28, 1995, the Common Stock of the Company has been listed on
the Nasdaq National Market under the symbol "PPTV." Prior to that time, the
Common Stock was traded on the Nasdaq Small Cap Market under the same symbol.
The following table sets forth the high and low sales prices of the Company's
Common Stock on the Nasdaq National Market for the period beginning December
28, 1995, and the high and low closing bid prices for the Company's Common
Stock on the Nasdaq Small Cap Market for the periods prior to December 28,
1995, each as reported by Nasdaq. The Nasdaq Small Cap Market quotations listed
below indicate inter-dealer prices without retail mark-up, mark-down or
commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL YEAR ENDED OCTOBER 31, 1994
First Quarter............................................. $ 4.17 $3.33
Second Quarter............................................ 3.33 2.83
Third Quarter............................................. 3.33 2.67
Fourth Quarter............................................ 2.67 2.17
FISCAL YEAR ENDED OCTOBER 31, 1995
First Quarter............................................. $ 2.50 $1.67
Second Quarter............................................ 2.75 2.17
Third Quarter............................................. 3.83 2.33
Fourth Quarter............................................ 8.67 3.50
FISCAL YEAR ENDING OCTOBER 31, 1996
First Quarter............................................. $13.17 $8.50
Second Quarter............................................ 16.00 8.83
Third Quarter (through May 13, 1996)...................... 18.00 14.25
</TABLE>
On May 13, 1996, the last reported sales price of the Common Stock on the
Nasdaq National Market was $17.75. At April 30, 1996, the Company estimates
that there were approximately 2,530 beneficial holders of the Company's Common
Stock.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock. The
Company currently intends to retain any earnings for use in its operations and
expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future.
8
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of April
30, 1996 and as adjusted to reflect the sale of 1,600,000 shares of Common
Stock offered by the Company pursuant to this offering and the anticipated use
of the estimated proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
APRIL 30, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt............................................ $ -0- $ -0-
------- -------
Stockholders' equity:
Preferred stock, no par value, 10,000,000 shares
authorized, no shares outstanding....................... -0- -0-
Common stock, $.10 par value, 10,000,000 shares
authorized; 3,679,717 shares issued and outstanding;
5,279,717 shares issued and outstanding, as
adjusted(1)............................................. 368 528
Capital in excess of par value........................... 11,865 37,917
Accumulated deficit...................................... (5,703) (5,703)
------- -------
Total shareholders' equity.............................. 6,530 32,742
------- -------
Total capitalization................................... $ 6,530 $32,742
======= =======
</TABLE>
- --------
(1) Excludes 235,299 shares that may be issued upon exercise of options
outstanding as of April 30, 1996, of which 193,936 are currently
exercisable. See "Description of Capital Stock--Outstanding Stock Options"
and Note 6 of Notes to Financial Statements.
9
<PAGE>
SELECTED FINANCIAL DATA
The balance sheet data at October 31, 1991, 1992, 1993, 1994 and 1995 and the
income statement data for the years then ended are derived from and should be
read in conjunction with the more detailed financial statements of the Company
and the notes thereto, which have been audited by Price Waterhouse LLP. The
reports on the financial position of the Company at October 31, 1994 and 1995
and the results of its operations and cash flows for each of the three fiscal
years in the period ended October 31, 1995 are included elsewhere and
incorporated by reference in this Prospectus, and should be read in conjunction
with the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which follows this section. October 31,
1991, 1992 and 1993 financial information is derived from the audited financial
statements contained in the Company's Forms 10-K as filed for such years. The
balance sheet data at April 30, 1996 and the income statement data for the six
months ended April 30, 1995 and 1996 are derived from the unaudited financial
statements of the Company included elsewhere in this Prospectus. In the opinion
of management, the unaudited financial statements have been prepared on a basis
consistent with the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for such
periods. Results for the six-month period ended April 30, 1996 are not
necessarily indicative of the results that may be expected for any subsequent
period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL
YEAR ENDED OCTOBER 31, 30,
------------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues.............. $2,889 $4,294 $5,935 $6,587 $9,750 $3,995 $6,347
Cost of sales............. 1,435 1,855 2,539 3,026 4,442 1,887 2,571
------ ------ ------ ------ ------ ------ ------
Gross profit............. 1,454 2,439 3,396 3,561 5,308 2,108 3,776
Selling expenses.......... 692 1,005 1,576 1,970 2,279 1,075 1,231
General and administrative
expenses................. 400 451 550 711 851 359 530
Research and development
expenses................. 567 687 831 1,133 1,299 608 888
------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations.............. (205) 296 439 (253) 879 66 1,127
Other income (expense).... (2) 42 (4) 40 61 23 51
------ ------ ------ ------ ------ ------ ------
Net income (loss) before
taxes................... (207) 338 435 (213) 940 89 1,178
Income tax benefit........ -0- -0- -0- -0- 407 -0- -0-
------ ------ ------ ------ ------ ------ ------
Net income (loss)........ $ (207) $ 338 $ 435 $ (213) $1,347 $ 89 $1,178
====== ====== ====== ====== ====== ====== ======
Net income (loss) per
share.................... $(0.10) $ 0.12 $ 0.13 $(0.06) $ 0.37 $ 0.03 $ 0.31
====== ====== ====== ====== ====== ====== ======
Weighted average common
and common equivalent
shares outstanding....... 1,982 2,899 3,236 3,455 3,650 3,497 3,825
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------------- APRIL 30,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $1,159 $1,502 $3,071 $3,253 $4,132 $5,351
Total assets...................... 2,049 2,370 4,005 4,449 6,098 7,404
Long-term debt.................... 182 -0- -0- -0- -0- -0-
Shareholders' equity.............. 1,436 1,833 3,384 3,719 5,145 6,530
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus, including the information set forth in this section and the
information incorporated by reference herein, contains forward-looking
statements. Actual results could differ significantly from those contained in
the forward-looking statements. In connection with the forward-looking
statements which appear in these disclosures, prospective purchasers of the
Common Stock offered hereby should carefully review the factors set forth in
this Prospectus under "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Certain Factors Affecting
Future Performance."
OVERVIEW
The Company was founded in 1982 to commercialize technology for statistical
pattern recognition as applied to the then new machine vision market. In 1984,
the Company introduced its only product based on this technology, the APP 200.
In 1986, the Company introduced the APP 250, which employed direct contrast
sensing hardware which was more appropriate for factory automation
applications. The APP 300, which implemented a user-friendly interface
(Inspection Manager), was introduced in 1988.
The Company embarked on a new product direction in 1989, with the launching
of a project to develop an easy-to-use and fast machine vision system for the
end user market. This project focused on the development of an icon-based
graphical user interface operating under Microsoft(R) Windows(TM) and
proprietary hardware designed to plug into standard PC architecture. The first
product of this effort, the 400VPC, was introduced in 1991. The 400VPC, with
the Company's proprietary VPM software, was the first system for the end-user
machine vision market to use an icon-based graphical user interface operating
under Microsoft(R) Windows(TM). The basic architecture of the VPC series and
VPM form the foundation of the Company's current Passport and Scout family of
machine vision systems introduced in 1994. The Company has made significant
investments in product development and is continuing to invest in next
generation software and hardware architecture that will expand its lead in
speed, ease-of-use and the ability to deliver cost effective complete
solutions to its customers. The Company's basic software and hardware
architecture, together with an increasing array of specific software tools
such as the Connector Tool, have been the major drivers of the Company's
growth.
In recent years, the Company has directed significant resources to building
its sales and applications engineering capabilities, its corporate
infrastructure and its research and product development activities to support
expanded sales of its family of complete machine vision systems to the end
user market. In fiscal 1994 the Company recognized a net loss of $0.2 million
due to the significant investment in infrastructure, combined with a lag in
timing of order flow. However, the Company began to realize the benefit of
these investments in fiscal 1995 when a substantial growth in revenues
generated net income before taxes of $0.9 million. Although operating expenses
are expected to continue to grow in absolute dollar amounts, the Company
expects its efforts to generate significant increases in net revenues will not
require escalating increases in such expenditures as a percentage of net
revenues.
11
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data (i) expressed as a
percentage of net revenues for the years ended October 31, 1993, 1994 and 1995
and for the six months ended April 30, 1995 and 1996 and (ii) expressed as a
percentage increase from the previous period's results:
<TABLE>
<CAPTION>
PERCENTAGE OF NET
REVENUES PERCENTAGE INCREASE
---------------------------- --------------------------
SIX
MONTHS SIX MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
OCTOBER 31, APRIL 30, OCTOBER 31, APRIL 30,
---------------- ---------- --------------- ----------
1993 1994 1995
1993 1994 1995 1995 1996 TO 1994 TO 1995 TO 1996
---- ---- ---- ---- ---- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... 100% 100% 100% 100% 100% 11% 48% 59%
Gross profit............... 57 54 54 53 59 5 49 79
Selling expenses........... 27 30 23 27 19 25 16 15
General and administrative
expenses.................. 9 11 9 9 8 29 20 48
Research and development
expenses.................. 14 17 13 15 14 36 15 46
Income (loss) from
operations................ 7 (4) 9 2 18 -- -- 1,594
Net income (loss).......... 7 (3) 14 2 19 -- -- 1,217
</TABLE>
Comparison of Six Months Ended April 30, 1996 to Six Months Ended April 30,
1995
Net Revenues. Net revenues increased 59% to $6.3 million for the six month
period ended April 30, 1996 compared to net revenues of $4.0 million for the
same period in fiscal 1995. The increase in net revenues in fiscal 1996 was
due to a 61% growth in unit sales, with sales of the Company's machine vision
systems increasing to 229 in the first six months of fiscal 1996 versus 142
for the same period in fiscal 1995. The Company attributes its sales growth to
increased demand in all markets, with particularly strong results shown
internationally. In the first six months of fiscal 1996 net revenues increased
89% outside North America and 49% in North America over the same period in the
prior year. Sales to customers outside North America represented 34% of net
revenues for the six month period ended April 30, 1996, compared to 29% for
the same period in fiscal 1995. The increase internationally is primarily the
result of increased sales to electronic component manufacturers in the Far
East through international distributors. The increase in North America is
primarily the result of increased sales to electronics and automobile
manufacturers.
Gross Profit. Gross profit increased 79% to $3.8 million for the six month
period ended April 30, 1996, compared to $2.1 million for the same period in
fiscal 1995. As a percentage of net revenues, the gross profit increased to
59% from 53% for the same period in fiscal 1995. The increase in gross profit
as a percentage of net revenues in 1996 is primarily due to economies of scale
related to increasing volume and to decreased material costs. The Company
anticipates that it can support increased net revenues at its current
manufacturing capacity.
Selling Expenses. Selling expenses increased 15% to $1.2 million for the six
month period ended April 30, 1996, compared to $1.1 million for the same
period in fiscal 1995. As a percentage of net revenues, selling expenses
declined to 19% for the first six months of fiscal 1996 from 27% for the same
period in fiscal 1995. The decline in selling expenses as a percentage of net
revenues is primarily due to the Company's ability to leverage its sales,
applications engineering and international distribution infrastructure.
Selling expenses for international sales are generally incurred by the
Company's distributors. Although the Company anticipates selling expenses to
increase in the remainder of fiscal 1996 as the Company invests additional
amounts in sales and applications engineering, the Company believes that these
expenditures will not increase substantially as a percentage of net revenues
for the remainder of this fiscal year.
General and Administrative Expenses. General and administrative expenses
increased 48% to $0.5 million for the six month period ended April 30, 1996,
compared with $0.4 million for the same period in fiscal 1995. As a percentage
of net revenues, general and administrative expenses decreased to 8% for
12
<PAGE>
the first six months of fiscal 1996, compared to 9% for the same period in
fiscal 1995. The increase in expenditures in the first six months of 1996 is
primarily attributable to increased expenses associated with operating the
Company as it continues to grow and to investments in management
infrastructure. The decrease as a percentage of net revenues is mainly related
to operating leverage provided by the Company's growing revenue base. The
Company believes that general and administrative expenses may decline slightly
as a percentage of net revenues during the remainder of fiscal 1996.
Research and Development Expenses. Research and development expenses
increased 46% to $0.9 million for the six month period ended April 30, 1996,
compared with $0.6 million for the same period in fiscal 1995. Research and
development expenses as a percentage of net revenues declined to 14% for the
first six months of fiscal 1996, compared to 15% for the same period in fiscal
1995. The increase in expenses in the first six months of fiscal 1996 is
mainly due to new product development programs and increased staffing to
support these efforts. The decline as a percentage of net revenues in the
first six months of fiscal 1996 is the result of the Company's growing revenue
base. As the Company continues to invest in next generation software and
hardware development, it expects research and development expenses may remain
constant or increase slightly as a percentage of net revenues during the
remainder of fiscal 1996.
Income Tax Benefit. No income tax expense or benefit was recorded in the six
month period ended April 30, 1996 or in the same period in fiscal 1995.
Depending on the results of operations for the last six months of fiscal 1996,
the Company may determine that it is prudent and necessary to fully recognize
the remaining potential future tax benefits of loss carry forwards and net
deductible temporary differences available to offset taxable income in future
periods.
Comparison of Year Ended October 31, 1995 to Year Ended October 31, 1994
Net Revenues. Net revenues in fiscal 1995 increased 48% to $9.7 million,
compared with $6.6 million for fiscal 1994. The increase in net revenues was
due to a 48% growth in unit sales, with sales of the Company's machine vision
systems increasing to 333 in fiscal 1995 versus 225 in fiscal 1994. The
Company attributes its sales growth to increased demand in all markets, with
particularly strong results in international markets. In fiscal 1995 revenues
increased 84% outside of North America and 35% in North America. The increase
internationally was primarily the result of a 492% increase in Far East sales
through distributors. The increase in North America is primarily due to demand
in the electronic components market as well as increased sales to systems
integrators.
Gross Profit. Gross profit for fiscal 1995 increased 49% to $5.3 million,
compared with $3.6 million for fiscal 1994. The gross profit as a percentage
of net revenues for fiscal 1995 remained constant at 54%.
Selling Expenses. Selling expenses increased 16% to $2.3 million in fiscal
1995, compared with $2.0 million in fiscal 1994. As a percentage of net
revenues, fiscal 1995 selling expenses declined to 23% from 30% in fiscal
1994. The increase in selling expenses in 1995 was related to expanded
marketing and promotion efforts and the addition of new employees in the sales
and customer support areas. The decline in selling expenses as a percentage of
net revenues in fiscal 1995 is primarily due to increased productivity from
the Company's sales and applications engineering teams and increased sales
through international distributors.
General and Administrative Expenses. General and administrative expenses
increased 20% to $0.9 million in fiscal 1995, compared with $0.7 million in
fiscal 1994. As a percentage of net revenues, general and administrative
expenses decreased to 9% in fiscal 1995 compared with 11% in fiscal 1994. The
increase in expenditures in 1995 was primarily due to incurring a full year of
lease expense in the Company's new facility and investments in management
infrastructure. The decrease as a percentage of net revenues is mainly related
to operating leverage provided by the Company's growing revenue base.
13
<PAGE>
Research and Development Expenses. Research and development expenses
increased 15% to $1.3 million in fiscal 1995 from $1.1 million in fiscal 1994.
Research and development expenses as a percentage of net revenues declined to
13% in fiscal 1995 from 17% in fiscal 1994. The increase in expenditures in
1995 is mainly due to new product development programs and the necessary new
employees to support these efforts. The decline as a percentage of net
revenues in 1995 is the result of the Company's growing revenue base.
Income Tax Benefit. The income tax benefit of $407,000 recorded in fiscal
1995 reflects partial recognition of the potential future tax benefits of loss
carry forwards and net deductible temporary differences available to offset
taxable income in future periods. No income tax expense or benefit was
recorded in fiscal 1994.
Comparison of Year Ended October 31, 1994 to Year Ended October 31, 1993
Net Revenues. Net revenues in fiscal 1994 increased 11% to $6.6 million,
compared with $5.9 million in fiscal 1993. Unit sales of the Company's machine
vision systems increased to 225 in fiscal 1994 versus 186 in fiscal 1993. In
fiscal 1994 net revenues increased 131% outside of North America and declined
7% in North America. The increase internationally is primarily the result of
increased sales in Europe through distributors. The decline in North America
in fiscal 1994 is primarily the result of unusually low first quarter order
flow following a very large number of shipments in the fourth quarter of
fiscal 1993.
Gross Profit. Gross profit for fiscal 1994 increased 5% to $3.6 million,
compared with $3.4 million for fiscal 1993. The gross profit as a percentage
of net revenues for fiscal 1994 was 54%, compared with 57% for fiscal 1993.
The decline in gross profit as a percentage of net revenues for fiscal 1994
was primarily due to start-up costs related to the introduction of the
Passport and Scout product lines as well as the portion of increased
expenditures related to the move to the Company's new facility in fiscal 1994
that was allocated to cost of sales.
Selling Expenses. Selling expenses increased 25% to $2.0 million in fiscal
1994, compared with $1.6 million in fiscal 1993. As a percentage of net
revenues, fiscal 1994 selling expenses increased to 30% from 27% in fiscal
1993. The increase in selling expenses in fiscal 1994 was due primarily to
investments by the Company in its sales and applications engineering
infrastructure.
General and Administrative Expenses. General and administrative expenses
increased 29% to $0.7 million in fiscal 1994, compared with $0.6 million in
fiscal 1993. As a percentage of net revenues, general and administrative
expenses increased to 11% in fiscal 1994, compared with 9% in fiscal 1993. The
increase in expenditures in 1994 was primarily due to increased expenses
associated with operating the Company as it continued to grow and with
increased expenditures incurred in the move to its new facility during fiscal
1994.
Research and Development Expenses. Research and development expenses
increased 36% to $1.1 million in fiscal 1994 from $0.8 million in fiscal 1993.
Research and development expenses as a percentage of net revenues increased to
17% in fiscal 1994 from 14% in fiscal 1993. The increase in expenditures in
fiscal 1994 reflected increased personnel expenses and costs associated with
the continuation of enhancements for software tools and development work on
the Company's Passport and Scout product lines.
Quarterly Comparisons
The following table sets forth certain quarterly financial data for the
first two quarters in 1996 and the four quarters in each of fiscal years 1995
and 1994, as well as certain of such information expressed as a percentage of
net revenues for the same periods. This quarterly information is unaudited but
has been prepared on the same basis as the annual financial statements and, in
management's opinion, reflects all adjustments, consisting only of normal
recurring adjustments required for a fair presentation
14
<PAGE>
of the information for the periods presented. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------
JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues............ $1,283 $1,669 $1,632 $2,004 $2,029 $1,966 $2,751 $3,004 $3,135 $3,212
Gross profit............ 692 975 817 1,077 1,066 1,042 1,506 1,694 1,832 1,944
Income (loss) from
operations............. (142) 6 (148) 31 48 19 296 517 534 593
Net income (loss)....... (135) 16 (137) 43 56 33 315 943 557 621
Net income (loss) per
share.................. (0.04) 0.00 (0.04) 0.01 0.02 0.01 0.09 0.25 0.15 0.16
AS A PERCENTAGE OF NET REVENUES:
Gross profit............ 54% 58% 50% 54% 53% 53% 55% 56% 58% 61%
Income (loss) from
operations............. (11)% 0% (9)% 2% 2% 1% 11% 17% 17% 18%
Net income (loss)....... (11)% 1% (8)% 2% 3% 2% 11% 31% 18% 19%
</TABLE>
The Company has experienced quarterly fluctuations in operating results and
anticipates that these fluctuations will continue. These fluctuations have been
caused by various factors, including the number and timing of new product
introductions and enhancements, the buying patterns of the Company's target
markets, the timing of product shipments and marketing. Future operating
results may fluctuate as a result of these and other factors, including the
Company's ability to continue to develop innovative products, the announcement
or introduction of new products by the Company's competitors, the Company's
product and customer mix, the level of competition and overall trends in the
economy.
Net revenues have generally increased from quarter to quarter since the first
quarter of fiscal 1994 which ended January 31, 1994. Net revenues of $1.3
million in that quarter decreased significantly from net revenues of $2.1
million for the preceding quarter ended October 31, 1993, which was the result
of a very large number of orders being completed and shipped in the earlier
quarter. Such fluctuations in quarter-to-quarter net revenues may occur in the
future due to variations in product mix and the long selling cycle and
application-specific customer requirements inherent in the end user machine
vision market. Furthermore, given that the Company attempts to ship products
within a relatively short time of specific product orders, quarter-to-quarter
comparisons will be significantly affected by order flow and the timing and
acceptance of new product introductions.
The Company's gross profit in the quarter ended April 30, 1994 increased due
to an unusually large order for the Company's Image Processor and Framegrabber
board sets, which carry a higher gross margin than complete vision systems. The
gross profit in the quarter ended July 31, 1994 declined due to the shipment of
an order which carried a lower gross profit percentage due to an unusually high
pass-through element of cost. This order consisted of equipment purchased by
the Company to be integrated with the Company's machine vision system which was
passed on to the customer at minimal increase in cost. The Company does not
anticipate incurring similar cost of sales charges in the future. Gross profit
as a percentage of net revenues has been increasing beginning with the quarter
ended July 31, 1995 due to economies of scale related to increasing volume and
to reduced material costs. Net income for the quarter ended October 31, 1995
includes the impact of an income tax benefit of $407,000.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $5.4 million on April 30, 1996 from $4.1 million
on October 31, 1995. The Company financed its increased sales in the first six
months of fiscal 1996 through internally generated cash flow and existing cash
and cash equivalents. Net cash provided from operating activities was $0.5
million for the six month period ended April 30, 1996. Due to the increased
level of sales activity and a higher percentage of sales occurring in the last
half of the second quarter ended April 30,
15
<PAGE>
1996, accounts receivable increased $0.4 million during the first six months of
fiscal 1996. Inventories increased $0.3 million during the first six months of
fiscal 1996 due to raw material purchases to support increased sales and new
product introductions. The Company used $0.3 million in cash flow in investing
activities, primarily for the purchase of capital equipment. In addition, the
Company generated $0.2 million from its financing activities as a result of
issuances of its Common Stock upon exercise of stock options and warrants.
