SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission File Number: 0-11518
PPT VISION, INC.
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1413345
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10321 West 70th Street
Eden Prairie, MN 55344
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (612) 995-9500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock ($.10
par value)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
As of January 5, 1998, assuming as market value the closing sale price of
$8.125 as reported by the Nasdaq System on that date, the aggregate market value
of shares of Common Stock held by non-affiliates was $33.8 million.
As of January 5, 1998, 5,387,805 shares of common stock, $.10 par value were
outstanding.
Documents Incorporated by Reference: The Company's Proxy Statement for its
Annual Meeting of Shareholders to be held March 12, 1998 is incorporated by
reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
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PART I Page
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Item 1. Business.............................................. 3
Important Factors Regarding
Forward-Looking Statements...................... 13
Executive Officers of the Company.................. 17
Item 2. Properties............................................ 17
Item 3. Legal Proceedings..................................... 18
Item 4. Submission of Matters for a
Vote of Security Holders........................... 18
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters............. 19
Item 6. Selected Financial Data............................... 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 22
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk........................................ 25
Item 8. Financial Statements and Supplementary Data........... 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 25
PART III
Item 10. Directors and Executive Officers of the Registrant.... 26
Item 11. Executive Compensation................................ 26
Item 12. Security Ownership of Certain
Beneficial Owners and Management................... 26
Item 13. Certain Relationships and Related Transactions........ 26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K........................................ 27
Signatures...................................................... 29
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BUSINESS
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OVERVIEW
PPT Vision, Inc. ("PPT Vision" or the "Company") 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 products, 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,
Micron Technology, Molex, Siemens, 3M and United Technologies.
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
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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 Automated
Imaging Association ("AIA") estimates that the North American market for machine
vision systems in 1996 was approximately $1.0 billion, with worldwide levels
estimated at approximately $2.8 billion. The AIA expects this market to grow at
approximately 13% - 15% per year through the year 2001. 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, original equipment manufacturers ("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.
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
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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
Vision Program Manager ("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 that 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 (i.e. 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) 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.
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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.
* Target Expanding Markets Through Continued Development of Application
Specific Software Tools and Hardware Products: 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 and hardware products for electronic
component, electronics and semiconductor applications.
* 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 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.
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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 the lighting and
optics step, 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 an extremely high rate 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.
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 extremely flexible
and easy to use. It allows the Company's customers to create complete inspection
solutions without the need for knowledge of 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 a 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.
Hardware Architecture. PPT Vision's machine vision processor includes the
Company's proprietary high performance board set 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
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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 newest machine vision systems are the
Passport(R) DSL(TM) and Scout(R) DSL(TM) (Digital Serial Link). The DSL systems
are the world's first completely digital machine vision systems and network.
DSL-based systems are an integrated network of cameras, lighting, image
processors and hubs, which together form a complete machine vision system. The
Passport DSL and Scout DSL systems are completely digital, which results in much
greater accuracy and repeatability than traditional analog systems. A key
strength of the DSL network is that it enables the user to put processing power
where it is most needed, out on the network, reducing bottlenecks at the central
machine vision processor. The Passport DSL is housed in an industrially rugged
enclosure while the Scout DSL is packaged in a non-industrial style enclosure.
To complement the new DSL family, the Company has also developed the DSL6000
digital camera.
The Company also offers the Passport 440, Passport 240, and Scout machine
vision systems. The Passport 440 is 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. 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 style enclosure and is capable of running two
cameras with similar speed and power to the Passport 240.
In addition, the Company sells a broad range of peripheral services and
components, including applications engineering, installation and training
services, custom 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 and semiconductor components, pharmaceuticals,
medical devices, automotive components, consumer products and plastics. As of
October 31, 1997, the Company had sold 2,054 machine vision systems to over 200
customers since inception.
The following is a representative list of end users of the Company's
products.
AMP Imation Reynolds Metals
Abbott Labs Johnson & Johnson Siemens
Akzo Kemet Sumitomo
Allied Signal Molex Suzuki
Berg Electronics Motorola Thomas & Betts
Chrysler Novo Nordisk 3M
Ford Philip Morris Toshiba
GM-Delphi Division Philips United Technologies
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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, 1997, sales to one customer, Simac
Masic B.V., a European distributor for the Company, represented 14% of net
revenues. Sales to another customer, Advantek, Inc., represented 14% of net
revenues during fiscal 1997. 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.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company sells its products primarily on a direct basis in the United
States to end users, system integrators, machine builders and OEMs. Outside the
United States, the Company sells primarily through a network of distributors
covering Europe, Asia and South America. 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.