Current assets increased to $6.1 million at April 30, 1996 from $4.9 million
at October 31, 1995. This increase was primarily due to an increase in cash and
cash equivalents to $1.7 million at April 30, 1996 from $1.2 million at October
31, 1995. Accounts receivable also increased to $3.1 million at April 30, 1996
from $2.7 million at October 31, 1995.
The Company's current liabilities decreased to $0.7 million at April 30, 1996
from $0.8 million at October 31, 1995. This was mainly due to lower trade
accounts payable.
The Company believes that its cash flow from operations, existing cash and
cash equivalents at April 30, 1996 and the net proceeds of this offering will
be adequate for its foreseeable operating needs.
CERTAIN FACTORS AFFECTING FUTURE PERFORMANCE
Although the Company has experienced significant growth in net revenues over
the past five years, there can be no assurance that prior growth rates are
indicative of future operating results. In addition, while the Company has
directed, and intends to continue to direct, significant resources to building
its sales and applications engineering capabilities, corporate infrastructure
and research and product development activities, there can be no assurance that
such investments will result in increased net revenues or more favorable
operating margins. Future operating results may fluctuate due to factors such
as demand for the Company's machine vision systems, technological change, the
introduction by the Company or its competitors of new products, product
enhancements or services, the acceptance by the Company's customers of such new
products, product enhancements or services, demand for the products of the
Company's customers, the capital spending patterns of the Company's customers,
availability of components integral to the functioning of the Company's
products, changes in the level of operating expenses and competitive conditions
in the machine vision industry.
The machine vision industry is highly fragmented and the Company faces
competition from a number of companies in the machine vision market, some of
which have greater manufacturing and marketing capabilities and greater
financial, technological and personnel resources than the Company. The Company
may incur significant costs in connection with its engineering research,
development, marketing and customer service efforts in order to maintain or
enhance its competitive position. In addition, the Company and certain of its
competitors which are public companies have historically reported strong
operating margins. However, while to date the Company has not experienced
significant price competition, competitive pressures may in the future result
in price competition among the Company and its competitors which would
negatively affect operating margins in general for companies in the machine
vision industry and, specifically, could materially and adversely affect the
Company's financial condition and results of operations.
The Company anticipates that international sales will continue to account for
a significant portion of its net revenues. International sales are subject to a
number of risks, including various regulatory requirements, political and
economic changes and disruptions, transportation delays and difficulties in
staffing and managing foreign sales operations and distributor relationships.
In addition, fluctuations in exchange rates may render the Company's products
less price competitive relative to local product offerings. These factors may,
in the future, contribute to fluctuations in the Company's financial condition
and results of operations. Although the Company's results of operations have
not been materially adversely affected to date by these factors, the long-term
impact of these factors on the Company's financial condition or results of
operations, including any possible affect on the business outlook in other
developing countries, cannot be predicted.
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<PAGE>
BUSINESS
OVERVIEW
PPT VISION is a leading designer, manufacturer, marketer and integrator of a
complete family of machine vision systems for end user manufacturers, system
integrators and machine builders. The Company's machine vision systems consist
of a combination of proprietary computer software and hardware, cameras and
lighting, working together to capture and analyze images of moving parts to
determine the quality of manufactured parts and control manufacturing
processes. PPT VISION's systems enable manufacturers to achieve 100% on-line
inspection, thus achieving zero defect production, in situations where
previously only random sampling or less precise human inspection was used as a
means of monitoring quality. In addition to functioning as a quality control
tool, PPT VISION systems provide manufacturers a window on their manufacturing
processes by producing real-time statistical process control feedback. This
allows manufacturers to take earlier corrective action to improve their
manufacturing process.
The Company's machine vision systems are used for a broad range of
manufacturing applications, including electronic and mechanical assembly
verification, verification of printed characters, packaging integrity, surface
flaw detection and gauging and measurement tasks. The Company's systems are
sold principally throughout North America, Europe and the Far East to various
industries, including electronics, pharmaceutical, medical, automotive,
consumer products and plastics. Major manufacturing end users of PPT VISION
systems include AMP, Abbott Labs, Berg Electronics, Chrysler, the Delphi
Electronic Division of General Motors, Imation, Johnson & Johnson, Kemet,
Molex, Siemens and 3M.
PPT VISION believes that it has a leadership position as the most vertically
integrated developer of machine vision systems and solutions for a wide range
of manufacturing applications. Through this approach, PPT VISION can rapidly
and cost-effectively provide machine vision system solutions to a wide variety
of manufacturing end users while enabling them to concentrate their engineering
and manufacturing expertise on the products they manufacture. PPT VISION's
library of machine vision software tools enables end users to implement machine
vision solutions to a growing number of manufacturing applications quickly and
cost effectively.
BACKGROUND
A machine vision system consists of computer software and hardware, working
together with cameras and lighting, to perform image analysis and image
processing for automated inspection, measurement and identification functions
in the manufacturing process. Commercial use of machine vision technology for
manufacturing quality control began to emerge in the early 1980s. However,
machine vision systems at that time were complex to program and maintain,
difficult to install, limited in performance and not cost effective. Through
advances in microprocessor and software technologies, these barriers have been
removed, enabling machine vision to emerge as a powerful process control
technology that allows manufacturers to improve quality and increase
productivity.
The machine vision market is large and highly fragmented. The AIA estimates
that the North American market for machine vision systems in 1995 was
approximately $900 million, with worldwide levels estimated at approximately
$2.3 billion. The AIA expects this market to grow at approximately 15% per year
through the year 2000. According to the AIA, over 70% of the estimated 200
companies in the North American machine vision market have less than $5 million
in annual revenues. Demand for machine vision systems comes from end user
manufacturers who apply these systems as an integral part of their
manufacturing process, OEMs who incorporate machine vision systems into their
products, systems integrators and machine builders. The AIA estimates that a
substantial majority of the North American market for machine vision systems
consists of sales to end user manufacturers.
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A key factor in the expansion of the machine vision market is the growth in
the demand for machine vision systems in the semiconductor and electronics
industries. The growth in demand for personal computers, cellular
communications and other electronic devices, as well as the increase in
electronic components inside other products such as consumer appliances and
automobiles, is stimulating demand for electronic and semiconductor components.
In an effort to rapidly ramp up manufacturing capability while at the same time
introducing innovative new designs and improving quality, manufacturers of
these components are increasingly turning to machine vision as a vital part of
their manufacturing process.
The growth of the end user machine vision market is also being driven by
global competitive trends, which have led manufacturers worldwide to
dramatically redesign manufacturing processes in order to reduce cost and
increase productivity and quality. In order to meet today's manufacturing
quality requirements, statistical sampling methods are insufficient and 100%
on-line inspection is required. To accomplish these objectives, manufacturers
are increasingly adopting machine vision solutions.
Manufacturers are demanding expanded capabilities from machine vision
systems, including faster processing capabilities and greater ease of use.
Manufacturers are also demanding more comprehensive services from machine
vision providers, including application engineering, technical support and
training. Furthermore, manufacturers are seeking the ability to monitor trends,
to better comprehend the manufacturing process and to identify problems. In
addition, manufacturers are being challenged to maintain high production levels
which require rapid set up times, flexibility and seamless networking with the
host manufacturing control system to provide comprehensive diagnostic and
process control feedback.
THE PPT VISION SOLUTION
The Company's machine vision systems are primarily targeted at providing
manufacturers with 100% on-line inspection in high speed discrete part
manufacturing applications. This typically replaces older off-line random
sampling techniques or human vision inspection techniques as a means of
monitoring quality, thus enabling manufacturers to achieve zero defect
production.
PPT VISION's family of machine vision systems which include its proprietary
VPM graphical programming software provide significant performance advantages
that meet manufacturers' critical requirements. These requirements include high
speed, flexibility, ease-of-use, networkability and statistical feedback, all
without sacrificing performance. All PPT VISION systems are supported by the
Company's focus on providing its customers with complete solutions, not just
components, and a major commitment to providing its customers with value-added
application engineering services.
PPT VISION has developed products which have specific advantages in terms of
speed and ease-of-use. The Company's machine vision systems are capable of
operating speeds of over 12,000 parts per minute performing 100% on-line
inspection. This speed is critical to successfully employing machine vision in
many applications. PPT VISION also pioneered the use of an icon-based visual
programming system (VPM) operating in the Microsoft(R) Windows(TM) environment.
Users are able to program the Company's systems by creating a flowchart of
icons linked together rather than having to write a computer program in a
programming language such as C or using a complex, pull-down menu-based system.
This results in lower cost and time for implementation.
The Company is pursuing what it believes is the most fully vertically
integrated business model in the machine vision industry. PPT VISION develops
its own image acquisition and processing hardware, image analysis software,
application specific software tools and general purpose graphical user
interface. The Company also provides lighting solutions and value-added
application engineering services on a direct basis to manufacturers. These
capabilities enable PPT VISION to provide its customers with (i)
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application specific software tools (such as the Connector Tool used for
inspection of fully assembled electronic connectors), (ii) complete
application specific products (such as the Stampede providing high speed
inspection for precision metal stamping applications), and (iii) complete
custom solutions. This strategy enables PPT VISION to leverage its investment
in core software and hardware architectures while providing improved service
for the end user manufacturing customers. In addition, PPT VISION markets its
vision systems to manufacturing system integrators and machine builders who
address the end user market with unique expertise in specific vertical
markets. Many system integrators and machine builders prefer to use the
Company's complete vision systems, which enable them to reduce programming
development time, save money and concentrate their expertise on material
handling and integration issues. The Company believes that this business model
gives it a decisive competitive advantage in providing cost effective,
complete solutions to the end user machine vision market.
PPT VISION STRATEGY
The Company's objective is to be a worldwide leader in the design,
manufacture, marketing and integration of machine vision systems for automated
manufacturing applications in the end user machine vision market. Through the
successful integration of the Company's five core competencies, including
image acquisition, image processing, application development software, optics
and illumination and vision system integration, the Company believes it will
be able to meet its objective and successfully implement its strategy.
Key elements of the Company's strategy include:
. Provide Complete Solutions to End Users. The Company focuses on providing
complete machine vision solutions to end user manufacturers, system
integrators and machine builders. PPT VISION is pursuing what it believes
to be the most fully vertically integrated business model in the
industry, including the design, manufacturing, marketing and integration
of complete machine vision solutions. The Company believes this provides
it with a competitive advantage in delivering cost effective complete
vision solutions.
. Extend Technology Leadership in Speed and Ease-of-Use. The Company is
continuing to aggressively invest in next generation software and
hardware architectures that will expand its lead in speed, ease-of-use
and the ability to deliver cost effective complete solutions to its
customers. New products currently in development will feature significant
enhancements in speed, accuracy and breadth of application through new
proprietary technology. Key software products will enable support for
different hardware and user interfaces, as well as increasing the
development speed of application specific software tools.
. Target Expanding Markets Through Continued Development of Application
Specific Software Tools. The Company's application specific software
tools are a proven solution for a wide variety of electronic component
inspection applications. In response to the worldwide expansion of the
semiconductor and electronics industries, the Company is developing
additional software tools for electronic component, electronics and
semiconductor applications. The Company also focuses considerable effort
on expanding the offerings of application specific software tools to the
industries it identifies as being poised to exhibit significant growth in
demand for machine vision solutions, such as pharmaceuticals, medical
devices, automotive and plastics.
. Provide a Superior Level of Value-Added Application Engineering Support.
The Company delivers a high level of value-added application engineering
support to its end user customers through its own in-house applications
engineering resources. Manufacturing end users increasingly want to
concentrate their engineering expertise on the products they manufacture,
not on engineering machine vision systems. They are seeking complete
machine vision solutions with the associated application engineering
support on an on-going basis.
. Increase International Market Presence. The Company is aggressively
focusing on increasing its market share in the worldwide machine vision
market. The Company believes international
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<PAGE>
markets represent a significant opportunity and intends to capture a
significant share of this market through investment and expansion in its
international sales distribution and support infrastructure.
PRODUCTS
PPT VISION's systems consist of proprietary software and hardware working
together with cameras and lighting to capture and analyze images of parts on-
line. The four key process steps in the PPT VISION solution are lighting and
optics, image acquisition, image processing and outputs. In lighting and
optics, cameras, lenses and lighting options are configured to capture a high-
definition image of each part as it passes the camera. Image acquisition
involves capturing an image at extremely high rates of speed and preparing the
image for further processing. In image processing, the machine vision system
measures critical part features and compares algorithmically the digital image
to a preset standard that has been programmed into the system. The output
function typically involves sending the results of the inspection process to
the production line controller or the host manufacturing control system, as
well as providing real-time process control data which can be used to improve
the production process over time.
TYPICAL PPT VISION SYSTEM CONFIGURATION EXAMPLE
[GRAPHIC OF TYPICAL SYSTEM CONFIGURATION (INCLUDING PROCESSOR, MONITOR AND
SAMPLE CONVEYOR) APPEARS HERE]
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Software Operating System and Tools. All PPT VISION systems run on
proprietary software in a Microsoft(R) Windows(TM) environment using the
Company's VPM user interface. VPM is an icon-based, graphical language which
is easy to use and extremely flexible. It allows the Company's customers to
create complete inspection solutions with no training in computer programming
languages. Instead of writing a computer program in a programming language
such as C or using a complex, pull-down menu-based system, the vision system
is set up by creating visual flowcharts. Clicking the trackball, the user
graphically grabs icons (representing machine vision functions) out of system
toolboxes and arranges them in the workspace on the system monitor. The icons
are then connected with different colored lines to indicate execution and data
flow throughout the inspection routine.
Machine vision functions are performed by the Company's extensive set of
software tools. PPT VISION has developed a library of over 40 vision tools
contained in four toolboxes covering imaging, input/output ("I/O"), utility
and control functions. The Company's imaging toolbox contains all system tools
directly associated with image acquisition, processing and analysis. These
tools provide access to all of the Company's vision algorithms, which are the
vital core of all inspections performed by its vision systems. The I/O toolbox
holds all the tools which permit an inspection developer to control vision
system input and output options. These tools allow for system networking, data
collection and application control. The tools in the utility and control
toolboxes access functions such as counters, reset and display functions, math
and logical operations, data collection and screen controls. These toolboxes
also provide control of data flow to a variety of peripherals such as disk
drives, serial ports and Microsoft(R) Visual Basic(TM) programs.
TYPICAL PPT VISION GRAPHICAL USER INTERFACE
[GRAPHIC OF VPM GRAPHICAL USER INTERFACE (INCLUDES SAMPLE PROGRAM AND
TOOLBOXES) APPEARS HERE]
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Hardware Architecture. PPT VISION's machine vision processor includes the
Company's proprietary high performance Framegrabber and Image Processor boards
with a Texas Instruments DSP (digital signal processor) and high speed
pipeline architecture along with an integrated PC for inspection set-up and
networking and fully integrated I/O capability. All PPT VISION systems are
capable of capturing full framed video images at a rate of up to 3,600 images
per minute, in both strobed and shuttered modes. Most competitors are limited
to capturing full frame images at 1,800 images per minute, which is the
industry standard. Much higher inspection rates are achieved through the use
of the Company's exclusive partial scanning technology and split-screen
imaging, which enables speeds of over 12,000 parts per minute.
PPT VISION Product Family. The Company's machine vision systems are the
Passport 440, Passport 240, Scout and Stampede. Each of these systems includes
a machine vision processor, a Super VGA touch-screen color display monitor and
VPM.
The Passport 440 is the Company's top of the line product, designed to
operate with up to four asynchronously functioning cameras for multiple
inspection views and complex imaging tasks. The Passport 240 has all of the
basic capabilities of the Passport 440 in a two-camera model. Both systems are
housed in industrially rugged enclosures and are capable of operating at
speeds of over 12,000 inspections per minute. These systems are widely used in
the electronic connector, metal stamping and automotive components industries
that demand speed, accuracy and flexibility while maintaining industrial
ruggedness.
The Scout is a cost-effective machine vision system designed for industrial
applications that do not require rugged enclosures. It is packaged in a non-
industrial desktop style enclosure and is capable of running two cameras with
similar speed and power to the Passport 240.
The Stampede is a turnkey inspection system specifically designed for the
precision stamping industry. The system includes a Passport vision processor,
mechanical fixturing, precision camera optics and lighting integrated on a
mobile platform.
In addition, the Company sells a broad range of peripheral services and
components, including applications engineering, installation and training
services, customer lighting solutions, fixturing, cameras, cabling and various
software options.
MARKETS AND CUSTOMERS
The Company sells its products to a broad range of industries, including
manufacturers of electronic components, pharmaceuticals, medical devices,
automotive components, consumer products and plastics. As of April 30, 1996,
the Company had sold 1,337 machine vision systems to over 200 customers, since
inception. In the area of electronic components, eight of the ten largest
electronic connector manufacturers in the world have purchased PPT VISION
systems. These companies are included in the list shown below.
The following is a representative list of end users of the Company's
products.
AMP ITT Cannon Philips
Abbott Labs Imation Reynolds Metals
Akso I-Stat Siemens
Allied Signal JST Sumitomo
Augat Japan Aviation Electronics Suzuki
Berg Electronics Johnson & Johnson Syntex
Chrysler Kemet Thomas & Betts
Framatome Molex 3M
Ford Motorola Toshiba
GM-Delphi Division Novo Nordisk United Technologies
Hewlett Packard Philip Morris Vishay
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In each of the past several years, the Company has had one or more customers
that have accounted for ten percent or more of the Company's net revenues.
During the fiscal year ended October 31, 1995, sales to one customer, Simac
Masic B.V., a European distributor for the Company, represented 17% of net
revenues. In addition, direct sales to AMP, Inc. represented 10% of net
revenues for fiscal 1995. The Company also realizes substantial additional
sales to AMP, Inc. indirectly through other channels, including systems
integrators, machine builders and international distributors.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company sells its products primarily on a direct basis in the United
States to end users, system integrators and machine builders. Outside the
United States, the Company sells primarily through a network of five
distributors covering Europe, Singapore, Taiwan, Korea and Japan. The Company
markets its products through appearances at industry trade shows, advertising
in industry journals, articles published in industry and technical journals and
through direct-selling in specific vertical markets. In addition, the Company's
strong customer relationships serve as valuable references.
The Company focuses on delivering a high level of value-added applications
engineering support to its end user customers through its own in-house
applications engineering resources. The Company also provides extensive
training opportunities for its customers, either at the Company's facilities or
on-site at the customer's facilities.
The Company's sales and applications engineering departments are structured
along a team concept, with each team having dedicated sales and applications
engineering resources. The Company believes this team approach provides it with
increased flexibility in responding to customers' needs.
The following table sets forth the percentage of the Company's net revenues
(including sales delivered through international distributors) by geographic
location during the past three years:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, SIX MONTHS
-------------- ENDED APRIL 30,
1993 1994 1995 1996
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
North America.............................. 87% 73% 67% 66%
Europe..................................... 10% 24% 21% 18%
Far East................................... 3% 3% 12% 16%
</TABLE>
Substantially all of the Company's export sales are negotiated, invoiced and
paid in United States dollars.
BACKLOG
The Company does not believe backlog is a key indicator of future revenues in
the end user machine vision market. PPT VISION products are typically shipped
within 30 days after receipt of an order. The Company believes that maintaining
as short a time as practical for delivery is a competitive advantage in the end
user machine vision market. The nature of the end user machine vision market is
that customers do not normally place orders for large multiples of units with
scheduled deliveries over many months. Rather, end user machine vision
addresses a specific application or problem at a specific manufacturing site.
In this environment the Company focuses considerable attention on managing the
sales pipeline to ensure that sales targets are achieved. However, the Company
has received orders from certain customers with deliveries scheduled throughout
fiscal 1996. Product backlog was $2.2 million at April 30, 1996, of which
approximately $1.0 million is deliverable in the third quarter of fiscal 1996,
as compared with $0.8 million at April 30, 1995, of which $0.7 million was
deliverable in the third quarter of fiscal 1995.
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RESEARCH AND PRODUCT DEVELOPMENT
PPT VISION's products are distinguished by the Company's proprietary
technology and its significant commitment to research and product development
efforts. The Company's research and product development efforts are focused on
its five core competencies, including image acquisition, imaging processing,
application development software, optics and illumination and vision system
integration. The Company believes that the integration of these core
competencies is essential to achieving long term success in the machine vision
market. The Company's five core competencies can be described as follows:
Image Acquisition. This refers to the means and methods by which an image
is captured, stored, and then made available for subsequent processing and
display. Image acquisition combines the disciplines of photo-optics and
electrical engineering.
Imaging Processing. This refers to the means and methods whereby an image
is analyzed or enhanced to produce some desired information, measurements
or results. Image processing combines the disciplines of software
engineering, mathematics, algorithm development and electrical engineering
to implement efficient solutions to computationally complex problems.
Typical image processing tasks include real-time inspection, guidance,
gauging and recognition.
Application Development Software. This refers to the means and methods
whereby a machine vision system is configured and controlled. The
development and support of applications development software requires
expertise in the disciplines of object-oriented programming, graphical
programming environments, man-machine interfaces, device drivers and
general software engineering.
Optics and Illumination. This refers to the means and methods by which a
scene is illuminated and optically presented to an input device such as a
video camera. Special optics and illumination techniques are often used to
reveal features in an image which would otherwise go undetected or to
optimize an image for subsequent processing. Strobed illumination is often
used to "freeze" the motion of continuously moving parts. Optics and
illumination draw on skills from the disciplines of physics, mechanical
engineering and electrical engineering.
Vision System Integration. This refers to the means and methods whereby a
machine vision system is interfaced to and combined with other factory
automation equipment for purposes of creating a complete solution for the
customer. This may include material handling for part presentation,
mechanical fixturing for mounting camera and lighting components,
networking and programmable controllers for process control and reject
mechanisms for ejection of defective parts.
Various configurations of the Company's products include proprietary design
work performed by the Company's employees in each of these five areas.
PPT VISION believes that continued and timely development of new products
and enhancements to existing product characteristics is essential to
maintaining its competitive position. The Company has committed and expects to
continue to commit substantial resources to its research and development
effort, which plays a significant role in maintaining and advancing its
position as a leading provider of complete machine vision systems. The
Company's current research and development efforts are directed to increasing
performance in image acquisition, image processing and application development
software, which could produce systems with greater speed attributes while also
providing end users with more expanded software tools. New products currently
in development will feature significant enhancements in speed, accuracy and
robustness through new proprietary technology. Key software products will
enable support for different hardware and user interfaces, as well as
increasing the development speed of application specific software tools. The
Company also intends to expand its offerings of application specific software
tools to the industries it identifies as being poised to exhibit significant
growth in demand for machine vision solutions, such as the electronics,
semiconductor, pharmaceutical, medical, automotive, consumer products and
plastics markets.
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Research and development expenditures were $0.8 million, $1.1 million, $1.3
million and $0.9 million during the fiscal years ended October 31, 1993, 1994,
and 1995, and during the six month period ended April 30, 1996, respectively.
MANUFACTURING
The Company assembles, configures and tests its products at its suburban
Minneapolis facility. The Company's printed circuit boards are custom built by
several manufacturers. Most of the components used in the Company's machine
vision systems are available off-the-shelf. However, some components are
available from only a single supplier or from a limited number of suppliers.
The Company typically purchases inventory and builds products in response to
quarterly sales forecasts, enabling it to ship products within 30 days after
receipt of an order.
Much of the Company's product manufacturing, consisting primarily of circuit
board manufacturing and assembly and machined parts production, is contracted
with outside vendors. Company personnel inspect incoming parts and perform
final assembly and testing of finished products. The Company believes that its
outsourcing strategy enables it to employ its resources on the key core
competency areas from which it derives its competitive advantages.
COMPETITION
The machine vision industry is highly fragmented. Recent data provided by the
AIA show that there were approximately 200 machine vision companies in North
America in 1995, of which over 70% had revenues of less than $5 million.
Currently, no competitor holds a significant aggregate market share percentage,
although some dominate individual niches within the overall machine vision
industry. The Company believes that over the next several years, the industry
will experience a continuing trend toward consolidation. However, given the
application specific nature of the industry, the Company also believes that the
machine vision industry will continue to have a relatively large number of
competitors.
Although the Company believes that its products are unique, competitors offer
technologies and systems that are capable of certain of the functions performed
by the Company's products. The Company faces competition from a number of
companies in the machine vision market, some of which have greater
manufacturing and marketing capabilities and greater financial, technological
and personnel resources. Certain competitors in this market include the machine
vision group of Allen Bradley, the Acuity Imaging division of Robotic Vision
Systems, Inc. and Cognex Corporation.
Although the Company believes that its current products offer several
advantages in terms of speed and ease-of-use and although the Company has
attempted to protect the proprietary nature of such products, it is possible
that any of the Company's products could be duplicated by other companies in
the same general market. There can be no assurances that the Company would be
able to compete with similar products produced by a competitor.
PATENTS AND TRADEMARKS
The Company relies on a combination of patent, copyright, trademark and trade
secret laws to establish its proprietary rights in its products. The Company
has applied for foreign and domestic patents with respect to several key
technologies. One United States patent application has been allowed. Although
the Company believes that its patents may have been useful in protecting its
proprietary products and may be useful in protecting potential future products,
the Company also believes its ability to efficiently develop and sell high
performance, cost-effective vision systems on a timely basis, whether patented
or not, is more crucial to the Company's future success. The Company requires
each of its employees to enter into standard agreements pursuant to which the
employee agrees to keep
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confidential all proprietary information of the Company and to assign to the
Company all rights in any proprietary information or technology made or
contributed by the employee during his or her employment or made thereafter as
a result of any inventions conceived or work done during such employment.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the Company's products or technology without
authorization or to develop similar technology independently. In addition,
effective patent, copyright, trademark and trade secret protection may be
unavailable or limited in certain foreign countries.
The Company has obtained United States federal registration of its "PPT
VISION" trademark and has pending registrations for its "Passport" and "Scout"
trademarks. The Company intends to file for federal registration of additional
trademarks in the future. Although no assurance can be given as to the strength
or scope of the Company's trademarks, the Company believes that its trademarks
have been and will be useful in developing and protecting market recognition
for its products.
EMPLOYEES
As of April 30, 1996, the Company had 61 employees, including 22 employees in
research and development, 20 in sales and marketing, 14 in manufacturing and 5
in finance and administration. To date, the Company has been successful in
attracting and retaining qualified technical personnel, although there can be
no assurance that this success will continue. None of the Company's employees
are covered by collective bargaining agreements or are members of a union. The
Company has never experienced a work stoppage and believes that its relations
with its employees are excellent.
PROPERTIES
The Company leases approximately 28,400 square feet of office and
manufacturing space in suburban Minneapolis pursuant to a seven year lease
entered into in March 1994. The Company believes that its facilities are
adequate for its current operations and that additional space will be available
for expansion, if necessary.
LEGAL PROCEEDINGS
From time to time the Company may be involved in litigation relating to
claims arising from its operations in the normal course of business. The
Company is not a party to any pending legal proceedings as of the date of this
Prospectus.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph C. Christenson.......... 37 President, Director
Thomas R. Northenscold......... 38 Chief Financial Officer
Larry G. Paulson............... 45 Vice President of Research and Development,
Secretary, Director
Arye Malek..................... 40 Vice President of Marketing
Bruce C. Huber(1)(2)........... 48 Director
David C. Malmberg(1)(2)........ 53 Director
P. R. Peterson(1)(2)........... 61 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Joseph C. Christenson has been President of the Company since January 1989
and a director since December 1987. Prior to being elected President of the
Company, he had been its Chief Operating Officer and Chief Financial Officer
from December 1987 to December 1988, General Manager and Chief Financial
Officer from August 1986 to November 1987, and financial analyst and marketing
manager since joining the Company in May 1985. Mr. Christenson has a Masters in
Business Administration from the University of Michigan and a Bachelor of Arts
degree from St. Olaf College.
Thomas R. Northenscold has been Chief Financial Officer of the Company since
February 1995. Prior to that, he had been the Senior Vice President of
Operations in the City Directory Division of R.L. Polk and Company, a directory
publishing company, from April 1992 to April 1994. Mr. Northenscold was
previously employed at Cardiac Pacemakers, Inc., a medical device company, in
several finance and operations positions from June 1985 to April 1992. He has a
Masters in Business Administration in finance from the University of Michigan
and a Bachelor of Science degree from Mankato State University.
Larry G. Paulson was a co-founder of the Company and has been Vice President
of Research and Development, Secretary and a director of the Company since
December 1981. Mr. Paulson is also a Registered Professional Engineer and holds
Bachelors and Masters Degrees in Science from the University of Minnesota.
Arye Malek has been the Vice President of Marketing of the Company since May
1996. He joined the Company in May 1990 as a Senior Account Manager and became
Director of International Operations in November 1992. Mr. Malek holds a
Bachelor of Science Degree from the University of Minnesota.
Bruce C. Huber is a Managing Director and the Director of Equity Capital
Markets at Piper Jaffray Inc., a full service investment bank based in
Minneapolis, Minnesota. Mr. Huber has been a director of the Company since
September 1985. Mr. Huber is also a director of Computer Petroleum Corporation.
David C. Malmberg has been the President of David C. Malmberg, Inc., a
consulting and investment management firm, since May 1994. Prior to that time,
he served in various capacities with National Computer Systems, Inc., a global
data collection services and systems company, including Vice Chairman and
President. Mr. Malmberg is Chairman of the Board of National City Bank
Corporation in Minneapolis, Minnesota and serves as a director of Three Five
Systems, Inc. Mr. Malmberg began serving as a director of the Company in May
1994.
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P. R. Peterson is the Secretary and a director of Electro-Sensors, Inc., a
manufacturer of machine control systems. Mr. Peterson is also a director of
Applied Biometrics, Inc. Mr. Peterson is also President of P.R. Peterson Co.,
Inc., a venture capital firm, and has been active in the venture capital
business for over 20 years. Mr. Peterson served as a director from the
Company's inception in 1982 to 1985. He was again elected a director of the
Company in December 1988 and continues to serve in that capacity.
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PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 30, 1996, the number of shares of
the Company's Common Stock beneficially owned (i) by each director, (ii) by
each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock and (iii) by all officers and directors as a
group. Unless otherwise indicated, each person has sole voting and dispositive
power over such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
NUMBER SHARES
OF SHARES -----------------
NAME OF BENEFICIAL BENEFICIALLY BEFORE AFTER
OWNER OWNED(1) OFFERING OFFERING
- ------------------ ------------ -------- --------
<S> <C> <C> <C>
P. R. Peterson(2)............................... 930,757 25.2% 17.6%
ESI Investment Co.
6111 Blue Circle Drive
Minnetonka, MN 55343
Bruce C. Huber.................................. 118,444 3.2% 2.2%
Larry G. Paulson................................ 95,119 2.6% 1.8%
Joseph C. Christenson........................... 80,077 2.2% 1.5%
David C. Malmberg............................... 12,450 * *
All Officers and Directors
as a group (7 persons)......................... 1,274,566 33.9% 23.8%
</TABLE>
- --------
(1) The table excludes shares purchasable pursuant to the Company's 1995
Employee Stock Purchase Plan. The table includes options under the
Company's 1988 Stock Option Plan exercisable within 60 days of April 30,
1996 in the following amounts: Mr. Peterson, 15,225 shares; Mr. Huber,
15,450 shares; Mr. Malmberg, 6,000 shares; Mr. Paulson, 16,414 shares; Mr.
Christenson, 15,750 shares; and all officers and directors as a group,
76,864 shares.
(2) ESI Investment Co. is the record owner of 549,084 shares of Common Stock.
Mr. Peterson is a controlling shareholder of Electro-Sensors, Inc., the
parent company of ESI Investment Co. Mr. Peterson also owns 161,148 shares
of Common Stock individually and controls 112,750 shares as trustee of the
P. R. Peterson Co. Profit Sharing Trust. He is also a one-third owner of
Peterson Brothers Securities Company which owns 92,550 shares of Common
Stock in its investment account.
29
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of Common Stock, $.10 par value, and up to 10,000,000 shares
of Preferred Stock, no par value. As of April 30, 1996, 3,679,717 shares of
Common Stock were issued and outstanding and no shares of Preferred Stock were
issued and outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share. There is no
cumulative voting for directors, and holders of Common Stock have no conversion
rights and no preemptive or other rights to subscribe for additional
securities. Upon liquidation or dissolution, the holders of Common Stock will
be entitled to share ratably in all assets available for distribution after the
payment or provision for payment of all debts and liabilities and subject to
the rights of the holders of Preferred Stock which may be outstanding. Each
share of Common Stock is entitled to such dividends as may from time to time be
declared by the Board of Directors out of funds legally available therefor. The
shares of Common Stock are traded on the Nasdaq National Market under the
symbol "PPTV." The outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
shareholder action, to issue Preferred Stock in one or more classes or series
and to fix the voting power, dividend, redemption rights or privileges, rights
on liquidation or dissolution, conversion rights and privileges, sinking or
purchase fund rights, and other preferences, privileges and restrictions, of
such classes or series.
The voting and other rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
OUTSTANDING STOCK OPTIONS
As of April 30, 1996, the Company had outstanding options to acquire 235,299
shares of Common Stock awarded pursuant to option plans maintained by the
Company. Of this amount, options to purchase 193,936 shares are currently
exercisable at exercise prices ranging from $1.00 to $11.33 per share. The
Company had reserved as of April 30, 1996 an additional 136,470 shares for
future grants under its 1988 Stock Option Plan.
The Compensation Committee of the Board of Directors intends to grant options
under the 1988 Stock Option Plan to purchase up to an aggregate of 110,000
shares of Common Stock in varying amounts to each of the Company's employees,
effective upon consummation of this offering, at an exercise price equal to the
Price to Public set forth on the cover page of this Prospectus.
ANTI-TAKEOVER PROVISIONS OF MINNESOTA BUSINESS CORPORATION ACT
Section 302A.671 of the Minnesota Business Corporation Act provides that,
unless the acquisition of certain new percentages of voting control of the
Company (in excess of 20%, 33 1/3% or 50%) by an existing shareholder or other
person is approved by a majority of the shareholders of the Company other than
the acquirer (if already a shareholder), the shares acquired above such new
percentage level of voting control will not be entitled to voting rights. The
Company is required to hold a special
30
<PAGE>
shareholders' meeting to vote on any such acquisition within 55 days after the
delivery to the Company by the acquirer of an information statement describing,
among other things, the acquirer and any plans of the acquirer to liquidate or
dissolve the Company and copies of definitive financing agreements for any
financing of the acquisition not to be provided by funds of the acquirer. If
any acquirer does not submit an information statement to the Company within 10
days after acquiring shares representing a new threshold percentage of voting
control of the Company, or if the disinterested shareholders vote not to
approve such an acquisition, the Company may redeem the shares so acquired by
the acquirer at their market value. Section 302A.671 generally does not apply
to a cash offer to purchase all shares of voting stock of the issuing
corporation if such offer has been approved by a majority vote of disinterested
board members of the issuing corporation.
Section 302A.673 of the Minnesota Business Corporation Act restricts certain
transactions between the Company and a shareholder who becomes the beneficial
holder of 10% or more of the Company's outstanding voting stock (an "interested
shareholder") unless a majority of the disinterested directors of the Company
have approved, prior to the date on which the shareholder acquired a 10%
interest, either the business combination transaction suggested by such a
shareholder or the acquisition of shares that made such a shareholder a
statutory interested shareholder. If such prior approval is not obtained, the
statute imposes a four-year prohibition from the interested shareholder's share
acquisition date on mergers, sales of substantial assets, loans, substantial
issuances of stock and various other transactions involving the Company and the
statutory interested shareholder or its affiliates.
In the event of certain tender offers for stock of the Company, Section
302A.675 of the Minnesota Business Corporation Act precludes the tender offeror
from acquiring additional shares of stock (including acquisitions pursuant to
mergers, consolidations or statutory share exchanges) within two years
following the completion of such an offer unless the selling shareholders are
given the opportunity to sell the shares on terms that are substantially
equivalent to those contained in the earlier tender offer. The Section does not
apply if a committee of the Board consisting of all of its disinterested
directors (excluding present and former officers of the corporation) approves
the subsequent acquisition before shares are acquired pursuant to the earlier
tender offer.
These statutory provisions could also have the effect in certain
circumstances of delaying or preventing a change in the control of the Company.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is Norwest Bank Minnesota,
N.A.
31
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (a copy of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part), the Underwriters named below (the "Underwriters")
through their representatives, Alex. Brown & Sons Incorporated and Piper
Jaffray Inc. (the "Representatives"), have severally agreed to purchase from
the Company the following number of shares of Common Stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated................................
Piper Jaffray Inc..............................................
---------
Total...................................................... 1,600,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the offering, the offering price and other selling terms may be changed by the
Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days from the date of this Prospectus, to purchase up to 240,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 1,600,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 1,600,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended.
32
<PAGE>
The Company, its officers and directors, and ESI Investment Co. and P. R.
Peterson Profit Sharing Trust, which are controlled by P. R. Peterson, a
director of the Company, have agreed not to offer, sell or otherwise dispose of
any additional shares of Common Stock for a period of 90 days after the date of
this Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated, except that the Company may issue, and grant options to purchase,
shares of Common Stock under its existing stock plans.
The rules of the Securities and Exchange Commission (the "Commission")
generally prohibit the Underwriters and other members of the selling group, if
any, from making a market in the Company's Common Stock during the "cooling-
off" period immediately preceding the commencement of sales in the offering.
The Commission has, however, adopted an exemption from these rules that permits
passive market making under certain conditions. These rules permit an
Underwriter or other member of the selling group, if any, to continue to make a
market in the Company's Common Stock subject to the conditions, among others,
that its bid not exceed the highest bid by a market maker not connected with
the offering and that its net purchases on any one trading day not exceed
prescribed limits. Pursuant to these exemptions, certain Underwriters and other
members of the selling group, if any, may engage in passive market making in
the Company's Common Stock during the cooling-off period.
Bruce C. Huber is a Managing Director and the Director of Equity Capital
Markets at Piper Jaffray Inc., one of the Representatives of the Underwriters.
Mr. Huber is a Director of the Company.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Lindquist & Vennum P.L.L.P.,
Minneapolis, Minnesota and certain legal matters will be passed upon for the
Underwriters by Piper & Marbury L.L.P., New York, New York.
EXPERTS
The financial statements of the Company as of October 31, 1994 and 1995 and
for each of the three years in the period ended October 31, 1995 included and
incorporated by reference in this Prospectus and in the Registration Statement
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
the Commission's regional offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Company's
Common Stock is quoted on the National Market System of the National
Association of Securities Dealers Automated Quotations System ("Nasdaq"), and
such reports, proxy statements and other information regarding the Company can
be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
33
<PAGE>
The Company has filed with the Commission a Registration Statement on Form S-
2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the shares of Common Stock offered hereby, reference is made to
such Registration Statement, copies of which may be inspected in the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and copies of which may be obtained from the
Commission upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated into this Prospectus by reference:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1995 (which incorporates by reference certain portions of the
Company's definitive Proxy Statement for the Company's 1996 Annual Meeting
of Shareholders);
(b) the Company's Quarterly Reports on Form 10-Q for the quarters ended
January 31, 1996 and April 30, 1996; and
(c) the Company's Current Report on Form 8-K filed with the Commission on
December 19, 1995.
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to Thomas R. Northenscold, Chief Financial Officer, PPT
Vision, Inc., 10321 West 70th Street, Eden Prairie, Minnesota 55344. Telephone
requests may be directed to Thomas R. Northenscold at (612) 996-9500.
34
<PAGE>
PPT VISION, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Income Statements for the Years Ended October 31, 1993, 1994 and 1995
(audited) and for the six months ended April 30, 1995 and 1996
(unaudited)............................................................. F-3
Balance Sheets as of October 31, 1994 and 1995 (audited) and April 30,
1996 (unaudited)........................................................ F-4
Statements of Cash Flows for the Years Ended October 31, 1993, 1994 and
1995 (audited) and for the six months ended April 30, 1995 and 1996
(unaudited)............................................................. F-5
Statements of Shareholders' Equity for the Years Ended October 31, 1993,
1994 and 1995 (audited) and for the six months ended April 30, 1995 and
1996 (unaudited)........................................................ F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
To the Board of Directors and
Shareholders of PPT Vision, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, of cash flows and of shareholders' equity present fairly, in all
material respects, the financial position of PPT Vision, Inc. at October 31,
1995 and 1994, and the results of its operations and its cash flows for each of
the three fiscal years in the period ended October 31, 1995 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
November 22, 1995 except as to Note 12,
which is as of April 5, 1996
F-2
<PAGE>
PPT VISION, INC.
INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED OCTOBER ENDED APRIL
31, 30,
---------------------- --------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............................ $5,935 $6,587 $9,750 $3,995 $6,347
Cost of sales........................... 2,539 3,026 4,442 1,887 2,571
------ ------ ------ ------ ------
Gross profit........................ 3,396 3,561 5,308 2,108 3,776
------ ------ ------ ------ ------
Expenses:
Selling............................... 1,576 1,970 2,279 1,075 1,231
General and administrative............ 550 711 851 359 530
Research and development.............. 831 1,133 1,299 608 888
------ ------ ------ ------ ------
Total expenses...................... 2,957 3,814 4,429 2,042 2,649
------ ------ ------ ------ ------
Income (loss) from operations........... 439 (253) 879 66 1,127
Interest income......................... 14 39 61 24 44
Interest expense........................ -- -- (2) (1) (1)
Other income (expense).................. (18) 1 2 -- 8
------ ------ ------ ------ ------
Other income (loss) before taxes........ 435 (213) 940 89 1,178
Income tax benefit...................... -- -- 407 -- --
------ ------ ------ ------ ------
Net income (loss)................... $ 435 $ (213) $1,347 $ 89 $1,178
====== ====== ====== ====== ======
Per share data:
Net income (loss) per share........... $ 0.13 $(0.06) $ 0.37 $ 0.03 $ 0.31
====== ====== ====== ====== ======
Weighted average common
shares outstanding................... 3,236 3,455 3,650 3,497 3,825
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
PPT VISION, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 31,
-------------- APRIL 30,
1994 1995 1996
------ ------ ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................ $1,092 $1,235 $1,651
Accounts receivable, net......................... 1,938 2,687 3,060
Inventories...................................... 785 943 1,231
Other current assets............................. 40 47 112
------ ------ ------
Total current assets........................... 3,855 4,912 6,054
Restricted cash.................................... 213 213 213
Fixed assets, net.................................. 316 501 653
Other assets, net.................................. 65 65 77
Deferred income taxes.............................. 407 407
------ ------ ------
Total assets................................... $4,449 $6,098 $7,404
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................. $ 462 $ 564 $ 462
Commissions payable.............................. 43 55 54
Accrued expenses................................. 97 162 186
------ ------ ------
Total current liabilities...................... 602 781 702
Commitments and contingencies
Deferred rent.................................... 128 172 172
Shareholders' equity
Preferred Stock: authorized 10,000,000 shares;
issued and outstanding 87,499, 0 and 0.......... 256 -- --
Common Stock $.10 par value; authorized
10,000,000 shares;
issued and outstanding 3,440,485, 3,578,704 and
3,679,717....................................... 344 358 368
Capital in excess of par value................... 11,347 11,668 11,865
Accumulated (deficit)............................ (8,228) (6,881) (5,703)
------ ------ ------
Total shareholders' equity..................... 3,719 5,145 6,530
------ ------ ------
Total liabilities and shareholders' equity..... $4,449 $6,098 $7,404
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
PPT VISION, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED OCTOBER ENDED APRIL
31, 30,
--------------------- --------------
1993 1994 1995 1995 1996
----- ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)....................... $ 435 $ (213) $1,347 $ 89 $1,178
Adjustment to reconcile net income
(loss)
to net cash provided by operating
activities:
Depreciation and amortization......... 115 131 164 66 114
Deferred rent......................... -- 128 44 32 1
Deferred income tax benefit........... -- -- (407) -- --
Change in assets and liabilities:
Accounts receivable................... (889) (72) (749) (63) (373)
Inventories........................... (188) 9 (158) (96) (288)
Other assets.......................... 16 5 (7) 4 (64)
Restricted cash....................... -- (213) -- -- --
Accounts payable...................... 29 31 102 22 (103)
Commissions payable................... 30 (6) 12 10 --
Accrued expenses...................... 26 (44) 65 (10) 24
----- ------ ------ ------ ------
Total adjustments................... (861) (31) (934) (35) (689)
----- ------ ------ ------ ------
Net cash provided (used) by operating
activities............................. (426) (244) 413 54 489
Cash flows from investing activities:
Purchase of fixed assets.............. (84) (194) (349) (122) (279)
----- ------ ------ ------ ------
Net cash used by investing activities... (84) (194) (349) (122) (279)
Cash flows from financing activities:
Proceeds from issuance of common
stock................................ 1,116 548 79 24 206
----- ------ ------ ------ ------
Net cash provided by financing
activities............................. 1,116 548 79 24 206
----- ------ ------ ------ ------
Net increase in cash and cash
equivalents............................ 606 110 143 (44) 416
Cash and cash equivalents at beginning
of year................................ 376 982 1,092 1,092 1,235
----- ------ ------ ------ ------
Cash and cash equivalents at end of
period................................. $ 982 $1,092 $1,235 $1,048 $1,651
===== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
PPT VISION, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON COMMON EXCESS OF PREFERRED PREFERRED ACCUMULATED
SHARES STOCK PAR VALUE SHARES STOCK (DEFICIT)
--------- ------ ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1992........ 2,631,505 $263 $ 9,545 162,499 $475 $(8,450)
Stock issued through
the exercise of stock
options.............. 33,099 3 14
Stock issued through
the employee stock
purchase plan........ 21,843 2 44
Stock issued through
conversion of
preferred shares..... 42,856 4 191 (66,667) (195)
Stock issued through
private placement
(net of issue costs). 495,000 50 1,002
Net income............ 435
--------- ---- ------- ------- ---- -------
October 31, 1993........ 3,224,303 322 10,796 95,832 280 (8,015)
Stock issued through
the
exercise of stock
options.............. 64,743 6 32
Stock issued through
the
employee stock
purchase plan........ 26,082 3 68
Stock issued through
conversion of
preferred shares..... 5,357 1 24 (8,333) (24)
Stock issued through
private placement
(net of issue costs). 120,000 12 427
Net Loss.............. (213)
--------- ---- ------- ------- ---- -------
October 31, 1994........ 3,440,485 344 11,347 87,499 256 (8,228)
Stock issued through
the
exercise of stock
options.............. 65,370 6 37
Stock issued through
the
employee stock
purchase plan........ 16,599 2 35
Stock issued through
conversion of
preferred shares..... 56,250 6 249 (87,499) (256)
Net income............ 1,347
--------- ---- ------- ------- ---- -------
October 31, 1995........ 3,578,704 358 11,668 0 0 (6,881)
Stock issued through
the
exercise of stock
options.............. 51,513 5 77
Stock issued through
the
exercise of warrants. 49,500 5 120
Net income............ 1,178
--------- ---- ------- ------- ---- -------
April 30, 1996
(unaudited).......... 3,679,717 $368 $11,865 0 0 $(5,703)
========= ==== ======= ======= ==== =======
</TABLE>
F-6
<PAGE>
PPT VISION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND OPERATIONS
The Company designs, manufactures, markets and integrates machine vision
based automated inspection systems. The systems are used to improve
productivity and quality by automating inspection tasks in manufacturing
applications such as assembly verification, flaw detection, character
verification or measurement tasks.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of
$35,000 at October 31, 1995, and $55,000 at October 31, 1994.
INVENTORIES
Inventories are stated at the lower of cost or market, with costs determined
on a first-in, first-out (FIFO) basis. As of October 31, 1994 and 1995, and
April 30, 1996 inventories consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
OCTOBER 31, ENDED
----------------- APRIL 30,
1994 1995 1996
-------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Manufactured and purchased parts............ $493,567 $680,919 $1,044,263
Work-in-process............................. 230,924 214,410 114,389
Finished goods.............................. 60,113 47,532 72,104
-------- -------- ----------
Totals.................................. $784,604 $942,861 $1,230,756
======== ======== ==========
</TABLE>
OTHER ASSETS
Other assets at October 31, 1994 and 1995 consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------
1994 1995
------- -------
<S> <C> <C>
Patent and trademark.................................... $63,307 $70,515
Security deposits....................................... 7,187 192
Investment in related party............................. 52,500 52,500
------- -------
122,994 123,207
Less accumulated amortization........................... (57,565) (58,859)
------- -------
Total other assets.................................. $65,429 $64,348
======= =======
</TABLE>
The investment in a related party represents common stock the Company intends
to hold as an investment and is recorded at cost. During 1994, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (SFAS). No. 115 requires
certain investments in debt and equity securities to be recorded at fair market
value. No adjustment to market value was recorded as of October 31, 1994 and
1995 as the difference was not material. Patent and trademark costs are
amortized over 60 months.
F-7
<PAGE>
PPT VISION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FIXED ASSETS
Fixed assets consist of furniture, fixtures and equipment, and are stated at
cost net of accumulated depreciation. Depreciation is computed for book
purposes on a straight-line basis over the estimated useful life of the asset
and for tax purposes over five and ten years using accelerated and straight-
line methods. At October 31, 1994 and 1995 furniture, fixtures and equipment
consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Equipment....................................... $ 1,412,187 $ 1,743,291
Furniture and fixtures.......................... 231,584 234,967
----------- -----------
1,643,771 1,978,258
Less accumulated amortization................... (1,327,838) (1,477,173)
----------- -----------
Total fixed assets.......................... $ 315,933 $ 501,085
=========== ===========
</TABLE>
REVENUE RECOGNITION
The Company records sales revenue based on shipment to the customer.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
INCOME TAXES
Income taxes are provided on the liability method. Under the liability
method, deferred income taxes are provided on the difference in basis of assets
and liabilities between financial reporting and tax returns using expected tax
rates.
INCOME (LOSS) PER SHARE
Income per share computations are based on the weighted average number of
common shares and common share equivalents outstanding during the year. Common
share equivalents consist of convertible preferred stock, options and warrants
outstanding during the year.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and investments with original maturities of three months or less.
Non-cash transactions in 1995 consist of $255,952 related to the conversion
of 87,499 preferred shares into 56,250 shares of common stock and $37,514
related to the transfer of long-term assets to inventory. In 1994 non-cash
transactions consist of $24,376 related to the conversion of 8,333 preferred
shares into 5,357 shares of common stock and $15,345 related to the transfer of
long-term assets to inventory. In 1993 non-cash transactions consist of $16,093
related to the transfer of long-term assets to inventory.
ESTIMATES BY MANAGEMENT
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-8
<PAGE>
PPT VISION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, PPT Vision, Inc. has made all adjustments,
consisting primarily of normal recurring accruals, necessary for a fair
presentation of the financial condition of the Company as of April 30, 1996 and
the results of operations and cash flows for the six-month periods ended April
30, 1995 and 1996, as presented in the accompanying unaudited financial
statements.
NOTE 3: CUSTOMER INFORMATION
SIGNIFICANT CUSTOMER INFORMATION
During 1995, revenue from one customer accounted for 17% of net revenues.
During 1994 and 1993, revenue from another customer accounted for 10% and 18%
of net revenues respectively.
CUSTOMER GEOGRAPHIC DATA
North American and export sales as a percentage of net revenues in 1993, 1994
and 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
North America.............................................. 87% 73% 67%
Europe..................................................... 10% 24% 21%
Far East................................................... 3% 3% 12%
</TABLE>
NOTE 4: ACCRUED EXPENSES
Accrued expenses at October 31, 1994 and 1995 include:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------
1994 1995
------- --------
<S> <C> <C>
Vacation................................................ $30,152 $ 30,152
Employee Stock Purchase Plan payroll deductions......... 33,813 33,053
Compensation............................................ 0 68,257
Other................................................... 32,913 30,820
------- --------
Total............................................... $96,878 $162,282
======= ========
</TABLE>
NOTE 5: PREFERRED STOCK
In 1985, the Company issued a total of 166,666 shares of Series 1985
Convertible Preferred shares ("Series 1985 Shares"). As of October 31, 1995,
all the Company's Series 1985 Shares had been converted to common stock.
NOTE 6: COMMON STOCK OPTIONS AND WARRANTS
Under the Company's 1988 Stock Option Plan the Company may issue options to
purchase up to 600,000 shares of common stock to employees and directors.
Options are granted at prices equal to the average of the bid and ask prices on
the date of the grant. The granting of options and their vesting is within the
discretion of the Company's Board of Directors.
F-9
<PAGE>
PPT VISION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of stock options issued and outstanding under the 1988 Stock Option
Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------
EMPLOYEE DIRECTOR
OPTIONS OPTIONS
----------- -----------
<S> <C> <C>
Balance at October 31, 1992........................... 234,847 27,450
Granted............................................. 57,750 3,000
Exercised........................................... (33,099) (12,000)
----------- -----------
Balance at October 31, 1993........................... 259,498 18,450
Granted............................................. 71,250 39,000
Exercised........................................... (64,743) 0
Forfeited........................................... (1,462) 0
----------- -----------
Balance at October 31, 1994........................... 264,543 57,450
Granted............................................. 22,125 0
Exercised........................................... (63,870) (1,500)
Forfeited........................................... (4,687) 0
----------- -----------
Balance at October 31, 1995........................... 218,111 55,950
=========== ===========
As of October 31, 1995:
Price Range of Outstanding Options
Options........................................... $1.00-$6.33 $1.67-$4.00
Expiration Dates.................................. 1996-2000 1996-1999
Options Exercisable............................... 164,077 29,175
</TABLE>
During the year ended October 31, 1995, stock options were exercised at
prices of $0.44 to $3.59 per share under the Employee Stock Option Plan.
In April of 1993, the Company issued a warrant to purchase 49,500 shares of
common stock with an exercise price of $2.50 and an expiration date of April of
1996.
NOTE 7: STOCK OFFERINGS
In February of 1994, the Company completed a private equity placement,
issuing 120,000 shares of common stock at $3.66 per share, that raised $438,365
net of offering costs of $1,635.
NOTE 8: EMPLOYEE STOCK PURCHASE PLAN
In March 1995 shareholders approved the adoption of the 1995 Employee Stock
Purchase Plan to replace the 1990 Employee Stock Purchase Plan which expired in
1995. Under the terms of the 1995 Purchase Plan, 225,000 shares have been
reserved for issuance under the Plan.
The first phase of the Plan began on June 1, 1995 and employees were granted
the right to purchase 29,925 shares at $2.19 per share under the Plan.
Phase five of the 1990 Plan ended on May 31, 1995 and employees purchased
16,599 shares at $2.19 per share.
F-10
<PAGE>
PPT VISION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: COMMITMENTS & CONTINGENCIES
Rental expense under operating leases was $163,100, $162,823 and $97,960 in
1995, 1994 and 1993 respectively. Minimum future rental payments due under
noncancelable operating lease agreements are as follows:
<TABLE>
<S> <C>
1996............................ $156,048
1997............................ 179,688
1998............................ 184,416
1999............................ 189,198
Thereafter...................... 262,436
--------
Total....................... $971,786
========
</TABLE>
LETTER OF CREDIT
During 1994 the Company obtained a standby letter of credit for a security
deposit related to the Company's building lease. The letter of credit is
secured by the restricted cash balance of $212,792. Beginning in June 1996 the
restricted cash balance begins to decrease on a dollar for dollar basis as
rental payments are made.
NOTE 10: EMPLOYEE SAVING PLAN
The Company provides a supplementary retirement savings plan which is
structured in accordance with Section 401(k) of the Internal Revenue Code.
Employees eligible for the Plan may contribute from one to fifteen percent of
their monthly earnings on a pre-tax basis subject to annual contribution
limitations. The Company makes matching contributions of fifty cents for each
dollar contributed by each Plan participant up to a maximum of $750 annually.
The Company's contributions under this program were approximately $30,876,
$26,407 and $14,620 for the years ended October 31, 1995, 1994 and 1993
respectively.
NOTE 11: INCOME TAXES
No current tax provisions were recorded in the fiscal years ended October 31,
1995 and 1994 due to the utilization of net operating loss (NOL) carry
forwards. The deferred tax provisions of approximately $36,000 and $60,000 for
the years ended October 31, 1995 and 1994, respectively, are offset by
reductions in the valuation allowance.
At October 31, 1995, the Company has approximately $6.6 million of combined
loss carry forwards and net deductible temporary differences available to
offset taxable income in future periods. The $6.6 million of future tax
deduction is comprised of net operating loss carry forwards for tax return
purposes of approximately $5.9 million (expiring in fiscal 1999 to 2009) and
net deductible temporary differences available to offset taxable income in
future periods of approximately $700,000. The Company also has approximately
$340,000 of research and development tax credit carry forwards which generally
expire over the same time period. At existing tax rates, the future tax benefit
approximates $2.6 million for financial statement purposes.
The utilization of the operating loss carry forwards and net deductible
temporary differences to offset future tax liabilities is dependent upon the
Company's ability to generate sufficient taxable income during the carry
forward periods. The carry forwards are also subject to certain annual
limitations pursuant to IRS Code Section 382. A valuation allowance was
established for the entire net tax benefit associated with all carry forwards
and temporary differences at October 31, 1994. At October 31, 1995, a reduction
to the valuation allowance was recorded because future realization of a portion
of this benefit is expected.
F-11
<PAGE>
PPT VISION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
An analysis of the effective rate on earnings and a reconciliation of the
expected federal statutory rate for the years ended October 31, 1994, and 1995
is as follows:
<TABLE>
<CAPTION>
1994 1995
-------- ----------
<S> <C> <C>
Expected tax provision at statutory rate.......... $(72,000) $ 320,000
State income tax provision, net of federal tax
effect........................................... (13,000) 56,000
Research and development credit................... 17,000 17,000
Increase/(utilization) of net operating loss carry
forward.......................................... 66,000 (397,000)
(Reduction) of valuation allowance................ 0 (407,000)
Other............................................. 2,000 4,000
-------- ----------
Total......................................... $ 0 $ (407,000)
======== ==========
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at October
31:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Depreciation.................................... $ 90,000 $ 102,000
Deferred rent................................... 51,000 69,000
Other........................................... 88,000 94,000
Net operating loss carry forwards............... 2,794,000 2,361,000
Valuation allowance............................. (3,023,000) (2,219,000)
----------- -----------
Net deferred tax asset.......................... $ 0 $ 407,000
=========== ===========
</TABLE>
NOTE 12: SUBSEQUENT EVENTS
On March 14, 1996, the Board of Directors of PPT Vision, Inc. approved a
three-for-two stock split in the form of a fifty percent (50%) stock dividend.
The distribution of shares was made on April 5, 1996 to shareholders of record
as of March 25, 1996. All historical share and per share data included in the
financial statements and footnotes have been restated to reflect the stock
split.
F-12
<PAGE>
Market Driven Application Specific Software Tools
The ability to develop software tools for a steady stream of new
applications to run on proven hardware is a company strength. Recognizing
expanding markets and reacting with software tools like those described here
positions PPT VISION for growth. This is evident in electronic component
manufacturing and precision metal stamping. All PPT VISION systems run on
proprietary software in a Microsoft(R) Windows(TM) environment using the
Company's Vision Program Manager (VPM) icon-based graphical user interface.
[Below this description is a photo of the Company's Vision Program Manager
screen]
[Next to the heading "Connector Tool" is a photo of a part and a photo of an
icon with the following related text:]
Connector Tool
Problem: A multi-national manufacturer of electronic connectors sought an
automated solution for pin tip position of assembled connectors.
Solution: PPT VISION responded by creating the Connector Tool. The Connector
Tool checks the conformance of an entire array of pin tips to a series of user
defined criteria. These criteria include grid conformance, linear regression and
linear progression, providing comprehensive pin tip position inspection.
Grid conformance verifies that each pin tip is within a specified radial
distance from its calculated ideal position. Linear regression ensures that each
row of pins is both parallel to all other rows and is itself straight. Linear
progression is used to verify all pin-to-pin distances. The Connector Tool can
also inspect connectors that are too long for a single field-of-view by
"stitching" multiple images together.
[Next to the heading "Line Gauge Tool" is a photo of a part and a photo of an
icon with the following related text:]
Line Gauge Tool
Problem: A manufacturer of stamped metal parts wanted to monitor a number of
critical physical dimensions of the parts as they were fabricated in a high-
speed metal stamping operation.
Solution: PPT VISION designed the Line Gauge Tool to provide a means of making
multiple independent measurements between selected points on the image. Up to
sixteen separate gauging lines can be drawn in a single instance of this tool,
with multiple Line Gauge Tools available in every program.
Once the initial edges have been detected, the tool examines a small
neighborhood around selected measurement endpoints to determine the location of
the detected edges to subpixel accuracy. The tool will pass only if the distance
measured between the detected edges is within user-specified tolerances. The
measured distances are available as output data from the tool.
[Next to the heading "OCV Tool" is a photo of a part and a photo of an icon with
the following related text:]
OCV Tool
Problem: High speed inspection and verification of printed alphanumeric
characters is required by many industries including pharmaceutical, medical,
electronics and automotive. New regulations require 100%, on-line verification
of the date/lot codes printed on pharmaceutical packaging labels.
Solution: PPT VISION's Optical Character Verification (OCV) Tool was designed
specifically for alphanumeric character inspection and verification. The tool
inspects both printed characters and background areas, and not only verifies
that the correct code has been printed, but it inspects the print quality of the
characters themselves. Once the tool is set up, an operator can easily retrain
it on a new character string using VPM's control panels.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPEC-
TUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 8
Price Range of Common Stock............................................... 8
Dividend Policy........................................................... 8
Capitalization............................................................ 9
Selected Financial Data................................................... 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 11
Business.................................................................. 17
Management................................................................ 27
Principal Shareholders.................................................... 29
Description of Capital Stock.............................................. 30
Underwriting.............................................................. 32
Legal Matters............................................................. 33
Experts................................................................... 33
Available Information..................................................... 33
Incorporation of Certain Documents by Reference........................... 34
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,600,000 Shares
[PPT VISION,
INC. LOGO]
Common Stock
------------
PROSPECTUS
------------
Alex. Brown & Sons
INCORPORATED
Piper Jaffray Inc.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee............................................ $10,945
NASD filing fee................................................. 3,674
Nasdaq listing fee.............................................. 17,500
Accounting fees and expenses.................................... 25,000*
Legal fees and expenses......................................... 60,000*
Printing expenses............................................... 40,000*
Blue Sky fees and expenses (including legal fees)............... 10,000*
Transfer agent and registrar fees............................... 5,000*
Miscellaneous................................................... 27,881*
--------
Total....................................................... $200,000*
========
</TABLE>
- --------
*Except for the SEC registration fee, NASD filing fee and Nasdaq listing fee,
all of the foregoing expenses have been estimated.
ITEM 15: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of Minnesota Statutes requires the Registrant to indemnify a
person made or threatened to be made a party to a proceeding by reason of the
former or present official capacity of the person with respect to the
Registrant, against judgments, penalties, fines, including reasonable expenses,
if such person (1) has not been indemnified by another organization or employee
benefit plan for the same judgments, penalties, fines, including, without
limitation, excise taxes assessed against the person with respect to an
employee benefit plan, settlements, and reasonable expenses, including
attorneys' fees and disbursements, incurred by the person in connection with
the proceeding with respect to the same acts or omissions; (2) acted in good
faith; (3) received no improper personal benefit, and statutory procedure has
been followed in the case of any conflict of interest by a director; (4) in the
case of a criminal proceeding, had no reasonable cause to believe the conduct
was unlawful; and (5) in the case of acts or omissions occurring in the
person's performance in the official capacity of director or, for a person not
a director, in the official capacity of officer, committee member or employee,
reasonably believed that the conduct was in the best interests of the
Registrant, or, in the case of performance by a director, officer or employee
of the Registrant as a director, officer, partner, trustee, employee or agent
of another organization or employee benefit plan, reasonably believed that the
conduct was not opposed to the best interests of the Registrant. In addition,
Section 302A.521, subd. 3, requires payment by the Registrant, upon written
request, of reasonable expenses in advance of final disposition in certain
instances. A decision as to required indemnification is made by a disinterested
majority of the Board of Directors present at a meeting at which a
disinterested quorum is present, or by a designated committee of the Board, by
special legal counsel, by the shareholders or by a court. The Registrant's
Bylaws provide for indemnification of officers, directors and employees to the
fullest extent permitted by Minnesota law as it may be amended from time to
time.
As permitted by Section 302A.251 of the Minnesota Business Corporation Act,
the Restated Articles of Incorporation of the Registrant eliminate the
liability of the directors of the Registrant for monetary damages arising from
any breach of fiduciary duties as a member of the Registrant's Board of
Directors (except as expressly prohibited by Minnesota Statutes, Section
302A.251, subd. 4).
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Restated Articles of Incorporation, incorporated by reference from
Exhibit 3.1 of the Registrant's Form 10-K for the fiscal year
ended October 31, 1989.
4.2 Bylaws, as amended, incorporated by reference from Exhibit 3.2 of
the Registrant's Form 10-K for the Fiscal year ended October 31,
1988.
5.1 Opinion and Consent of Lindquist & Vennum P.L.L.P., counsel to the
Company.
10.1 Lease Agreement dated February 11, 1993 for facilities at 10321
West 70th Street, Eden Prairie, Minnesota, incorporated by
reference from Exhibit 10.3 of the Registrant's Form 10-K for the
fiscal year ended October 31, 1993.
10.2 1988 Stock Option Plan, incorporated by reference from Exhibit
10.4 of the Registrant's Form 10-K for the Fiscal Year ended
October 31, 1993.