In September of 1997 the Company created a new corporate group, the
Microelectronics Product Group ("MPG"), to develop and market high-speed
inspection equipment for the electronics and semiconductor industries. The first
two product offerings from the group will be a turnkey inspection system for
bumped wafers and a turnkey, total-package inspection system for ball-grid array
("BGA") components, including semiconductor packages and electronic connectors.
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:
YEAR ENDED
OCTOBER 31,
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1997 1996 1995
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North America.............................. 78% 73% 67%
Europe..................................... 14% 14% 21%
Far East................................... 8% 13% 12%
Substantially all of the Company's export sales are negotiated, invoiced and
paid in United States dollars.
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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.
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.
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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 the development of application specific solutions
for certain vertical market applications along with 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 and accuracy while also providing customers with more
expanded software tools. These efforts include the Company's traditional two-
dimensional ("2D") machine vision systems as well as three- and one-dimensional
("3D" and "1D") sensor products. Key software products under development 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 and hardware
products for the industries it identifies as being poised to exhibit significant
growth in demand for machine vision solutions, which includes electronics and
semiconductors.
Research and development expenditures were $2.3 million, $1.8 million, and
$1.3 million in the fiscal years ended October 31, 1997, 1996, and 1995,
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.
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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 1996, 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.
The Company believes the major competitive factors in the industry are
performance, quality, support and price. 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 PROPRIETARY RIGHTS
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 which are now pending with respect to
several key technologies. United States patent No. 5,530,813, "Field-
programmable electronic crossbar system and method for using same," was issued
on June 25, 1996 and expires in August of 2014. In September of 1997 the Company
entered into a license agreement with Medar, Inc. ("Medar") under which it
acquired the exclusive worldwide rights for use of Medar's patented (5,646,733,
"Scanning Phase Measurement Method and System for an Object at a Vision
Station") 3D scanning technology for applications in the electronics and
semiconductor industries. This patent was issued on July 8, 1997 and expires in
January of 2016. The Company believes that the patents it owns and licenses may
have been useful in protecting the Company's 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 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 confidential
all proprietary information of the Company and to assign to the Company all
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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 for its "PPT",
"PPT Vision", "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 January 22, 1998, the Company had 88 employees, including 32 employees
in research and development, 33 in sales and marketing, 16 in manufacturing and
7 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.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Various forward-looking statements have been made in this Annual Report on
Form 10-K. Forward-looking statements may also be made in the Company's other
reports filed under the Securities Exchange Act of 1934, in its press releases
and in other documents. In addition, from time to time, the Company through its
management may make oral forward-looking statements.
Forward-looking statements are subject to risks and uncertainties, including
those identified below, which could cause actual results to differ materially
from such statements. The words "anticipate", "believe", "expect", "intend",
"optimistic", "will" or similar expressions are intended to identify forward-
looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they are
made. The Company undertakes no obligation to update publicly or revise any
forward-looking statements.
Important factors that could cause actual results to differ materially from
the Company's forward-looking statements, as well as affect the Company's
ability to achieve its financial and other goals, include, but are not limited
to, the following:
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
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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.
Dependence Upon Principal Customers. 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,
1997, sales to one customer, Simac Masic B.V., a European distributor for the
Company, represented 14% of net revenues. Sales to another customer, Advantek,
Inc., represented 14% of net revenues during fiscal 1997. 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.
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 have increased at an average
annual rate of 23% 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, or obtained licenses
to patents, in the past on certain 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 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
Page 15
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.
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.
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.
International Revenue. In the years ended October 31, 1997, 1996 and 1995,
sales of the Company's products to customers outside North America accounted for
approximately 22%, 27% and 33%, 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.
Competition. The Company competes with other vendors of machine vision
systems, some 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
Page 16
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.
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.
Page 17
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
NAME AGE POSITION
- ----- --- --------
Joseph C. Christenson.......... 39 President, Director
Thomas R. Northenscold......... 39 Chief Financial Officer,
Assistant Secretary
Larry G. Paulson............... 46 Vice President of Research and Development,
Director
Arye Malek..................... 41 Vice President of Marketing
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 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.