10.3 1995 Employee Stock Purchase Plan.
10.4 Employment Agreement with Joseph C. Christenson dated as of May 7,
1984.
10.5 Employment Agreement with Larry G. Paulson dated as of February 1,
1984.
10.6 Employment Agreement with Tom Northenscold dated as of February
27, 1995.
10.7 Employment Agreement with Arye Malek dated as of May 1, 1990.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Lindquist & Vennum P.L.L.P. (included in Exhibit 5.1 to
the Registration Statement).
24 Power of Attorney (included in the signature page of the
Registration Statement).
</TABLE>
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of the Minnesota Business Corporations
Act, the Restated Articles of Incorporation or Bylaws of the Registrant or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Eden Prairie, State of Minnesota, on the 15th day of
May, 1996.
PPT VISION, INC.
/s/ Joseph C. Christenson
By __________________________________
Joseph C. Christenson, President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Joseph C.
Christenson and Thomas R. Northenscold, and each of them (with full power to
act alone), such person's true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution for such person and in such
person's name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, as well as any related registration statement (or
amendment thereto) filed pursuant to Rule 462(b) promulgated under the
Securities Act of 1933 with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing necessary or desirable to be done in and
about the premises, as fully to all intents and purposes as such person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons on May 15, 1996 in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ Joseph C. Christenson President and Director
____________________________________ (principal executive
Joseph C. Christenson officer)
/s/ Thomas R. Northenscold Chief Financial Officer
____________________________________ (principal financial and
Thomas R. Northenscold accounting officer)
/s/ Larry G. Paulson Director
____________________________________
Larry G. Paulson
/s/ Bruce C. Huber Director
____________________________________
Bruce C. Huber
/s/ David C. Malmberg Director
____________________________________
David C. Malmberg
/s/ P. R. Peterson Director
____________________________________
P. R. Peterson
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement...............................
4.1 Restated Articles of Incorporation, incorporated by reference
from Exhibit 3.1 of the Registrant's Form 10-K for the fiscal
year ended October 31, 1989
4.2 Bylaws, as amended, incorporated by reference from Exhibit
3.2 of the Registrant's Form 10-K for the Fiscal year ended
October 31, 1988
5.1 Opinion and Consent of Lindquist & Vennum P.L.L.P., counsel
to the Company...............................................
10.1 Lease Agreement dated February 11, 1993 for facilities at
10321 West 70th Street, Eden Prairie, Minnesota, incorporated
by reference from Exhibit 10.3 of the Registrant's Form 10-K
for the fiscal year ended October 31, 1993
10.2 1988 Stock Option Plan, incorporated by reference from Ex-
hibit 10.4 of the Registrant's Form 10-K for the Fiscal Year
ended October 31, 1993
10.3 1995 Employee Stock Purchase Plan............................
10.4 Employment Agreement with Joseph C. Christenson dated as of
May 7, 1984..................................................
10.5 Employment Agreement with Larry G. Paulson dated as of Febru-
ary 1, 1984..................................................
10.6 Employment Agreement with Tom Northenscold dated as of Febru-
ary 27, 1995.................................................
10.7 Employment Agreement with Arye Malek dated as of May 1, 1990.
23.1 Consent of Price Waterhouse LLP..............................
23.2 Consent of Lindquist & Vennum P.L.L.P. (included in Exhibit
5.1 to the Registration Statement)
24 Power of Attorney (included in the signature page of the Reg-
istration Statement)
</TABLE>
<PAGE>
Exhibit 1.1
1,600,000 Shares
PPT VISION, INC.
Common Stock
($.10 Par Value)
UNDERWRITING AGREEMENT
----------------------
___________, 1996
Alex. Brown & Sons Incorporated
Piper Jaffray Inc.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
PPT Vision, Inc., a Minnesota corporation (the "Company"), proposes to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
1,600,000 shares of the Company's Common Stock, $.10 par value (the "Firm
Shares"). The respective amounts of the Firm Shares to be so purchased by the
several Underwriters are set forth opposite their names in Schedule I hereto.
The Company also proposes to sell at the Underwriters' option an aggregate of up
to 240,000 additional shares of the Company's Common Stock (the "Option Shares")
as set forth below.
The shares of Common Stock, $.10 par value per share, of the Company are
hereinafter referred to as the "Common Stock."
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
<PAGE>
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to each of the Underwriters as follows:
(a) A registration statement on Form S-2 (File No. 333-_____) with respect
to the Shares has been carefully prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended, (the "Act") and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. The Company has complied with the conditions for the use of Form S-
2. Copies of such registration statement, including any amendments thereto, the
preliminary prospectuses (meeting the requirements of the Rules and Regulations)
contained therein and the exhibits, financial statements and schedules, as
finally amended and revised, have heretofore been delivered by the Company to
you. Such registration statement, together with any registration statement filed
by the Company pursuant to Rule 462(b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, has become effective under the Act and no post-effective
amendment to the Registration Statement has been filed as of the date of this
Agreement. "Prospectus" means (a) the form of prospectus first filed with the
Commission pursuant to Rule 424(b) or (b) the last preliminary prospectus
included in the Registration Statement filed prior to the time it becomes
effective or filed pursuant to Rule 424(a) under the Act that is delivered
together with the term sheet or abbreviated term sheet filed with the Commission
pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus included
in the Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus." Any reference herein to the
Registration Statement, any Preliminary Prospectus or to the Prospectus shall be
deemed to refer to and include the documents incorporated by reference therein,
and, in the case of any reference herein to any Prospectus, also shall be deemed
to include any documents incorporated by reference therein, and any supplements
or amendments thereto, filed with the Commission after the date of filing of the
Prospectus under Rules 424(b) and 430A, and prior to the termination of the
offering of the Shares by the Underwriters.
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Minnesota, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification. The Company has no subsidiaries, direct or
indirect.
(c) The outstanding shares of Common Stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the Shares
to be issued and sold by the Company have been duly authorized and when issued
and paid for as contemplated
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<PAGE>
herein will be validly issued, fully-paid and non-assessable; and no preemptive
rights of stockholders exist with respect to any of the Shares or the issue and
sale thereof. Neither the filing of the Registration Statement nor the offering
or sale of the Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any shares of Common Stock.
(d) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct. All of the Shares conform to the description
thereof continued in the Registration Statement. The form of certificates for
the Shares conforms to the corporate law of the jurisdiction of the Company's
incorporation.
(e) The Commission has not issued an order preventing or suspending the use
of any Prospectus relating to the proposed offering of the Shares nor instituted
proceedings for that purpose. The Registration Statement contains, and the
Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform to the
requirements of the Act and the Rules and Regulations. The documents
incorporated by reference in the Prospectus, at the time filed with the
Commission conformed, in all respects to the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or the Act, as
applicable, and the rules and regulations of the Commission thereunder. The
Registration Statements and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of a material fact and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(f) The financial statements of the Company, together with related notes
and schedules as set forth or incorporated by reference in the Registration
Statement, present fairly the financial position and the results of operations
of the Company, at the indicated dates and for the indicated periods. Such
financial statements and related schedules have been prepared in accordance with
generally accepted principles of accounting, consistently applied throughout the
periods involved, except as disclosed herein, and all adjustments necessary for
a fair presentation of results for such periods have been made. The summary
financial and statistical data included or incorporated by reference in the
Registration Statement presents fairly the information shown therein and such
data has been compiled on a basis consistent with the financial statements
presented therein and the books and records of the Company.
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<PAGE>
(g) Price Waterhouse LLP, who have certified certain of the financial
statements filed with the Commission as part of, or incorporated by reference
in, the Registration Statement, are independent public accountants as required
by the Act and the Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company before any court or
administrative agency or otherwise which, if determined adversely to the
Company, might result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company or to prevent the consummation by the
Company of the transactions contemplated hereby, except as set forth in the
Registration Statement.
(i) The Company has good and marketable title to all of the properties and
assets reflected in the financial statements (or as described in the
Registration Statement) hereinabove described, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement) or which
are not material in amount. The Company occupies its leased properties under
valid and binding leases conforming in all material respects to the description
thereof set forth in the Registration Statement.
(j) The Company has filed all Federal, State, local and foreign income tax
returns which have been required to be filed and has paid all taxes indicated by
said returns and all assessments received by them or any of them to the extent
that such taxes have become due. All tax liabilities have been adequately
provided for in the financial statements of the Company.
(k) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not been
any material adverse change or any development involving a prospective material
adverse change in or affecting the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise), or prospects of
the Company, whether or not occurring in the ordinary course of business, and
there has not been any material transaction entered into or any material
transaction that is probable of being entered into by the Company, other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
The Company has no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(l) The Company is not, and with the giving of notice or lapse of time or
both will not be, in violation of or default under its Articles of Incorporation
or By-Laws, each as amended, or under any agreement, lease, contract, indenture
or other instrument or obligation to which it is a party or by which it or any
of its properties is bound and which default is of material significance in
respect of the condition, financial or otherwise, of the Company or the
business, management, properties, asset, rights, operations, condition
(financial and otherwise) or
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<PAGE>
prospects of the Company. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated and the fulfillment of the
terms hereof will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company is a party, or of
the Articles of Incorporation or By-Laws of the Company, each as amended, or any
order, rule or regulation applicable to the Company of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
(m) Each approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other governmental body
necessary in connection with the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein contemplated (except
such additional steps as may be required by the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or such additional steps as
may be necessary to qualify the Shares for public offering by the Underwriters
under state securities or Blue Sky laws) has been obtained or made and is in
full force and effect.
(n) The Company holds all material licenses, certificates and permits from
governmental authorities which are necessary to the conduct of its business; and
the Company has not infringed any patents, patent rights, trade names,
trademarks or copyrights, which infringement is material to the business of the
Company. The Company knows of no material infringement by others of patents,
patent rights, trade names, trademarks or copyrights owned by or licensed to the
Company.
(o) The Common Stock of the Company is designated on the National
Association of Securities Dealers Automated Quotations National Market System.
(p) To the Company's knowledge, there are no affiliations or associations
between any member of the NASD and any of the Company's officers, directors or
5% or greater security holders, except as set forth in the Registration
Statement or as otherwise disclosed in writing to the Representatives.
(q) Neither the Company, nor to the Company's knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action designed
to cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares.
(r) The Company is not an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations of the
Commission thereunder.
(s) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
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<PAGE>
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(t) The Company carries, or is covered by, insurance in such amounts and
covering such risks as is adequate for the conduct of its business and the value
of its properties and as is customary for companies engaged in similar
industries.
(u) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension Plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(v) The Company confirms as of the date hereof that it is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act
Relating to Disclosure of Doing Business with Cuba and the Company further
agrees that if it commences engaging in business with the government of Cuba or
with any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Company agrees to
sell to the Underwriters and each Underwriter agrees, severally and not jointly,
to purchase, at a price of $_______ per share, the number of Firm Shares set
forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in New
York Clearing House funds by certified or bank cashier's checks drawn to the
order of the Company against delivery of certificates therefor to the
Representatives for the several accounts of the
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<PAGE>
Underwriters. Such payment and delivery are to be made at the offices of Alex.
Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland, at
10:00 A.M., Baltimore time, on the third business day after the date of this
Agreement or at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day" means
a day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and are not permitted by law or
executive order to be closed.) The certificates for the Firm Shares will be
delivered in such denominations and in such registrations as the Representatives
request in writing not later than the second full business day prior to the
Closing Date, and will be made available for inspection by the Representatives
at least one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase the Option
Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be delivered.
The time and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is two or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares to be purchased by
each Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares, adjusted by you in such
manner as to avoid fractional shares. The option with respect to the Option
Shares granted hereunder may be exercised only to cover over-allotments in the
sale of the Firm Shares by the Underwriters. You, as Representatives of the
several Underwriters, may cancel such option at any time prior to its expiration
by giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date in New York Clearing House funds by certified or bank
cashier's check drawn to the order of the Company against delivery of
certificates therefor at the offices of Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The
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<PAGE>
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
------------------------
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (i) use its best efforts to cause the Registration
Statement to become effective or, if the procedures in Rule 430A of the Rules
and Regulations is followed, to prepare and timely file with the Commission
under Rule 424(b) of the Rules and Regulations a Prospectus in a form approved
by the Representatives containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations, (ii) not file any amendment to the Registration Statement
or supplement to the Prospectus or document incorporated by reference therein of
which the Representatives shall not previously have been advised and furnished
with a copy or to which the Representatives shall have reasonably objected in
writing or which is not in compliance with the Rules and Regulations and (iii)
file on a timely basis all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission subsequent to
the date of the Prospectus and prior to the termination of the offering of the
Shares by the Underwriters.
(b) The Company will advise the Representatives promptly (i) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (ii) of receipt of any comments from the Commission, (iii) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in endeavoring to
qualify the Shares for sale under the securities laws of such jurisdictions as
the Representatives may reasonably have designated in writing and will make such
applications, file such documents, and furnish such information as may be
reasonably required for that purpose, provided the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
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<PAGE>
(d) The Company will deliver to, or upon the order of, the Representatives,
from time to time, as many copies of any Preliminary Prospectus as the
Representatives may reasonably request. The Company will deliver to, or upon the
order of, the Representatives during the period when delivery of a Prospectus is
required under the Act, as many copies of the Prospectus in final form, or as
thereafter amended or supplemented, as the Representatives may reasonably
request. The Company will deliver to the Representatives at or before the
Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may be
reasonably requested), including documents incorporated by reference therein,
and of all amendments thereto, as the Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and Regulations and
the Exchange Act, and the rules and regulations promulgated thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will either (i) prepare
and file with the Commission an appropriate amendment to the Registration
Statement or supplement to the Prospectus or (ii) prepare and file with the
Commission an appropriate filing under the Exchange Act which shall be
incorporated by reference in the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with law.
(f) The Company will make generally available to its security holders, as
soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earnings statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earning statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(g) The Company will, for a period of five years from the Closing Date,
deliver to the Representatives copies of annual reports and copies of all other
documents, reports and information furnished by the Company to its stockholders
or filed with any securities exchange pursuant to the requirements of such
exchange or with the Commission pursuant to the Act or the Exchange Act. The
Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements.
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<PAGE>
(h) No offering, sale, short sale or other disposition of any shares of
Common Stock of the Company, or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock or agreement for such will be made for a period of 90 days after the date
of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of Alex. Brown & Sons Incorporated
except that the Company may, without such consent, issue options and shares
pursuant to the Company's 1988 Stock Option Plan and 1995 Employee Stock
Purchase Plan, each as described in the Registration Statement.
(i) The Company has caused each officer and director of the Company and ESI
Investment Co. and P.R. Peterson Profit Sharing Trust to furnish to you, on or
prior to the date of this Agreement, a letter or letters, in form and substance
satisfactory to the Underwriters, pursuant to which each such person shall agree
not to offer, sell, sell short or otherwise dispose of any shares of Common
Stock of the Company or other capital stock of the Company, or any other
securities convertible, exchangeable or exercisable for shares of Common Stock
or derivative of shares of Common Stock owned by such person or request the
registration for the offer or sale of any of the foregoing (or as to which such
person has the right to direct the disposition of) for a period of 90 days after
the date of this Agreement, directly or indirectly, except with the prior
written consent of Alex. Brown & Sons Incorporated.
(j) The Company shall apply the net proceeds of its sale of the Shares as
set forth in the Prospectus.
(k) The Company shall not invest, or otherwise use the proceeds received by
the Company from its sale of the Shares in such manner as would require the
Company to register as an investment company under the 1940 Act.
(l) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar for the Common Stock.
(m) The Company will not take, directly or indirectly, any action designed
to cause or result in, or that has constituted or might reasonably be expected
to constitute, the stabilization or manipulation of the price of any securities
of the Company.
5. COSTS AND EXPENSES.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of its obligations under this Agreement, including, without limiting
the generality of the foregoing, the following: accounting fees of the Company;
the fees and disbursements of counsel for the Company; the cost of printing and
delivering to, or as requested by, the Underwriters copies of the Registration
Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the
Underwriters' Invitation Letter, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements incident to securing any
required review by the NASD of the terms of the sale of
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<PAGE>
the Shares, the Listing Fee of the Nasdaq Stock Market, and the expenses,
including the fees and disbursements of counsel for the Underwriters, incurred
in connection with the qualification of the Shares under State securities or
Blue Sky laws. The Company agrees to pay all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of directed shares of the Common
Stock by the Underwriters to employees and persons having business relationships
with the Company. The Company shall not, however, be required to pay for any of
the Underwriters' expenses (other than those related to qualification under NASD
regulations and State securities or Blue Sky laws) except that, if this
Agreement shall not be consummated because the conditions in Section 6 hereof
are not satisfied or because this Agreement is terminated by the Representatives
pursuant to Section 11 hereof, or by reason of any failure, refusal or inability
on the part of the Company to perform any undertaking or satisfy any condition
of this Agreement or to comply with any of the terms hereof on its part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company contained
herein, and to the performance by the Company of its covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been made, and any written
request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable request. No stop order
suspending the effectiveness of the Registration Statement, as amended from time
to time, shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission and no injunction, restraining order, or order of any nature by a
federal or state court of competent jurisdiction shall have been issued as of
the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Lindquist & Vennum
P.L.L.P., counsel for the Company, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to
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the Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Minnesota, with
corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement; the Company is
duly qualified to transact business in all jurisdictions in which the
conduct of its business requires such qualification, or in which the
failure to qualify would have a materially adverse effect upon the business
of the Company.
(ii) The Company has authorized and outstanding capital stock as set
forth in the Prospectus; the authorized shares of the Company's Common
Stock have been duly authorized; the outstanding shares of the Company's
Common Stock have been duly authorized and validly issued and are fully
paid and non-assessable; all of the Shares conform to the description
thereof contained in the Prospectus; the certificates for the Shares,
assuming they are in the form filed with the Commission, are in due and
proper form; the shares of Common Stock, including the Option Shares, if
any, to be sold by the Company pursuant to this Agreement have been duly
authorized and will be validly issued, fully paid and non-assessable when
issued and paid for as contemplated by this Agreement; and no preemptive
rights of stockholders exist with respect to any of the Shares or the issue
or sale thereof.
(iii) Except as described in or contemplated by the Prospectus, to the
knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of capital stock of the Company and
there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock
or any securities convertible or exchangeable into or evidencing the right
to purchase or subscribe for any shares of such stock; and except as
described in the Prospectus, to the knowledge of such counsel, no holder of
any securities of the Company or any other person who has the right,
contractual or otherwise, which has not been satisfied or effectively
waived, to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, any of the Shares or the right to
have any Common Stock or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of any shares
of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the Act
and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
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<PAGE>
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto and all documents incorporated by reference therein
comply as to form in all material respects with the requirements of the Act
or the Exchange Act, as applicable, and the applicable rules and
regulations thereunder (except that such counsel need express no opinion as
to the financial statements and related schedules included or incorporated
by reference therein). The conditions for the use of Form S-2 set forth in
the General Instructions thereto, have been satisfied.
(vi) The statements under the captions "Business--Patent and
Trademarks," and "Description of Capital Stock" in the Prospectus, insofar
as such statements constitute a summary of documents referred to therein or
matters of law, fairly summarize in all material respects the information
called for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to or incorporated by reference in the
Registration Statement or described in the Registration Statement or the
Prospectus which are not so filed, incorporated by reference or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all
material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company, except as set forth
in the Prospectus.
(ix) The execution and delivery of this Agreement and the consummation
of the transactions herein contemplated do not and will not conflict with
or result in a breach of any of the terms or provisions of, or constitute a
default under, the Articles of Incorporation or By-Laws of the Company,
each as amended, or any agreement or instrument known to such counsel to
which the Company is a party or by which the Company may be bound.
(x) This Agreement has been duly authorized, executed and delivered by
the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by
State securities and Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made, specifying the same.
(xii) The execution and delivery of this Agreement and the
consummation by the Company of the transactions contemplated thereby will
not violate any law of the United States or the State of Minnesota, any
rule or regulation of any governmental authority or regulatory body of the
United States of the State of Minnesota, or any judgment, order or
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<PAGE>
decree known to us and applicable to the Company of any court or
governmental authority (other than laws, rules and regulations of the NASD
or State securities and Blue Sky laws as to which such counsel need express
no opinion).
(xiii) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the 1940 Act,
and the rules and regulations of the Commission thereunder.
In rendering such opinion Lindquist & Vennum P.L.L.P. may rely as to
matters governed by the laws of states other than Minnesota or Federal laws on
local counsel in such jurisdictions, provided that in each case Lindquist &
Vennum P.L.L.P. shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that nothing
has come to the attention of such counsel which leads them to believe that (i)
the Registration Statement, at the time it became effective under the Act (but
after giving effect to any modifications incorporated therein pursuant to Rule
430A under the Act) and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements, in the light of the circumstances
under which they are made, not misleading (except that such counsel need express
no view as to financial statements, schedules and statistical information
therein). With respect to such statement, Lindquist & Vennum P.L.L.P. may state
that their belief is based upon the procedures set forth therein, but is without
independent check and verification.
(c) The Representatives shall have received from Piper & Marbury L.L.P.,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (ii), (iii), (iv), (v) and (ix) of Paragraph (b) of this Section
6, and that the Company is a validly organized and validly existing corporation
under the laws of the State of Minnesota. In rendering such opinion Piper &
Marbury L.L.P. may rely as to all matters governed other than by the laws of the
State of Maryland or Federal laws on the opinion of counsel referred to in
paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of
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<PAGE>
the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of material fact or omitted to state a material fact, necessary
in order to make the statements, in light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein). With
respect to such statement, Piper & Marbury L.L.P. may state that their belief is
based upon the procedures set forth therein, but is without independent check
and verification.
(d) The Representatives shall have received at or prior to the Closing Date
from Piper & Marbury L.L.P. a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the State securities
or Blue Sky laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.