Item 2. PROPERTIES
- -------------------
The Company leases approximately 28,400 square feet of office and
manufacturing space in suburban Minneapolis pursuant to a seven year lease
beginning in March 1994. Rent payments for its facilities commenced at $7,093
per month during the first year of the lease and increase over the term of the
lease to $16,551 during the final twelve months of the lease. The Company also
leases space for its regional sales and support offices in Massachusetts,
Michigan and North Carolina.
Page 18
Item 3. LEGAL PROCEEDINGS
- -------------------------
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
None.
Page 19
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
PRICE RANGE OF COMMON STOCK
Since December 28, 1995, the Company's Common Stock has traded on the Nasdaq
National Market tier of The Nasdaq Stock Market under the symbol "PPTV." Prior
to that time, the Common Stock was traded on the Nasdaq SmallCap Market. 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 SmallCap Market for the periods prior to December 28, 1995, each as
reported by Nasdaq.
HIGH LOW
------ -----
FISCAL YEAR ENDED OCTOBER 31, 1996
First Quarter............................................. $13.17 $8.50
Second Quarter............................................ 16.00 8.83
Third Quarter............................................. 19.25 6.88
Fourth Quarter............................................ 10.62 7.12
FISCAL YEAR ENDING OCTOBER 31, 1997
First Quarter............................................. $ 9.75 $6.50
Second Quarter............................................ 9.00 5.56
Third Quarter............................................. 8.62 6.25
Fourth Quarter............................................ 10.38 7.62
The Company estimates that there were approximately 3,100 beneficial holders
of the Company's Common Stock at January 20, 1998.
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.
RECENT ISSUANCES OF UNREGISTERED SECURITIES
On September 30, 1997, in connection with the execution of a license agreement
between the Company and Medar, Inc. ("Medar"), the Company granted a warrant to
Medar, to purchase Twenty-Five Thousand (25,000) shares of the Company's Common
Stock at a price of $12.00 per share. The Warrant expires on September 30,
2004. At the time the warrant was issued, Medar had assets of $50.9 million
and was an accredited investor as defined in Rule 501(a)(3) under the Securities
Act of 1933. The Company believes the transaction was exempt under Section 4(2)
under the Securities Act of 1933.
Page 20
Item 6. SELECTED FINANCIAL DATA
- --------------------------------
<TABLE>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues.................. $12,055,000 $12,693,000 $9,750,000 $6,587,000 $5,935,000
Cost of sales................. 4,894,000 5,044,000 4,442,000 3,026,000 2,539,000
----------- ----------- ---------- ---------- ----------
Gross profit................. 7,161,000 7,649,000 5,308,000 3,561,000 3,396,000
Selling expenses.............. 3,727,000 2,897,000 2,279,000 1,970,000 1,576,000
General and administrative
expenses..................... 1,177,000 976,000 851,000 711,000 550,000
Research and development
expenses..................... 2,339,000 1,827,000 1,299,000 1,133,000 831,000
----------- ----------- ---------- ---------- ----------
Income (loss) from
operations.................. (82,000) 879,000 (253,000) 439,000 296,000
Other income
(expense), net.............. 1,147,000 453,000 61,000 40,000 (4,000)
----------- ----------- ---------- ---------- ----------
Net income (loss) before
taxes....................... 1,065,000 2,402,000 940,000 (213,000) 435,000
Income tax (expense) benefit.. (405,000) 1,309,000 407,000 ----
----------- ----------- ---------- ---------- ----------
Net income (loss)............ $ 660,000 $ 3,711,000 $1,347,000 $ (213,000) $ 435,000
=========== =========== ========== ========== ==========
Net income (loss) per
share........................ $ 0.12 $ 0.84 $ 0.37 $ (0.06) $ 0.13
=========== =========== ========== ========== ==========
Weighted average common
shares outstanding........... 5,495,000 4,410,000 3,650,000 3,455,000 3,236,000
=========== =========== ========== ========== ==========
</TABLE>
Page 21
<TABLE>
OCTOBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $22,887,000 $24,083,000 $4,131,000 $3,253,000 $3,071,000
Total assets...................... 29,986,000 28,056,000 6,098,000 4,449,000 4,005,000
Shareholders' equity.............. 27,535,000 26,809,000 5,145,000 3,719,000 3,384,000
</TABLE>
Page 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Year Ended October 31, 1997 to Year Ended October 31, 1996
- ------------------------------------------------------------------------
Net Revenues: Net revenues decreased 5% to $12,055,000 in fiscal 1997,
compared to net revenues of $12,693,000 in fiscal 1996, although unit sales of
the Company's machine vision systems increased to 481 in fiscal 1997 versus 465
in fiscal 1996. Net revenues decreased primarily because of lower average
selling prices per system due to changes in product mix. Net revenues in fiscal
1997 were also affected by slowdowns in deliveries to customers in the
electronics segment, which mainly occurred during the first half of fiscal 1997.
Much of this slowdown was experienced in markets outside of North America.
Gross revenues in fiscal 1997 increased 1% in North America and decreased 24%
outside North America. Sales to customers outside North America represented 22%
of gross revenues in fiscal 1997, compared to 27% for in fiscal 1996.
Gross Profit: Gross profit decreased 6 percent to $7,161,000 in fiscal 1997,
compared to $7,649,000 in fiscal 1996. Gross profit as a percentage of net
revenues for fiscal 1997 decreased to 59%, compared with 60% in fiscal 1996. The
decrease in gross profit in 1997 is primarily due to the decline in sales. The
Company anticipates that the gross profit as a percentage of net revenues may
fluctuate and may decline temporarily at certain times in fiscal 1998 due to
normal start-up costs associated with new product introductions.
Selling Expenses: Selling expenses increased 29% to $3,727,000 in fiscal 1997,
compared to $2,897,000 in fiscal 1996. As a percentage of net revenues, fiscal
1997 selling expenses increased to 31%, compared with 23% in fiscal 1996. The
increase in expenditures is primarily the result of the addition of several
application engineers and sales people in the latter part of fiscal 1996.
Although the Company anticipates selling expenses to increase in fiscal 1998 as
the Company maintains its investments in sales and applications engineering, the
Company believes that these expenditures will not increase substantially, and
may be reduced somewhat, as a percentage of net revenues in fiscal 1998,
depending on the level of sales growth.
General and Administrative Expenses: General and administrative expenses
increased 21% to $1,177,000 in fiscal 1997, compared to $976,000 in fiscal 1996.
As a percentage of net revenues, general and administrative expenses increased
to 10% for fiscal 1997, compared to 8% for fiscal 1996. The increase in
expenditures is primarily attributable to increased expenses associated with
operating the Company as it prepares for continued growth. In addition, the
Company incurred a one-time charge during the third quarter of fiscal 1997 due
to the write-off of a receivable involving a bankruptcy. The increase as a
percentage of net revenues is mainly related to the decline in sales. The
Company believes that during fiscal 1998, general and administrative expenses
will not increase substantially, and may be reduced somewhat, as a percentage of
net revenues compared to fiscal 1997, depending on the level of sales growth.
Page 23
Research and Development Expenses: Research and development expenses increased
28% to $2,339,000 in fiscal 1997, compared to $1,827,000 in fiscal 1996.
Research and development expenses as a percentage of net revenues for fiscal
1997 increased to 19%, compared to 14% for fiscal 1996. The increase in
expenditures is mainly due to new product development programs and increased
permanent staffing and contract personnel to support these efforts. While
research and development expenses may increase somewhat as the Company continues
to invest in next generation software and hardware development, the Company
expects that during fiscal 1998, such expenses will not increase substantially,
and may decline somewhat, as a percentage of net revenues compared to fiscal
1997, depending on the level of sales growth.
Interest income increased 154% to $1,124,000 in fiscal 1997, compared to
$442,000 in fiscal 1996. The increase in interest income is primarily due to a
full year of interest on the proceeds of a public stock offering completed in
June of 1996.
Income Tax Benefit: Income tax expense was $405,000 in fiscal 1998. In fiscal
1997, an income tax benefit of $1,309,000 was recorded to fully recognize the
potential future tax benefits of loss carry forwards and net deductible
temporary differences available to offset taxable income in future periods. As a
result of this full recognition, in fiscal 1997 the Company began reporting
earnings on a fully-taxed basis.