(e) The Representatives shall have received, on each of the dates hereof,
the Closing Date and the Option Closing Date, as the case may be, a letter dated
the date hereof, the Closing Date or the Option Closing Date, as the case may
be, in form and substance satisfactory to you, of Price Waterhouse LLP
confirming that they are independent public accountants within the meaning of
the Act and the applicable published Rules and Regulations thereunder and
stating that in their opinion the financial statements and schedules examined by
them and included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Act and the related
published Rules and Regulations; and containing such other statements and
information as is ordinarily included in accountants' "comfort letters" to the
Underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company, on
behalf of the Company, to the effect that, as of the Closing Date or the Option
Closing Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the Act and
no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been taken or
are, to his knowledge, contemplated by the Commission.
(ii) The representations and warranties of the Company contained in
Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be.
(iii) All filings required to have been made pursuant to Rules 424 or
430A under the Act have been made.
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<PAGE>
(iv) Such officer has carefully examined the Registration Statement
and the Prospectus and, in such officer's opinion, as of the effective date
of the Registration Statement, the statements contained in the Registration
Statement, including any document incorporated by reference therein, were
true and correct, and such Registration Statement and Prospectus or any
document incorporated by reference therein did not omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading and, since the effective date of the
Registration Statement, no event has occurred which should have been set
forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment.
(v) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the
Company or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company,
whether or not arising in the ordinary course of business.
(g) The Company shall have furnished to the Representatives such further
certificates and documents confirming the representations and warranties,
covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Firm Shares, and Option Shares, if any, have been approved for
designation upon notice of issuance on the Nasdaq Stock Market.
(i) The Lockup Agreements described in Section 4(i) are in full force and
effect.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Piper & Marbury L.L.P.,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
--------------------------------------------
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the
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<PAGE>
Closing Date or the Option Closing Date, as the case may be, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and in effect or proceedings therefor initiated or threatened.
8. INDEMNIFICATION.
---------------
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the Act
against any losses, claims, damages or liabilities to which such Underwriter or
such controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained or incorporated by
reference in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will reimburse
each Underwriter and each such controlling person upon demand for any legal or
other expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding and expenses reasonably incurred in
responding to a subpoena or governmental inquiry whether or not such Underwriter
or controlling person is a party to any action or proceeding; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made or
incorporated by reference in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Company by or
through the Representatives specifically for use in the preparation thereof.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained or incorporated by reference in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter will
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue
-17-
<PAGE>
statement or omission or alleged omission has been made or incorporated by
reference in the Registration Statement, any Preliminary Prospectus, the
Prospectus or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to this Section 8, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing. No indemnification provided for in Section 8(a) or (b)
shall be available to any party who shall fail to give notice as provided in
this Section 8(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was prejudiced by the
failure to give such notice, but the failure to give such notice shall not
relieve the indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of the provisions of Section 8(a) or (b). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) and by the Company in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder
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<PAGE>
(whether or not any indemnified party is an actual or potential party to such
claim, action or proceeding) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under Section 8(a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under Section 8(c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account the
equitable considerations referred to above in this Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
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<PAGE>
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company), you, as Representatives of
the Underwriters, shall use your best efforts to procure within 36 hours
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on
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the part of the non-defaulting Underwriters or of the Company except to the
extent provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or
Option Closing Date, as the case may be, may be postponed for such period, not
exceeding seven days, as you, as Representatives, may determine in order that
the required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any action taken
under this Section 9 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
10. NOTICES.
-------
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered or telegraphed and confirmed as
follows: if to the Underwriters, to Alex. Brown & Sons Incorporated, 135 East
Baltimore Street, Baltimore, Maryland 21202, Attention: Peter M. McGowan,
Managing Director; with a copy to Alex. Brown & Sons Incorporated, 135 East
Baltimore Street, Baltimore, Maryland 21202, Attention: General Counsel; if to
the Company, to PPT Vision, Inc. 10321 West 70th Street, Eden Prairie, Minnesota
55344, Attention: Joseph C. Christenson, President.
11. TERMINATION.
-----------
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company, whether or not arising in the ordinary
course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Shares or to enforce contracts for
the sale of the Shares, (iii) suspension of trading in securities on the New
York Stock Exchange or the American Stock Exchange or limitation on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such Exchange, (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely
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affect the business or operations of the Company, (v) declaration of a banking
moratorium by United States or New York State authorities, (vi) any downgrading
in the rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Exchange Act); (vii) the suspension of trading of the Company's Common Stock
by the Commission on the Nasdaq Stock Market or (viii) the taking of any action
by any governmental body or agency in respect of its monetary or fiscal affairs
which in your reasonable opinion has a material adverse effect on the securities
markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
This Agreement also may be terminated by you, by notice to the Company, as
to any obligation of the Underwriters to purchase the Option Shares, upon the
occurrence at any time prior to the Option Closing Date of any of the events
described in subparagraph (b) above or as provided in Sections 6 and 9 of this
Agreement.
12. SUCCESSORS.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
------------------------------------
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. MISCELLANEOUS.
-------------
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
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<PAGE>
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
PPT VISION, INC.
By: _____________________________
Joseph C. Christenson, President
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<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
PIPER JAFFRAY INC.
As Representatives of the several Underwriters
listed on Schedule I
By ALEX. BROWN & SONS INCORPORATED
By:_________________________________
Authorized Officer
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<PAGE>
SCHEDULE I
Schedule of Underwriters
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
Alex. Brown & Sons Incorporated
Piper Jaffray Inc.
_______________
Total
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[LETTERHEAD OF LINDQUIST & VENNUM P.L.L.P]
Exhibit 5.1
May 14, 1996
PPT Vision, Inc.
10321 West 70th Street
Eden Prairie, MN 55344
Re: Registration Statement on Form S-2
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-2 to be filed
by PPT Vision, Inc. (the "Company") with the Securities and Exchange
Commission on May 15, 1996, relating to a public offering of 1,600,000 shares
of Common Stock, $.10 par value ("Common Stock"), to be offered by the
Company (plus up to an additional 240,000 shares of the Company's Common
Stock to be offered if the Underwriters exercise in full their over-allotment
option), please be advised that as counsel to the Company, upon examination
of such corporate documents and records as we have deemed necessary or
advisable for the purposes of this opinion, it is our opinion that:
1. The Company is a validly existing corporation in good standing
under the laws of the State of Minnesota.
2. The shares of Common Stock being offered by the Company, when
issued and paid for as contemplated by the Registration Statement, will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus comprising a part of the Registration
Statement.
Very truly yours,
/s/ Lindquist & Vennum P.L.L.P.
LINDQUIST & VENNUM P.L.L.P.
<PAGE>
Exhibit 10.3
PPT VISION, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
Section 1
Purpose
-------
The purpose of this Employee Stock Purchase Plan is to provide a greater
community of interest between PPT Vision, Inc. shareholders and its employees,
and to facilitate purchase by employees of additional shares of stock in the
Company. It is believed the Plan will encourage employees to remain in the
employ of the Company and will also permit the Company to compete with other
corporations offering similar plans in obtaining and retaining the services of
competent employees. It is intended that options issued pursuant to this Plan
shall constitute options issued pursuant to an "Employee Stock Purchase Plan"
within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended.
Section 2
Definitions
-----------
A. "Plan" means the 1995 PPT Vision, Inc. Employee Stock Purchase Plan.
B. "Code" means the Internal Revenue Code of 1986, as amended.
C. "Company" means Pattern Processing Technologies, Inc., and any of its
subsidiaries (as that term is defined by Section 425(f) of the Code) to which
PPT Vision, Inc. and such respective subsidiaries by action of their Boards of
Directors shall make this Plan applicable.
D. "Employee" means any person, including an officer, who is customarily
employed twenty (20) hours or more per week and more than five (5) months in a
calendar year by the Company.
E. "Eligible Employee" means an Employee of the Company who is eligible
for participation in the Plan in accordance with Section 4.
F. "Participant" means an Eligible Employee who has elected to participate
in the Plan in accordance with Section 5.
G. "Committee" means the committee provided for in Section 11.
<PAGE>
H. The "Commencement Date" of the Plan means June 1, 1995 or such other
date established by the Committee.
I. "Base Pay" means regular straight time earnings annualized as of the
date of commencement of a phase excluding payments, if any, for overtime,
incentive compensation, incentive payments, premiums, bonuses, and any other
special remuneration.
J. "Termination Date" shall mean the earlier of (i) the day immediately
preceding the one year anniversary of the commencement of a particular phase of
the Plan, or (ii) the effective date of any merger or consolidation in which the
Company is not the surviving corporation.
K. "Shares" shall mean common shares of the Company of the par value of
$.10, subject to adjustments which may be made in accordance with Sections 16
and 17.
Section 3
Term and Phases of the Plan
---------------------------
A. The Plan will commence on the Commencement Date and will terminate five
(5) years thereafter. Notwithstanding the foregoing, this Plan shall be
considered of no force or effect and any options granted shall be null and void
unless the shareholders of the Company approve the Plan within twelve (12)
months before or after the date of its adoption by the Board of Directors.
B. The Plan shall be carried out in five (5) phases, each phase being for
a period of one year, or such other length of time as made be determined by the
Committee. No phases shall run concurrently. A phase may commence immediately
after the termination of the preceding phase. The commencement of each phase
shall be determined by the Committee, provided that the commencement of the
first phase shall be within twelve (12) months before or after the date of
approval of the Plan by the shareholders of the Company. In the event all of
the stock reserved for grant of options hereunder is issued pursuant to the
terms hereof prior to the commencement of one or more phases scheduled by the
Committee or the number of shares remaining is so small, in the opinion of the
Committee, as to render administration of any succeeding phase impracticable,
such phase or phases shall be cancelled. Phases shall be numbered successively
as Phase 1, Phase 2, Phase 3, Phase 4 and Phase 5.
2
<PAGE>
Section 4
Eligibility
-----------
A. Any Employee of the Company who has completed at least two (2) weeks of
continuous service on or prior to the commencement of a phase of the Plan shall
be eligible to participate in the Plan, subject to the limitations imposed by
Section 423 of the Code.
B. Any Employee who is a member of the Board of Directors of the Company
shall be eligible to participate in the Plan.
C. Notwithstanding any provision of the Plan to the contrary, no Employee
shall be granted an option:
1. If such Employee, immediately after the option is granted, owns
shares possessing five percent (5%) or more of the total combined voting
power or value of all classes of shares of the Company or a parent or a
subsidiary of the Company. For purposes of determining share ownership, the
rules of Section 425(d) of the Code shall apply, and shares which the
Employee may purchase under outstanding options shall be treated as shares
owned by the Employee; or
2. Which permits the Employee to purchase shares under such plans
of the Company or a parent or a subsidiary of the Company to accrue at a
rate which exceeds $25,000 of the fair market value of such shares
(determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
Section 5
Participation
-------------
A. An Eligible Employee may elect to enroll as and become a Participant in
any phase of the Plan by completing a payroll deduction authorization on the
form provided by the Company and filing it with the personnel office at least
seven (7) days prior the date the phase commences.
B. Payroll deductions for a Participant shall commence on the date when
his payroll deduction authorization becomes effective and shall end on the last
payday immediately prior to or coinciding with the Termination Date of the
particular phase unless sooner terminated by the Participant as provided in
Section 9 or as otherwise provided herein.
3
<PAGE>
C. A participant who ceases to be an Eligible Employee, although still
employed by the Company, thereupon shall be deemed to discontinue his
participation in the Plan and shall have the rights provided in Section 9.
D. Participation in the Plan shall be voluntary.
Section 6
Payroll Deductions
------------------
A. Upon enrollment in any particular phase of the Plan, a Participant
shall elect to make contributions to the Plan by payroll deductions (in full
dollar amounts calculated to be as uniform as practicable throughout the period
of the phase), in the aggregate amount not in excess of the sum of 10% of such
Participant's Base Pay for the term of the phase, as determined on the basis of
his annual or annualized Base Pay at the commencement of the phase. The minimum
authorized payroll deduction shall be $10 per month.
B. All payroll deductions made for a Participant shall be credited to
the Participant's account under the Plan. The Participant may not make any
separate cash payments into such account.
C. A Participant may discontinue his participation in the phase and
terminate his payroll deduction authorized at any time as provided in Section 9.
D. A Participant may reduce the amount of his payroll deduction by
completing an amended payroll deduction authorization on the form provided and
filing it with the personnel office, but no change can be made during a phase of
the Plan which would either change the time or increase the rate of his payroll
deductions.
Section 7
Terms and Conditions of Options
-------------------------------
A. Stock options granted pursuant to the Plan may be evidenced by
agreements in such form as the Committee shall recommend and the Board of
Directors shall approve; provided that all Employees shall have the same rights
and privileges and provided further that such options shall comply with and be
subject to the following terms and conditions.
B. As of the commencement of a phase when a Participant's payroll
deduction authorization becomes effective, the Participant shall be granted an
option for as many full shares as he will be able to purchase with the payroll
deduction
4
<PAGE>
credited to the Participant's account during his participation in the phase,
subject to the limitations of Section 10. The maximum number of shares subject
to purchase by a Participant shall equal the total amount to be credited to the
Participant's account under Section 6 hereof divided by the option price set
forth in Section 7, paragraph C.1. hereof.
C. The option price of shares to be purchased with payroll deductions
for an Employee who becomes a Participant as of the commencement of a phase
shall be the lower of:
1. 85% of the fair market value of the shares on the date the phase
commences, or
2. 85% of the fair market value of the shares on the Termination
Date of the phase.
D. The fair market value of the shares shall be determined by the
Committee for each valuation date in a manner consistent with Section 423 of the
Code.
Section 8
Exercise of Option
------------------
A. Unless a Participant gives written notice to the Company as provided
in Section 9, an option for the purchase of shares will be exercised
automatically as of the Termination Date of the phase for the purchase of the
number of full shares which the accumulated payroll deductions in the
Participant's account at that time will purchase at the applicable option price,
but in no event shall the number of full shares be greater than the number of
full shares which the Participant is eligible to purchase under Section 7,
paragraph B.
B. By written notice to the Company within one week prior to the
Termination Date of the phase a Participant may elect, effective at the
Termination Date, to:
1. withdraw all the accumulated payroll deductions in the
Participant's account at the time, without interest;
2. exercise his option for a specified number of full shares less
than the number of full shares which the accumulated payroll deductions in
his account will purchase at the applicable option price, and withdraw the
balance in the Participant's account without interest, but in no event
shall the number of full shares be greater than the
5
<PAGE>
number of full shares to which a Participant is eligible to purchase under
Section 7, paragraph B.
Section 9
Death, Withdrawal or Termination
--------------------------------
A. In the event of the death of a Participant during any phase of the
Plan, the person or persons specified in Section 18 may give notice to the
Company within sixty (60) days of the death of the Participant, but in no event
later than the end of the period specified in Section 8, paragraph B., electing
to purchase the number of full shares which the accumulated payroll deductions
in the account of such deceased Participant will purchase at the option price
specified in Section C of Section 7 and have the balance in the account
distributed in cash without interest. If no such notice is received by the
Company within the period described in the preceding sentence, the accumulated
payroll deductions will be distributed in cash.
B. Upon termination of the Participant's employment during any phase of
the Plan for any reason other than the death of the Participant, the payroll
deductions credited to his account without interest shall be returned to such
Participant promptly.
C. A Participant may withdraw all or any part of the payroll deductions
credited to his account under the Plan at any time by giving written notice to
the Company. The Participant's payroll deductions credited to his account shall
be paid to him promptly after receipt of his notice of withdrawal and no further
payroll deductions shall be made from his compensation. Any amounts not
withdrawn shall remain in the Participants account.
Section 10
Shares Under Option
-------------------
A. The shares to be sold to a Participant under the Plan may, at the
election of the Company, be either authorized but unissued shares or shares
acquired in the open market by the Company. The maximum number of shares which
shall be made available for sale under the Plan shall be 150,000 shares subject
to adjustment upon changes in capitalization of the Company as provided in
Sections 16 and 17. If the total number of shares for which options are to be
granted on any date in accordance with Section 7 exceeds the number of shares
then available under the Plan (after deduction of all shares for which options
have been exercised or are then outstanding), the Committee shall make a pro
rata allocation of the shares remaining available in as nearly a uniform manner
as shall be practicable and as it shall determine to be equitable. In such
event, payroll deductions to be made shall be
6
<PAGE>
reduced accordingly and the Committee shall give written notice of such
reduction to each Participant affected thereby.
B. As promptly as practicable after the Termination Date of a phase, the
Company shall deliver to each Participant the full shares purchased under
exercise of his option, together with a cash payment equal to the balance
(without interest) of any payroll deductions credited to his account which were
not used for the purchase of shares.
C. The Participant will have no interest in shares covered by his option
until such option has been exercised.
Section 11
Administration
--------------
The Plan shall be administered by the Board of Directors of the Company, or
in its discretion, by a Committee consisting of not less than two (2) members
who shall be appointed by the Board of Directors of the Company. Each member of
such Committee shall be either a director, an officer or an employee of the
Company. Unless the Board of Directors limits the authority delegated to the
Committee in its appointment, the Committee shall be vested with full authority
to make, administer, and interpret such rules and regulations as it deems
necessary to administer the Plan, and any such determination, decision or action
of such Committee with respect to any action in connection with the
construction, interpretation administration or application of the Plan shall be
final, conclusive and binding on all Participants and any and all other persons
claiming under or through any Participant. It is provided, however, that the
provisions of the Plan shall be construed so as to extend and limit
participation in the Plan only in a manner consistent with the requirements of
Section 423 of the Code. For all purposes of this Plan other than this Section
11, references to the Committee shall also refer to the Board of Directors.
Section 12
Amendment of the Plan
---------------------
The Board of Directors of the Company may at any time amend the Plan,
except that no amendment may make any change in any option theretofore granted
which would adversely affect the rights of any Participant, and no amendment
shall be made without prior approval of the shareholders of the Company if such
amendment would require sale of more shares than are authorized under Section 10
of the Plan or change the qualifications of Eligible Employees under the Plan.
7
<PAGE>
Section 13
Nontransferability
------------------
Neither payroll deductions credited to a Participant's account nor any
rights with regard to the exercise of an option or to receive shares under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
by the Participant and any such attempted assignment, transfer, pledge or other
disposition shall be null and void and without effect, but the Company may treat
such act as an election to withdraw funds in accordance with Section 9.
Section 14
Use of Funds
------------
All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purposes and the Company shall not be
obligated to segregate such payroll deductions.
Section 15
Interest
--------
No interest will be paid on any amounts in any Participant's account.
Section 16
Changes in Capitalization, Merger, etc.
---------------------------------------
A. Subject to any required action by the shareholders, the number of
shares covered by each outstanding option, and the price per share thereof in
each such option, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of the Company resulting from a subdivision or
consolidation of shares or the payment of a share dividend (but only on the
shares) or any other increase or decrease in the number of such shares effected
without receipt of consideration by the Company.
B. Subject to any required action by the shareholders, if the Company
shall be involved in any merger or consolidation, in which it is the surviving
corporation, each outstanding option shall pertain to and apply to the
securities to which a holder of the number of shares subject to the option would
have been entitled. A dissolution or liquidation of the Company shall cause
each outstanding option to terminate, provided in such event that, immediately
prior to such dissolution or liquidation, each Participant shall be repaid the
payroll deductions credited to his account without interest.
8
<PAGE>
C. In the event of a change in the shares of the Company as presently
constituted, which is limited to a change of all its authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be the
shares within the meaning of this Plan.
Section 17
Adjustments to Shares
---------------------
A. To the extent that the foregoing adjustments relate to shares or
securities of the Company, such adjustments shall be made by the Committee, and
its determination in that respect shall be final, binding and conclusive,
provided that each option granted pursuant to this Plan shall not be adjusted in
a manner that causes the option to fail to continue to qualify as an option
issued pursuant to an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
B. Except as hereinbefore expressly provided in Sections 16 and 17, the
optionee shall have no right by reason of any subdivision or consolidation of
shares of any class or the payment of any stock dividend or any other increase
or decrease in the number of shares of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another corporation, and any issue by the Company of shares of any
class, or securities convertible into shares of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to the option.
C. The grant of an option pursuant to this Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
Section 18
Beneficiary Designation
-----------------------
A Participant may file a written designation of a beneficiary who may elect
to purchase shares or receive cash to the Participant's credit under the Plan in
the event of such Participant's death prior to delivery to him of such shares
and cash. Such designation of beneficiary may be changed by the Participant at
any time by written notice delivered to the Company. Upon the death of a
Participant and upon receipt by the Company of proof deemed adequate by it of
the identity and existence at the Participant's death of a beneficiary validly
designated by him under the Plan, the Company shall deliver such shares and cash
to such beneficiary in accordance with
9
<PAGE>
paragraph A of Section 9. If upon the death of a Participant there is no
surviving beneficiary duly designated as above provided, the Company shall
deliver accumulated payroll deductions to the executor or administrator of the
estate of the Participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company) within sixty (60) days following the
Participant's death, the Company shall deliver such accumulated payroll
deductions to the surviving spouse, if any, as though named as the designated
beneficiary hereunder, or if there is no such surviving spouse or child, then to
such relatives of the Participant as would be entitled to such amounts, under
the laws of intestacy in the deceased Participant's domicile as though named as
the designated beneficiary hereunder. The Company shall not be liable for any
distribution made of shares or cash pursuant to any will or other testamentary
disposition made by such Participant, or because of the provisions of law
concerning intestacy, or otherwise. No designated beneficiary shall, prior to
the death of the Participant by whom he has been designated, acquire any
interest in the shares or cash credited to the Participant under the Plan.
Section 19
Registration and Qualification of Shares
----------------------------------------
The offering of the shares hereunder shall be subject to the effecting by
the Company of any registration or qualification of the shares under any federal
or state law or the obtaining of the consent or approval of any governmental
regulatory body which the Company shall determine, in its sole discretion, is
necessary or desirable as a condition to or in connection with, the offering or
the issue or purchase of the shares covered thereby. The Company shall make
every reasonable effort to effect such registration or qualification or to
obtain such consent or approval.