Comparison of Year Ended October 31, 1996 to Year Ended October 31, 1995
- ------------------------------------------------------------------------
Net Revenues: Net revenues increased 30% to $12,693,000 in fiscal 1996,
compared to net revenues of $9,750,000 in fiscal 1995. The increase in net
revenues in fiscal 1996 was due to a 40% growth in unit sales, with sales of the
Company's machine vision systems increasing to 465 in fiscal 1996 versus 333 in
fiscal 1995. The Company attributes its sales growth to increased demand in all
markets. Net revenues in fiscal 1996 increased 42% in North America and 7%
outside North America. Sales to customers outside North America represented 27%
of total revenues in fiscal 1996, compared to 33% in fiscal 1995. The increase
in North America is primarily the result of increased sales to electronic
component and automobile manufacturers.
Gross Profit: Gross profit increased 44% to $7,649,000 in fiscal 1996,
compared to $5,308,000 in fiscal 1995. Gross profit as a percentage of net
revenues for fiscal 1996 increased to 60%, compared with 54% 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, model mix shift, and
decreased material costs.
Selling Expenses: Selling expenses increased 27% to $2,897,000 in fiscal 1996,
compared to $2,279,000 in fiscal 1995. As a percentage of net revenues, fiscal
1996 selling expenses remained relatively constant at 23%.
General and Administrative Expenses: General and administrative expenses
increased 15% to $976,000 in fiscal 1996, compared to $851,000 in fiscal 1995.
As a percentage of net revenues, general and administrative expenses decreased
to 8% for fiscal 1996, compared to 9% for fiscal 1995. The increase in
Page 24
expenditures in fiscal 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.
Research and Development Expenses: Research and development expenses
increased 41% to $1,827,000 in fiscal 1996, compared to $1,299,000 in fiscal
1995. Research and development expenses as a percentage of net revenues for
fiscal 1996 increased to 14%, compared to 13% for fiscal 1995. The increase in
expenses in fiscal 1996 is mainly due to new product development programs and
increased staffing to support these efforts.
Interest income increased 625% to $442,000 in fiscal 1996, compared to $61,000
in fiscal 1995. The increase in interest income is primarily due to interest on
the proceeds of a public stock offering completed in June of 1996.
Income Tax Benefit: The income tax benefit of $1,309,000 recorded in fiscal
1996 reflects full recognition of the potential future tax benefits of loss
carry forwards and net deductible temporary differences available to offset
taxable income in future periods.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital decreased to $22,887,000 at October 31, 1997 from $24,083,000
at October 31, 1996. This decline was primarily due to the recording of a short
term liability of $1,000,000 related to future payments under the September 1997
license agreement with Medar, Inc. ("Medar"), as described below. The Company
financed its operations in fiscal 1997 through internally generated cash flow
and existing cash and cash equivalents. Net cash provided from operating
activities in fiscal 1997 was $1,692,000. Accounts receivable decreased $758,000
due to improvement in collections. Inventories increased $513,000 in fiscal 1997
primarily due to raw material purchases to support new product introductions as
well as a higher level of sales at year-end.
In September of 1997 the Company entered into a license agreement with Medar
under which it acquired the exclusive worldwide rights to use of Medar's
patented 3D scanning technology for applications in the electronics and
semiconductor industries. Under the terms of the agreement, the Company agreed
to pay Medar an initial license fee of $1,500,000 based on the achievement of
certain developmental milestones plus a royalty based on sales. The first
$500,000 due under this license agreement was paid upon execution of the
agreement. The remaining two $500,000 payments comprise the $1,000,000 short-
term liability.
The Company used $1,959,000 of cash for investing activities, primarily for
the purchase of fixed assets and investment in other long-term assets. The
Company used $1,095,000 of cash for the purchase of fixed assets, mainly
consisting of computer, lab and manufacturing equipment. The Company used
$759,000 of cash for investment in other long-term assets, mainly consisting of
a $500,000 payment made under the Medar license agreement as well as capitalized
software development costs. Investments consist of short-term investment grade
Page 25
securities. In addition, the Company generated $115,000 in cash flow from its
financing activities as a result of issuances of its Common Stock upon exercise
of stock options.
Current assets increased slightly to $25,202,000 at October 31, 1997 from
$25,164,000 at October 31, 1996. Investments increased to $15,515,000 at
October 31, 1997 from 15,135,000 at October 31, 1996. Cash and cash equivalents
decreased to $4,027,000 at October 31, 1997 from $4,179,000 at October 31, 1996.
The Company's current liabilities increased to $2,315,000 at October 31, 1997
from $1,081,000 at October 31, 1996. This was mainly due to the previously
mentioned $1,000,000 short-term liability as well as increased trade accounts
payable associated with a higher level of sales at year-end.