Section 20
Plan Preconditions
------------------
The Plan is expressly made subject to (i) the approval by shareholders of
the Company, and (ii) at its election, the receipt by the Company from the
Internal Revenue Service of a determination letter or ruling, in scope and
content satisfactory to counsel, respecting the qualification of the Plan within
the meaning of Section 423 of the Code. If the Plan is not so approved by the
shareholders and if, at the election of the Company, the aforesaid determination
letter or ruling from the Internal Revenue Service is not received on or before
one year after this Plan's adoption by the Board of Directors, this Plan shall
not come into effect. In such case, the accumulated payroll deductions credited
to the account of each Participant shall forthwith be repaid to him without
interest.
10
<PAGE>
ADOPTED BY BOARD OF DIRECTORS: January 10, 1995
APPROVED BY SHAREHOLDERS: March 8, 1995
11
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
BETWEEN
PATTERN PROCESSING TECHNOLOGIES, INC.
AND
JOSEPH C. CHRISTENSON
THIS AGREEMENT, made and entered into in the City of Minneapolis, State of
Minnesota, this 7th day of May, 1984, by and between Pattern Processing
Technologies, Inc., a corporation duly organized and existing under the laws of
the State of Minnesota, hereinafter sometimes referred to as "the Corporation,"
and Joseph C. Christenson, hereinafter sometimes referred to as "Employee";
ARTICLE 1
EMPLOYMENT
1.1) The Corporation hereby employs Employee, and Employee agrees to work
for Corporation at such duties as are assigned to him from time to time by the
directors and officers of the Corporation.
ARTICLE 2
TERM
2.1) The term of this Agreement shall be for a period of one (1) year
commencing May 7, 1984, unless sooner terminated as hereinafter provided. The
Agreement shall thereafter continue in effect from year to year unless altered
or terminated as hereinafter provided.
<PAGE>
ARTICLE 3
DUTIES
3.1) Employee agrees, unless otherwise specifically authorized by the
Corporation, to devote his full time and effort to his duties for the profit,
benefit and advantage of the business of the Corporation.
ARTICLE 4
COMPENSATION
4.1) Corporation agrees to pay Employee a salary of Two Thousand
Dollars ($2,000) per month payable bi-weekly. As additional consideration for
Employee's covenants herein the Corporation grants Employee an option for the
purchase of stock pursuant to the terms of the attached Stock Option Agreement
marked Exhibit A and hereby incorporated by reference.
ARTICLE 5
INSURANCE
5.1) Employee agrees that the Corporation may, from time to time,
apply for and take out in its own name and at its own expense, life, health,
accident, or other insurance upon Employee that the Corporation may deem
necessary or advisable to protect its interests hereunder; and Employee agrees
to submit to any medical or other examination necessary for such purposes and to
assist and cooperate with the Corporation in preparing such insurance; and
Employee agrees that he shall have no right, title, or interest in or to such
insurance.
ARTICLE 6
NON-COMPETITION
6.1) The Corporation and the Employee acknowledge that:
2
<PAGE>
(01) The Corporation's business is highly competitive;
(02) The essence of such business consists of confidential information
and trade secrets as described in Article 7, all of which are
zealously protected and kept secret by the Corporation;
(03) In the course of his employment, Employee will acquire the
information described in Article 7 and that the Corporation would
be adversely affected if such information subsequently, and in
the event of the termination of the Employee's employment, is
used for the purposes of competing with the Corporation;
(04) The Corporation markets its products throughout the United
States;
(05) For these reasons, both the Corporation and the Employee further
acknowledge and agree that the restrictions contained herein are
reasonable and necessary for the protection of their respective,
legitimate interests.
6.2) Employee agrees that from and after the date hereof for the term
of employment specified in Article 2 above and two (2) years thereafter, he will
not, without the express written permission of the Corporation, directly or
indirectly own, manage, operate, control, lend money to, endorse the obligations
of, or participate or be connected as an officer, 5% or more stockholder of a
publicly held company, stockholder of a closely held company, employee, partner
or otherwise, with any enterprise or individual engaged in the business of
developing, manufacturing or marketing products to persons or companies that
were customers of the Corporation during the term of this agreement, or with any
enterprise or individuals engaged in the business of developing, manufacturing
or marketing products that have been, are being or are planned to be developed
by the Corporation and will not in any manner, either directly or indirectly,
compete with the Corporation in such business. It is understood and
acknowledged by both parties that, inasmuch as the Corporation's products are
marketed nationwide, that this covenant not to compete shall be enforced
throughout the United States.
3
<PAGE>
6.3) Employee, during the term of his employment by the Corporation,
shall at all times keep the Corporation informed of any business activity and
outside employment, and shall not engage in any activity or employment which may
be in conflict with the corporation's interests.
6.4) If the Employee should breach any of the provisions of this
Article 6, Corporation may enjoin him from continued breach, in addition to
pursuing any other available legal and equitable remedies.
ARTICLE 7
CONFIDENTIAL INFORMATION AND TRADE SECRETS
7.1) Employee has acquired and will acquire information and knowledge
respecting the intimate and confidential affairs of the Corporation including,
without limitation, confidential information with respect to the Corporation's
products, packages, improvements, designs, processes, customer lists, trade
secrets, business and trade practices, sales or distribution methods and other
confidential information pertaining to the Corporation's business or financial
affairs, which may or may not be patentable, which are developed by the
Corporation at considerable time and expense, and which could be unfairly
utilized in competition with the Corporation. The term "trade secret" shall be
defined as follows:
A trade secret may consist of any formula, pattern, device or compilation
of information which is used in one's business, and which gives him an
opportunity to obtain an advantage over competitors who do not know or use
it.
Accordingly, Employee agrees that he shall not, during the period of his
employment hereunder or thereafter, use for his own benefit such confidential
information or trade secrets acquired during the term of his employment by the
Corporation. Further, during the period of his employment hereunder and
thereafter, the Employee shall not, without the written consent of the Board of
4
<PAGE>
Directors of the Corporation or a person duly authorized thereby, disclose to
any person, other than an employee of the Corporation or a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Employee of his duties, any confidential information or trade
secrets obtained by him while in the employ of the Corporation.
7.3) Upon termination of employment, Employee agrees to deliver to the
Corporation all materials that include confidential information or trade
secrets, such as customer lists, product formulations, instruction sheets
drawings, manuals, letters notes, notebooks books, reports and copies thereof,
and all other materials of a confidential nature which belong to or relate to
the business of the Corporation.
ARTICLE 8
IMPROVEMENTS AND INVENTIONS
8.1) Employee shall promptly and fully disclose to the Corporation, any and
all ideas, improvements, discoveries and inventions, whether or not they are
believed to be patentable (all of which are hereinafter referred to as
"Inventions"), which Employee conceives or first actually reduces to practices
either solely or jointly with others, during the period of Employee's employment
or within two years after termination of employment, and which relate to the
business now or hereafter carried on or contemplated by the Corporation or which
results from any work performed by Employee for the Corporation.
8.2) All such Inventions shall be the sole and exclusive property of the
Corporation, and during the term of his employment and thereafter, whenever
requested to do so by the Corporation, Employee shall execute and assign any and
all applications, assignments and other instruments which the Corporation shall
deem necessary or convenient in order to apply for and
5
<PAGE>
obtain Letters Patent of the United States and/or of any foreign countries for
such Inventions and in order to assign and convey to the corporation or its
nominee the sole and exclusive right, title and interest in and to such
Inventions, and Employee will render aid and assistance in any interference or
litigation pertaining thereto, all expenses reasonably incurred by Employee at
the request of the Corporation shall be borne by the Corporation.
8.3) To the extent, if any, that Minnesota law in determined to apply to
the enforceability of this Agreement, Minnesota Statute Section 181.78 provides
that the Agreement does not apply, and written notification is hereby given to
the Employee that this Agreement does not apply, to an Invention for which no
equipment, supplies, facility or trade secret information of the Corporation was
used and which was developed entirely on the Employee's own time, and (1) which
does not relate (a) directly to the business of the Corporation, or (b) to the
Corporation's actual or demonstrably anticipated research or development, or (2)
which does not result from any work performed by the Employee for the
Corporation.
ARTICLE 9
JUDICIAL CONSTRUCTION
9.1) The Employee believes and acknowledges that the provisions contained
in this Agreement, including the covenants contained in Articles 6, 7 and 8 of
this Agreement, are fair and reasonable. Nonetheless, it is agreed that if a
court finds any of these provisions to be invalid in whole or in part under the
laws of any state, such finding shall not invalidate the covenants, nor the
Agreement in its entirety, but rather the covenants shall be construed and/or
blue-lined, reformed or rewritten by the court as if the most restrictive
covenants permissible under applicable law were contained herein.
6
<PAGE>
ARTICLE 10
RIGHT TO INJUNCTIVE RELIEF
10.1) Employee acknowledges that a breach by the Employee of any of
the terms of Articles 6, 7, 8 or 9 of this Agreement will render irreparable
harm to the Corporation; and that the Corporation shall therefore be entitled to
any and all equitable relief, including, but not limited to, injunctive relief,
and to any other remedy that may be available under any applicable law or
agreement between the parties, and to recover from the Employee all costs of
litigation including, but not limited to, attorneys' fees and court costs.
ARTICLE 11
TERMINATION
11.1) Either party shall have the right to terminate this Agreement
upon sixty (60) days notice to the other, and the Corporation shall pay Employee
until the date of termination, unless the Corporation terminates the Agreement
because the Employee has violated either Articles 6, 7, 8 or 9, in which case no
additional compensation shall be payable to Employee.
ARTICLE 12
CESSATION OF CORPORATE BUSINESS
12.1) This Agreement shall cease and terminate if the Corporation
shall discontinue its business, and all rights and liabilities thereunder shall
cease, except as provided in Article 13.
ARTICLE 13
ASSIGNMENT
7
<PAGE>
13.1) The Corporation shall have the right to assign this contract to
its successors or assigns, and all covenants or agreements hereunder shall inure
to the benefit of and be enforceable by or against its successors or assigns.
13.2) The terms "successors" and "assigns" shall include any
Corporation which buys all or substantially all of the Corporation's assets, or
a controlling portion of its stock, or with which it merges or consolidates.
ARTICLE 14
FAILURE TO DEMAND PERFORMANCE AND WAIVER
14.1) The Corporation's failure to demand strict performance and
compliance with any part of this Agreement during the Employee's employment
shall not be deemed to be a waiver of the Corporation's rights under this
Agreement or by operation of law. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed as a waiver of
any subsequent breach thereof.
ARTICLE 15
ENTIRE AGREEMENT
15.1) The Corporation and the Employee acknowledge that this
Agreement contains the full and complete agreement between and among the
parties, that there are no oral or implied agreements or other modifications not
specifically set forth herein, and that this Agreement supersedes any prior
agreements or understandings, if any, between the Corporation and the Employee,
whether written or oral. The parties further agree that no modifications of
this Agreement may be made except by means of a written agreement or memorandum
signed by the parties.
8
<PAGE>
ARTICLE 16
GOVERNING LAW
16.1) The parties acknowledge that the Corporation's principal place
of business is located in the State of Minnesota, that this Agreement has been
entered into in the State of Minnesota and that they wish legal certainty and
predictability as to the terms of their undertaking. Accordingly, the parties
hereby agree that this Agreement shall be construed in accordance with the laws
of the State of Minnesota.
IN WITNESS WHEREOF the Corporation has hereunto signed its name and
the Employee hereunder has signed his name, all as of the day and year first
above written.
PATTERN PROCESSING TECHNOLOGIES, INC.
_____________________________ By:__________________________________________
Witness Its:___________________________
EMPLOYEE
_____________________________ _____________________________________________
Witness Joseph C. Christenson
9
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Exhibit 10.5
EMPLOYMENT AGREEMENT
BETWEEN
PATTERN PROCESSING CORP.
AND
LARRY G. PAULSON
THIS AGREEMENT, made and entered into in the City of Minneapolis, State of
Minnesota, this lst day of February, 1984, by and between Pattern Processing
Corp., a corporation duly organized and existing under the laws of the State of
Minnesota, hereinafter sometimes referred to as "the Corporation," and Larry G.
Paulson, hereinafter sometimes referred to as "Employee";
ARTICLE 1
EMPLOYMENT
1.1) The Corporation hereby employs Employee, and Employee agrees to work
for Corporation at such duties as are assigned to him from time to time by the
directors and officers of the Corporation.
ARTICLE 2
TERM
2.1) The term of this Agreement shall be for a period of one (1) year
commencing February 1, 1984, unless sooner terminated as hereinafter provided.
The Agreement shall thereafter continue in effect from year to year unless
altered or terminated as hereinafter provided.
<PAGE>
ARTICLE 3
DUTIES
3.1) Employee agrees, unless otherwise specifically authorized by the
Corporation, to devote his full time and effort to his duties for the profit,
benefit and advantage of the business of the corporation.
ARTICLE 4
COMPENSATION
4.1) Corporation agrees to pay Employee a salary of Fifty Thousand Dollars
($50,000) per year payable bi-weekly.
ARTICLE 5
INSURANCE
5.1) Employee agrees that the Corporation may, from time to time, apply
for and take out in its own name and at its own expense, life, health, accident,
or other insurance upon Employee that the Corporation may deem necessary or
advisable to protect its interests hereunder; and Employee agrees to submit to
any medical or other examination necessary for such purposes and to assist and
cooperate with the Corporation in preparing such insurance; and Employee agrees
that he shall have no right, title, or interest in or to such insurance.
ARTICLE 6
NON-COMPETITION
6.1) The Corporation and the Employee acknowledge that:
(01) The Corporation's business is highly competitive;
2
<PAGE>
(02) The essence of such business consists of confidential information and
trade secrets as described in Article 7, all of which are zealously
protected and kept secret by the Corporation;
(03) In the course of his employment, Employee will acquire the
information described in Article 7 and that the Corporation would be
adversely affected if such information subsequently, and in the event
of the termination of the Employee's employment, is used for the
purposes of competing with the Corporation;
(04) The Corporation markets its products throughout the United States;
(05) For these reasons, both the Corporation and the Employee further
acknowledge and agree that the restrictions contained herein are
reasonable and necessary for the protection of their respective,
legitimate interests.
6.2) Employee agrees that from and after the date hereof for the term of
employment specified in Article 2 above and two (2) years thereafter, he will
not, without the express written permission of the Corporation, directly or
indirectly own, manage, operate, control, lend money to, endorse the obligations
of, or participate or be connected as an officer, 5% or more stockholder of a
publicly held company, stockholder of a closely held company, employee, partner,
or otherwise, with any enterprise or individual engaged in the business of
developing, manufacturing or marketing products to persons or companies that
were customers of the Corporation during the term of this agreement, or with any
enterprise or individuals engaged in the business of developing, manufacturing
or marketing products that have been, are being or are planned to be developed
by the Corporation and will not in any manner, either directly or indirectly,
compete with the Corporation in such business. It is understood and
acknowledged by both parties that, inasmuch as the Corporation's products are
marketed nationwide, that this covenant not to compete shall be enforced
throughout the United States.
3
<PAGE>
6.3) Employee, during the term of his employment by the Corporation, shall
at all times keep the Corporation informed of any business activity and outside
employment, and shall not engage in any activity or employment which may be in
conflict with the Corporation's interests.
6.4) If the Employee should breach any of the provisions of this Article
6, Corporation may enjoin him from continued breach, in addition to pursuing any
other available legal and equitable remedies.
ARTICLE 7
CONFIDENTIAL INFORMATION AND TRADE SECRETS
7.1) Employee has acquired, and will acquire information and knowledge
respecting the intimate and confidential affairs of the Corporation including,
without limitation, confidential information with respect to the Corporation's
products, packages, improvements, designs, processes, customer lists, trade
secrets, business and trade practices, sales or distribution methods and other
confidential information pertaining to the Corporation's business or financial
affairs, which may or may not be patentable, which are developed by the
Corporation at considerable time and expense, and which could be unfairly
utilized in competition with the Corporation. The term "trade secret" shall be
defined as follows:
A trade secret may consist of any formula, pattern, device or compilation
of information which is used in one's business, and which gives him an
opportunity to obtain an advantage over competitors who do not know or use
it.
Accordingly, Employee agrees that he shall not, during the period of his
employment hereunder or thereafter, use for his own benefit such confidential
information or trade secrets acquired during the term of his employment by the
Corporation. Further, during the period of his employment hereunder and
thereafter, the Employee shall not, without the written consent of the Board of
4
<PAGE>
Directors of the Corporation or a person duly authorized thereby, disclose to
any person, other than an employee of the Corporation or a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Employee of his duties, any confidential information or trade
secrets obtained by him while in the employ of the Corporation.
7.3) Upon termination of employment, Employee agrees to deliver to the
Corporation all materials that include confidential information or trade
secrets, such as customer lists, product formulations, instruction sheets,
drawings manuals, letters, notes, notebooks, books, reports and copies thereof,
and all other materials of a confidential nature which belong to or relate to
the business of the Corporation.
ARTICLE 8
IMPROVEMENTS AND INVENTIONS
8.1) Employee shall promptly and fully disclose to the Corporation, any
and all ideas, improvements, discoveries and inventions, whether or not they are
believed to be patentable (all of which are hereinafter referred to as
"Inventions"), which Employee conceives or first actually reduces to practice,
either solely or jointly with others, during the period of Employee's employment
or within two years after termination of employment, and which relate to the
business now or hereafter carried on or contemplated by the Corporation or which
results from any work performed by Employee for the Corporation.
8.2) All such Inventions shall be the sole and exclusive property of the
Corporation, and during the term of his employment and thereafter, whenever
requested to do so by the Corporation, Employee shall execute and assign any and
all applications, assignments and other instruments which the Corporation shall
deem necessary or convenient in order to apply for and
5
<PAGE>
obtain Letters Patent of the United States and/or of any foreign countries for
such Inventions and in order to assign and convey to the Corporation or its
nominee the sole and exclusive right, title and interest in and to such
Inventions, and Employee will render aid and assistance in any interference or
litigation pertaining thereto, all expenses reasonably incurred by Employee at
the request of the Corporation shall be borne by the Corporation.
8.3) To the extent, if any, that Minnesota law is determined to apply to
the enforceability of this Agreement, Minnesota Statute Section 181.78 provides
that the Agreement does not apply, and written notification is hereby given to
the Employee that this Agreement does not apply, to an Invention for which no
equipment, supplies, facility or trade secret Information of the Corporation was
used and which was developed entirely on the Employee's own time, and (1) which
does not relate (a) directly to the business of the Corporation, or (b) to the
Corporation's actual or demonstrably anticipated research or development, or (2)
which does not result from any work performed by the Employee for the
Corporation.
ARTICLE 9
JUDICIAL CONSTRUCTION
9.1) The Employee believes and acknowledges that the provisions contained
in this Agreement, including the covenants contained in Articles 6, 7 and 8 of
this Agreement, are fair and reasonable. Nonetheless, it is agreed that if a
court finds any of these provisions to be invalid in whole or in part under the
laws of any state, such finding shall not invalidate the covenants, nor the
Agreement in its entirety, but rather the covenants shall be construed and/or
blue-lined, reformed or rewritten by the court as if the most restrictive
covenants permissible under applicable law were contained herein.
6
<PAGE>
ARTICLE 10
RIGHT TO INJUNCTIVE RELIEF
10.1) Employee acknowledges that a breach by the Employee of any of the
terms of Articles 6, 7, 8 or 9 of this Agreement will render irreparable harm to
the Corporation; and that the Corporation shall therefore be entitled to any and
all equitable relief, including, but not limited to, injunctive relief, and to
any other remedy that may be available under any applicable law or agreement
between the parties, and to recover from the Employee all costs of litigation
including, but not limited to attorneys' fees and court costs.
ARTICLE 11
TERMINATION
11.1) Either party shall have the right to terminate this Agreement upon
sixty (60) days notice to the other, and the Corporation shall pay Employee
until the date of termination, unless the Corporation terminates the Agreement
because the Employee has violated either Articles 6, 7, 8 or 9, in which case no
additional compensation shall be payable to Employee.
ARTICLE 12
CESSATION OF CORPORATE BUSINESS
12.1) This Agreement shall cease and terminate if the Corporation shall
discontinue its business, and all rights and liabilities thereunder shall cease,
except as provided in Article 13.
7
<PAGE>
ARTICLE 13
ASSIGNMENT
13.1) The Corporation shall have the right to assign this contract to its
successors or assigns, and all covenants or agreements hereunder shall inure to
the benefit of and be enforceable by or against its successors or assigns.
13.2) The terms "successors" and "assigns" shall include any Corporation
which buys all or substantially all of the Corporation's assets, or a
controlling portion of its stock, or with which it merges or consolidates.
ARTICLE 14
FAILURE TO DEMAND PERFORMANCE AND WAIVER
14.1) The Corporation's failure to demand strict performance and
compliance with any part of this Agreement during the Employee's employment
shall not be deemed to be a waiver of the Corporation's rights under this
Agreement or by operation of law. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed as a waiver of
any subsequent breach thereof.
ARTICLE 15
ENTIRE AGREEMENT
15.1) The Corporation and the Employee acknowledge that this Agreement
contains the full and complete agreement between and among the parties, that
there are no oral or implied agreements or other modifications not specifically
set forth herein, and that this Agreement supersedes any prior agreements or
understandings, if any, between the Corporation and the Employee, whether
written or oral. The parties further agree that no modifications of this
8
<PAGE>
Agreement may be made except by means of a written agreement or memorandum
signed by the parties.
ARTICLE 16
GOVERNING LAW
16.1) The parties acknowledge that the Corporation's principal place of
business is located in the State of Minnesota, that this Agreement has been
entered into in the State of Minnesota and that they wish legal certainty and
predictability as to the terms of their undertaking. Accordingly, the parties
hereby agree that this Agreement shall be construed in accordance with the laws
of the State of Minnesota.
IN WITNESS THEREOF, the Corporation has hereunto signed its name and the
Employee hereunder has signed his name, all as of the day and year first above
written.
PATTERN PROCESSING CORP.
_________________________________ By:___________________________________
Witness
_________________________________ By:___________________________________
Witness Larry G. Paulson
9
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
BETWEEN
PATTERN PROCESSING TECHNOLOGIES, INC.