The Company expects that its capital expenditures for fiscal 1998 will
increase from the $1.1 million in fiscal 1997, primarily for computer, lab and
manufacturing equipment. At October 31, 1997, the Company had commitments for
approximately $200,000 for capital equipment. The Company is also obligated to
pay an additional $1 million under the terms of the Medar, Inc. license
agreement, subject to the achievement by Medar of certain developmental
milestones.The Company believes that its cash flow from operations, existing
cash and cash equivalents, and investments at October 31, 1997 will be adequate
for its working capital and capital resource needs, including payments due under
the Medar license agreement, during fiscal 1998.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
See Item 14 for a list of the financial statements included in this Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- ------------------------------------------------------------------------
Not applicable.
Page 26
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information required under this item with respect to directors is contained
in the section "Election of Directors" in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held in March 1998 (the "1998 Proxy
Statement"), a definitive copy of which will be filed with the Commission within
120 days of the close of the past fiscal year, and is incorporated herein by
reference.
Information concerning executive officers is set forth in the Section
entitled "Executive Officers of the Company" in Part I of this Form 10-K
pursuant to Instruction 3 to paragraph (b) of Item 401 of Regulation S-K.
Item 11. EXECUTIVE COMPENSATION
- --------------------------------
Information required under this item is contained in the sections entitled
"Executive Compensation," "Employment Agreements" and "Stock Option Plan" in the
Company's 1998 Proxy Statement and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information required under this item is contained in the section entitled
"Shareholdings of Principal Shareholders, Directors and Officers" in the
Company's 1998 Proxy Statement and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information required under this item is contained in the section entitled
"Certain Transactions" in the Company's 1998 Proxy Statement which is
incorporated herein by reference.
Page 27
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) Documents filed as Part of this Report
(1) FINANCIAL STATEMENTS. The following financial statements of the
Company are hereby included in this Form 10-K.
Page
----
Report of Independent Accountants..................... 31
Income Statements for the three years ended
October 31, 1997, 1996 and 1995.................. 32
Balance Sheets as of October 31, 1997 and 1996........ 33
Statements of Cash Flows for the Years
ended October 31, 1997, 1996 and 1995............ 34
Statements of Shareholders' Equity for the Years
ended October 31, 1997, 1996 and 1995............ 35
Notes to Financial Statements......................... 36
(2) FINANCIAL STATEMENT SCHEDULES FOR THE THREE YEARS
ENDED OCTOBER 31, 1997
VIII. Valuation and Qualifying Accounts.............. 45
All other schedules are omitted because they are not
applicable or the required information is shown in the
Financial Statements or the notes thereto.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the
quarter ended October 31, 1997.
Page 28
(c) Listing of Exhibits
-------------------
Exhibit
No. Description Page
- ------- ---------------------------------------------------------- ----
3.1..... Restated Articles of Incorporation of Registrant
(incorporated by reference to Exhibit 3.1 of
1996 Form 10-K)
3.2..... By-Laws of Registrant
(incorporated by reference to Exhibit 3.2 of
1996 Form 10-K)
10.1.... Lease Agreement dated February 11, 1993 for facilities at
10321 West 70th Street, Eden Prairie, Minnesota
(incorporated by reference to Exhibit 10.3 of
1993 Form 10-K)
10.2.... Employment Agreement with Joseph C. Christenson dated as of
May 7, 1984 (incorporated by reference from Exhibit 10.4 to
May 15, 1996 Form S-2)
10.3.... Employment Agreement with Larry G. Paulson dated as of
February 1, 1984 (incorporated by reference from
Exhibit 10.5 to May 15, 1996 Form S-2)
10.4.... Employment Agreement with Tom Northenscold dated as of
February 27, 1995 (incorporated by reference from
Exhibit 10.6 to May 15, 1996 Form S-2)
10.5.... Employment Agreement with Arye Malek dated as of
May 1, 1990 (incorporated by reference from
Exhibit 10.7 to May 15, 1996 Form S-2)
10.6*... PPT Vision, Inc. 1988 Stock Option Plan, as amended........ 46
10.7*... PPT Vision, Inc. 1997 Stock Option Plan.................... 61
21...... The Company has no subsidiaries
23...... Consent of Price Waterhouse LLP............................ 76
27...... Financial Data Schedule.................................... 77
*Indicates compensatory plan
Page 29
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PPT VISION, INC.