AND
TOM NORTHENSCOLD
THIS AGREEMENT, made and entered into in the City of Eden Prairie, State of
Minnesota, this 27th day of February, 1995, by and between Pattern Processing
Technologies, Inc, a corporation duly organized and existing under the laws of
the State of Minnesota, hereinafter sometimes referred to as "the Corporation",
and Tom Northenscold hereinafter sometimes referred to as "Employee";
ARTICLE 1
EMPLOYMENT
1.1) The Corporation hereby employs Employee, and Employee agrees to work for
Corporation at such duties as are assigned to him/her from time to time by the
directors and officers of the Corporation.
ARTICLE 2
TERM
2.1) The term of this Agreement shall be for a period of one (1) year commencing
February 27, 1995, unless sooner terminated as hereinafter provided. The
Agreement shall thereafter continue in effect from year to year unless altered
or terminated as hereinafter provided.
ARTICLE 3
DUTIES
3.1) Employee agrees, unless otherwise specifically authorized by the
Corporation, to devote his/her full time and effort to his/her duties for the
profit, benefit and advantage of the business of the Corporation.
ARTICLE 4
COMPENSATION
4.1) Corporation agrees to pay Employee a base salary of $72,000 per year,
payable bimonthly.
<PAGE>
ARTICLE 5
INSURANCE
5.1) Employee agrees that the Corporation may, from time to time, apply for and
take out in its own name and at its own expense, life, health, accident, or
other insurance upon employee that the Corporation may deem necessary or
advisable to protect its interest hereunder; and Employee agrees to submit to
any medical or other examination necessary for such purposes and to assist and
cooperate with the Corporation in preparing such insurance, and Employee agrees
that he/she shall have no right, title, or interest in or to such insurance.
ARTICLE 6
NON-COMPETITION
6.1) The Corporation and the Employee acknowledge that:
01) The Corporation's business is highly competitive;
02) The essence of such business consists of confidential information and
trade secrets as described in Article 7, all of which are zealously
protected and kept secret by the Corporation;
03) In the course of his/her employment, Employee will acquire the
information described in Article 7 and that the Corporation would be
adversely affected if such information subsequently, and in the event
of the termination of the Employee's employment, is used for the
purposes of competing with the Corporation;
04) The Corporation markets its products throughout the United States;
05) For these reasons, both the Corporation and the Employee further
acknowledge and agree that the restrictions contained herein are
reasonable and necessary for the protection of their respective,
legitimate interests.
6.2) Employee agrees that from and after the date hereof for the term of
employment specified in Article 2 above and one (1) year thereafter, he/she,
will not, without the express written permission of the Corporation, directly or
indirectly own, manage, operate, control, lend money to, endorse the obligations
of, or participate or be connected as an officer, 5 % or more stockholder of a
publicly held company, stockholder of a closely held company, employee, partner,
or otherwise with any enterprise or individual engaged in the business of
developing, manufacturing or marketing products to persons or companies that
were customers of the Corporation during the term of this agreement, or with any
enterprise or individuals engaged in the business of developing, manufacturing
or marketing products that have been, are being or are planned to be developed
by the Corporation and will not in any manner, either directly or indirectly,
compete with the Corporation in such business. It is understood and
acknowledged by
2
<PAGE>
both parties that, inasmuch as the Corporation's products are marketed
nationwide, that this covenant not to compete shall be enforced throughout the
United States.
6.3) Employee, during the term of his/her employment by the Corporation, shall
at all times keep the Corporation informed of any business activity and outside
employment, and shall not engage in any activity or employment which may be in
conflict with the Corporation's interests.
6.4) If the Employee shall breach any of the provisions of this Article 6,
Corporation may enjoin him/her from continued breach, in addition to pursuing
any other available legal and equitable remedies.
ARTICLE 7
CONFIDENTIAL INFORMATION AND TRADE SECRETS
7.1) Employee has acquired and will acquire information and knowledge
respecting the intimate and confidential affairs of the Corporation including,
without limitation, confidential information with respect to the Corporation's
products, packages, improvements, designs, processes, customer lists, trade
secrets, business and trade practices, sales or distribution methods and other
confidential information pertaining to the Corporation's business or financial
affairs, which may or may not be patentable, which are developed by the
Corporation at considerable time and expense, and which could be unfairly
utilized in competition with the Corporation. The term "trade secret" shall be
defined as follows:
A trade secret may consist of any formula, pattern, device or compilation
of information which is used in one's business, and which gives him/her an
opportunity to obtain an advantage over competitors who do not know or use
it.
Accordingly, Employee agrees that he/she shall not, during the period of his/her
employment hereunder or thereafter, use for his/her own benefit such
confidential information or trade secrets acquired during the term of his/her
employment by the Corporation. Further, during the period of his/her employment
hereunder and thereafter, the Employee shall not, without the written consent of
the Board of Directors of the Corporation or a person duly authorized thereby,
disclose to any person, other than an employee of the Corporation nor a person
to whom disclosure is reasonably necessary or appropriate in connection with the
performance by the Employee of his/her duties, any confidential information or
trade secrets obtained by him/her while in the employ of the Corporation.
7.3) Upon termination of employment, Employee agrees to deliver to the
Corporation all materials that include confidential information or trade
secrets, such as customer lists, product formulations, instruction sheets,
drawings, manuals, letters, notes, notebooks, books, reports and copies thereof,
and all other materials of a confidential nature which belong to or relate to
the business of the Corporation.
3
<PAGE>
ARTICLE 8
IMPROVEMENTS AND INVENTIONS
8.1) Employee shall promptly and fully disclose to the Corporation, any and all
ideas, improvements, discoveries and inventions, whether or not they are
believed to be patentable (all of which are hereinafter referred to as
"Inventions"), which Employee conceives or first actually reduces to practice,
either solely or jointly with others, during the period of Employee's employment
or within two years after termination of employment, and which relate to the
business now or hereafter carried on or contemplated by the Corporation or which
results from any work performed by Employee for the Corporation.
8.2) All such Inventions shall be the sole and exclusive property of the
Corporation, and during the term of his/her employment and thereafter, whenever
requested to do so by the Corporation, Employee shall execute and assign any and
all applications, assignments and other instruments which the Corporation shall
deem necessary or convenient in order to apply for and obtain Letters Patent of
the United States and/or of any foreign countries for such Inventions and in
order to assign and convey to the Corporation or its nominee the sole and
exclusive right, title and interest in and to such Inventions, and Employee
shall render aid and assistance in any interference or litigation pertaining
thereto, all expenses reasonably incurred by Employee at the request of the
Corporation shall be borne by the Corporation.
8.3) To the extent, if any, that Minnesota law is determined to apply to the
enforceability of this Agreement, Minnesota Statute Section 181.78 provides that
the Agreement does not apply, and written notification is hereby given to the
Employee that this Agreement does not apply, to an Invention for which no
equipment, supplies, facility or trade secret information of the Corporation was
used and which was developed entirely on the Employee's own time, and (1) which
does not relate (a) directly to the business of the Corporation, or (b) to the
Corporation's actual or demonstrably anticipated research or development, or (2)
which does not result from any work performed by the Employee for the
Corporation.
ARTICLE 9
JUDICIAL CONSTRUCTION
9.1) The Employee believes and acknowledges that the provisions contained in
this Agreement, including the covenants contained in Articles 6, 7 and 8 of this
Agreement, are fair and reasonable. Nonetheless, it is agreed that if a court
finds any of these provisions to be invalid in whole or in part under the laws
of any state, such finding shall not invalidate the covenants, nor the Agreement
in its entirety, but rather the covenants shall be construed and/or blue-lined,
reformed or rewritten by the court as if the most restrictive covenants
permissible under applicable law were contained herein.
ARTICLE 10
RIGHT TO INJUNCTIVE RELIEF
4
<PAGE>
10.1) Employee acknowledges that a breach by the Employee of any of the terms
of Articles 6, 7, 8 or 9 of this Agreement will render irreparable harm to the
Corporation; and that the Corporation shall therefore be entitled to any and all
equitable relief, including, but not limited to, injunctive relief, and to any
other remedy that may be available under any applicable law or agreement between
the parties, and to recover from the Employee all costs of litigation including,
but not limited to, attorney's fees and court costs.
ARTICLE 11
TERMINATION
11.1) Either party shall have the right to the this Agreement upon fourteen
(14) days notice to the other, and the Corporation shall pay Employee until the
date of termination, unless the Corporation terminates the Agreement because the
Employee has violated either Articles 6, 7, 8 or 9, in which case no additional
compensation shall be payable to Employee.
ARTICLE 12
CESSATION OF CORPORATE BUSINESS
12.1) This Agreement shall cease and terminate if the Corporation shall
discontinue its business, and all rights and liabilities thereunder shall cease,
except as provided in Article 13.
ARTICLE 13
ASSIGNMENT
13.1) The Corporation shall have the right to assign this contract to its
successors or assigns, and all covenants or agreements hereunder shall inure to
the benefit of and be enforceable by or against its successors or assigns.
13.2) The terms "successors" and "assigns" shall include any Corporation which
buys all or substantially all of the Corporation's assets, or a controlling
portion of its stock, or with which it merges or consolidates.
ARTICLE 14
FAILURE TO DEMAND PERFORMANCE AND WAIVER
14.1) The Corporation's failure to demand strict performance and compliance
with any part of this Agreement during the Employee's employment shall not be
deemed to be a waiver of the Corporation's rights under this Agreement or by
operation of law. Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed as a waiver of any
subsequent breach thereof.
5
<PAGE>
ARTICLE 15
ENTIRE AGREEMENT
15.1) The Corporation and the Employee acknowledge that this Agreement contains
the full and complete agreement between and among the parties, that there are no
oral or implied agreements or other modifications not specifically set forth
herein, and that this Agreement supersedes any prior agreements or
understandings, if any, between the Corporation and Employee, whether written or
oral. The parties further agree that no modifications of this Agreement may be
made except by means of a written agreement or memorandum signed by the parties.
ARTICLE 16
GOVERNING LAW
16.1) The parties acknowledge that the Corporation's principal place of
business is located in the State of Minnesota, that this Agreement has been
entered into in the State of Minnesota and that they wish legal certainty and
predictability as to the terms of their undertaking. Accordingly, the parties
hereby agree that this Agreement shall be construed in accordance with the laws
of the State of Minnesota.
IN WITNESS WHEREOF, the Corporation has hereunto signed its name and the
Employee hereunder as signed his/her name, all as of the day and year first
above written.
PATTERN PROCESSING TECHNOLOGIES,
INC.
_____________________________ By:_______________________________________
Witness Its:______________________________________
EMPLOYEE
_____________________________ __________________________________________
Witness
6
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Exhibit 10.7
EMPLOYMENT AGREEMENT
BETWEEN
PATTERN PROCESSING TECHNOLOGIES, INC.
AND
ARYE MALEK
THIS AGREEMENT, made and entered into in the City of Eden Prairie, State of
Minnesota, this 1st day of May, 1990, by and between Pattern Processing
Technologies, Inc., a corporation duly organized and existing under the laws of
the State of Minnesota, hereinafter sometimes referred to as "the Corporation",
and Arye Malek hereinafter sometimes referred to as "Employee";
ARTICLE 1
EMPLOYMENT
1.1) The Corporation hereby employs Employee, and Employee agrees to work
for Corporation at such duties as are assigned to him/her from time to time by
the directors and officers of the Corporation.
ARTICLE 2
TERM
2.1) The term of this Agreement shall be for a period of one (1) year
commencing May 1, 1890, unless sooner terminated as hereinafter provided. The
Agreement shall thereafter continue in effect from year to year unless altered
or terminated as hereinafter provided.
<PAGE>
ARTICLE 3
DUTIES
3.1) Employee agrees, unless otherwise specifically authorized by the
Corporation, to devote his/her full time and effort to his/her duties for the
profit, benefit and advantage of the business of the Corporation.
ARTICLE 4
COMPENSATION
4.1) Corporation agrees to pay Employed a base salary of $1,875.00
semimonthly.
ARTICLE 5
INSURANCE
5.1) Employee agrees that the Corporation may, from time to time,
apply for and take out in its own name and at its own expense, life, health,
accident, or other insurance upon Employee that the Corporation may deem
necessary or advisable to protect its interest hereunder; and Employee agrees to
submit to any medical or other examination necessary for such purposes and to
assist and cooperate with the Corporation in preparing such insurance; and
Employee agrees that he/she shall have no right, title, or interest in or to
such insurance.
ARTICLE 6
NON-COMPETITION
6.1) The Corporation and the Employee acknowledge that:
(01) The Corporation's business is highly competitive;
(02) The essence of such business consists of confidential
information and trade secrets as described in Article 7,
all of which are zealously protected and kept secret by the
Corporation;
2
<PAGE>
(03) In the course of his/her employment. Employee will acquire
the information described in Article 7 and that the
Corporation would be adversely affected if such information
subsequently, and in the event of the termination of the
Employee's employment, is used for the purposes of
competing with the Corporation;
(04) The Corporation markets its products throughout the United
States;
(05) For those reasons, both the Corporation and the Employee
further acknowledge and agree that the restrictions
contained herein are reasonable and necessary for the
protection of their respective, legitimate interests.
6.2) Employee agrees that from and after the date hereof for the term
of employment specified in Article 2 above and one (1) year thereafter, he/she
will not, without the express written permission of the Corporation, directly or
indirectly own, manage, operate, control, land money to, endorse the obligations
of, or participate or be connected as an officer, 5% or more stockholder of a
publicly hold company, stockholder of a closely held company, employee, partner,
or otherwise, with any enterprise or individual engaged in the business of
developing, manufacturing or marketing products to persons or companies that
were customers of the Corporation during the term of this agreement, or with any
enterprise or individuals engaged in the business of developing, manufacturing
or marketing products that have been, are being or are planned to be developed
by the Corporation and will not in any manner, either directly or indirectly,
compete with the Corporation in such business, it is understood and acknowledged
by both parties that, inasmuch as the Corporation's products are marketed
nationwide, that this covenant not to compete shall be enforced throughout the
United States.
6.3) Employee, during the term of his/her employment by the
Corporation, shall at all times keep the Corporation informed of any business
activity and outside employment, and shall
3
<PAGE>
not engage in any activity or employment which may be in conflict with the
Corporation's interests.
6.4) If the Employee shall breach any of the provisions of this
Article 5, Corporation may enjoin him/her from continued breach, in addition to
pursuing any other available legal and equitable remedies.
ARTICLE 7
CONFIDENTIAL INFORMATION AND TRADE SECRETS
7.1) Employee has acquired and will acquire information and knowledge
respecting the intimate and confidential affairs of the Corporation including,
without limitation, confidential information with respect to the Corporation's
products, packages, improvements, designs, processes, customer lists, trade
secrets, business and trade practices, sales or distribution methods and other
confidential information pertaining to the Corporation's business or financial
affairs, which may or may not be patentable, which are developed by the
Corporation at considerable time and expense, and which could be unfairly
utilized in competition with the Corporation. The term "trade secret" shall be
defined as follows:
A trade secret may consist of any formula, pattern, device or compilation
of information which is used in one's business, and which gives him/her an
opportunity to obtain an advantage over competitors who do not know or use
it.
Accordingly, Employee agrees that he/she shall not, during the period of his/her
employment hereunder or thereafter, use for his/her own benefit such
confidential information or trade secrets acquired during the term of his/her
employment by the Corporation. Further, during the period of his/her employment
hereunder and thereafter, the Employee shall not, without the written consent of
the Board of Directors of the Corporation or a person duly authorized thereby,
disclose to any
4
<PAGE>
person, other than an employee of the Corporation nor a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Employee of his/her duties, any confidential information or
trade secrets obtained by him/her while in the employ of the Corporation.
7.3) Upon termination of employment, Employee agrees to deliver to
the Corporation all materials that include confidential information or trade
secrets, such as customer lists, product formulations, instruction sheets,
drawings, manuals, letters, notes, notebooks, books, reports and copies thereof,
and all other materials of a confidential nature which belong to or relate to
the business of the Corporation.
ARTICLE 8
IMPROVEMENTS AND INVENTIONS
8.1) Employee shall promptly and fully disclose to the Corporation,
any and all ideas, improvements, discoveries and inventions, whether or not they
are believed to be patentable (all of which are hereinafter referred to as
"Inventions"), which Employee conceives or first actually reduces to practice,
either solely or jointly with others, during the period of Employee's employment
or within two years after termination of employment, and which relate to the
business now or hereafter carried on or contemplated by the Corporation or which
results from any work performed by Employee for the Corporation.
8.2) All such Inventions shall be the sole and exclusive property of
the Corporation, and during the term of his/her employment and thereafter,
whenever requested to do so by the Corporation, Employee shall execute and
assign any and all applications, assignments and other instruments which the
Corporation shall deem necessary or convenient in order to apply for and
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obtain Letters Patent of the United States and/or of any foreign countries for
such Inventions and in order to assign and convey to the Corporation or its
nominee the sale and exclusive right, title and interest in and to such
Inventions, and Employee shall render aid and assistance in any interference or
litigation pertaining thereto, all expenses reasonably incurred by Employee at
the request of the Corporation shall be borne by the Corporation.
8.3) To the extent, if any, that Minnesota law is determined to apply
to the enforceability of this Agreement, Minnesota Statute Section 181.78
provides that the Agreement does not apply, and written notification is hereby
given to the Employee that this Agreement does not apply, to an Invention for
which no equipment, supplies, facility or trade secret information of the
Corporation was used and which was developed entirely on the Employee's own
time, and (1) which does not relate (a) directly to the business of the
Corporation, or (b) to the Corporation's actual or demonstrably anticipated
research or development, or (2) which does not result from any work performed by
the Employee for the Corporation.
ARTICLE 9
JUDICIAL CONSTRUCTION
9.1) The Employee believes and acknowledges that the provisions
contained in this Agreement, including the covenants contained in Articles 6, 7
and 8 of this Agreement, are fair and reasonable. Nonetheless, it is agreed that
if a court finds any of these provisions to be invalid in whole or in part under
the laws of any state, such finding shall not invalidate the covenants, nor the
Agreement in its entirety, but rather the covenants shall be construed and/or
blue-line, reformed or rewritten by the court as if the most restrictive
covenants permissible under applicable law were contained herein.
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ARTICLE 10
RIGHT TO INJUNCTIVE RELIEF
10.1) Employee acknowledges that a breach by the Employee of any of
the terms of Articles 6, 7, 8 or 9 of this Agreement will render irreparable
harm to the Corporation; and that the Corporation shall therefore be entitled to
any and all equitable relief, including, but not limited to, injunctive relief,
and to any other remedy that may be available under any applicable law or
agreement between the parties, and to recover from the Employee all costs of
litigation including, but not limited to, attorneys' fees and court costs.
ARTICLE 11
TERMINATION
11.1) Either party shall have the right to terminate this Agreement
upon fourteen (14) days notice to the other, and the Corporation shall pay
Employee until the date of termination, unless the Corporation terminates the
Agreement because the Employee has violated either Articles 6, 7, 8 or 9,. in
which case no additional compensation shall be payable to Employee.
ARTICLE 12
CESSATION OF CORPORATE BUSINESS
12.1) This Agreement shall cease and terminate if the Corporation
shall discontinue its business, and all rights and liabilities thereunder shall
cease, except as provided in Article 13.
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ARTICLE 13
ASSIGNMENT
13.1) The Corporation shall have the right to assign this contract to
its successors or assigns, and all covenants or agreements hereunder shall inure
to the benefit of and be enforceable by or against its successors or assigns.
13.2) The terms "successors" and "assigns" shall include any
Corporation which buys all or substantially all of the Corporation's assets, or
a controlling portion of its stock, or with which it merges or consolidates.
ARTICLE 14
FAILURE TO DEMAND PERFORMANCE AND WAIVER
14.1) The Corporation's failure to demand strict performance and
compliance with any part of this Agreement during the Employee's employment
shall not be deemed to be a waiver of the Corporation's rights under this
Agreement or by operation of law. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed as a waiver of
any subsequent breach thereof.
ARTICLE 15
ENTIRE AGREEMENT
15.1) The Corporation and the Employee acknowledge that this
Agreement contains the full and complete agreement between and among the
parties, that there are no oral or implied agreements or other modifications not
specifically set forth herein, and that this Agreement supersedes any prior
agreements or understandings, if any, between the Corporation and Employee,
whether written or oral. The parties further agree that no modifications of this
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Agreement may be made except by means of a written agreement or memorandum
signed by the parties.
ARTICLE 16
GOVERNING LAW
16.1) The parties acknowledge that the Corporation's principal place
of business is located in the State of Minnesota, that this Agreement has been
entered into in the State of Minnesota and that they wish legal certainty and
predictability as to the terms of their undertaking. Accordingly, the parties
hereby agree that this Agreement shall be construed in accordance with the laws
of the State of Minnesota.
IN WITNESS WHEREOF, the Corporation has hereunto signed its name and
the Employee hereunder has signed his/her name, all as of the day and year first
above written.
PATTERN PROCESSING TECHNOLOGIES, INC.
____________________________ By:______________________________________
Witness Its:__________________________
EMPLOYEE
____________________________ _________________________________________
Witness Arye Malek
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-2 of our report dated November 22, 1995
(except as to Note 12, which is as of April 5, 1996) relating to the financial
statements of PPT VISION, Inc., which appears in such Prospectus. We also
consent to the application of such report to the Financial Statement Schedules
for the three years ended October 31, 1995 listed under Item 14(a) of the PPT
VISION, Inc. Annual Report on Form 10-K for the year ended October 31, 1995,
which is incorporated by reference in this Registration Statement, when such
schedules are read in conjunction with the financial statements referred to in
our report. The audits referred to in such report also included these Financial
Statement Schedules. We also consent to the references to us under the headings
"Experts" and "Selected Financial Data" in such Prospectus. However, it should
be noted that Price Waterhouse LLP has not prepared or certified such "Selected
Financial Data."
Price Waterhouse LLP
Minneapolis, Minnesota
May 14, 1996