Date: January 26, 1998 By:/s/Joseph C. Christenson
----------------------------
Joseph C. Christenson
(Principal Executive Officer)
Date: January 26, 1998 By:/s/Thomas R. Northenscold
----------------------------
Thomas R. Northenscold
(Principal Accounting Officer)
Chief Financial Officer
Signatures and Power of Attorney
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant, in
the capacities, and on the dates, indicated. Each person whose signature
appears below constitutes and appoints Joseph C. Christenson and Thomas R.
Northenscold as his true and lawful attorneys-in-fact and agents, each acting
alone, with full power of substitution and resubstitution, for him and in his
name, place, and stead, in any and all capacities, to sign any or all amendments
to this Annual Report on Form 10-K and to file the same, with the exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission.
Date Signature and Title
---- -------------------
January 26, 1998 /s/Joseph C. Christenson
----------------------------
Joseph C. Christenson
President, Director
(Principal Executive Officer)
January 26, 1998 /s/Thomas R. Northenscold
----------------------------
Thomas R. Northenscold
(Principal Accounting Officer)
Chief Financial Officer
January 26, 1998 /s/Larry G. Paulson
----------------------------
Larry G. Paulson, Secretary,
Vice President of Research
and Development, Director
Page 30
January 26, 1998 /s/Bruce C. Huber
----------------------------
Bruce C. Huber, Director
January 26, 1998 /s/David C. Malmberg
----------------------------
David C. Malmberg, Director
January 26, 1998 /s/Peter R. Peterson
----------------------------
Peter R. Peterson, Director
Page 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of PPT Vision, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) and (2) present fairly, in all material respects, the financial
position of PPT Vision, Inc. at October 31, 1997 and 1996, and the results of
its operations and cash flows for each of the three fiscal years in the period
ended October 31, 1997 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.
/s/Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Minneapolis, MN
November 21, 1997
Page 32
PPT VISION, INC.
INCOME STATEMENTS
<TABLE>
YEAR ENDED OCTOBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Net revenues............................ $12,055,000 $12,693,000 $9,750,000
Cost of sales........................... 4,894,000 5,044,000 4,442,000
----------- ----------- ----------
Gross profit........................ 7,161,000 7,649,000 5,308,000
----------- ----------- ----------
Expenses:
Selling............................... 3,727,000 2,897,000 2,279,000
General and administrative............ 1,177,000 976,000 851,000
Research and development.............. 2,339,000 1,827,000 1,299,000
----------- ----------- ----------
Total expenses...................... 7,243,000 5,700,000 4,429,000
----------- ----------- ----------
Income (loss) from operations........... (82,000) 1,949,000 879,000
Interest income......................... 1,124,000 442,000 61,000
Other income............................ 23,000 11,000 --
----------- ----------- ----------
Net income before taxes................. 1,065,000 2,402,000 940,000
Income tax (expense) benefit............ (405,000) 1,309,000 407,000
----------- ----------- ----------
Net income.......................... $ 660,000 $ 3,711,000 $1,347,000
=========== =========== ==========
Net income per share.................. $ 0.12 $ 0.84 $ 0.37
=========== =========== ==========
Weighted average common
shares outstanding................... 5,495,000 4,410,000 3,650,000
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 33
PPT VISION, INC.
BALANCE SHEETS
<TABLE>
OCTOBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................ $ 4,027,000 $ 4,179,000
Investments...................................... 15,515,000 15,135,000
Accounts receivable, net......................... 3,693,000 4,451,000
Inventories...................................... 1,741,000 1,228,000
Other current assets............................. 226,000 171,000
----------- -----------
Total current assets........................... 25,202,000 25,164,000
Restricted cash.................................... -- 135,000
Fixed assets, net.................................. 1,546,000 863,000
Other assets, net.................................. 1,828,000 79,000
Deferred income taxes.............................. 1,410,000 1,815,000
----------- -----------
Total assets................................... $29,986,000 $28,056,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................. $ 1,010,000 $ 754,000
Commissions payable.............................. 60,000 62,000
Accrued expenses................................. 245,000 265,000
Other short-term liabilities..................... 1,000,000 --
----------- -----------
Total current liabilities...................... 2,315,000 1,081,000
Deferred rent...................................... 136,000 166,000
Commitments and contingencies (Note 8)
Shareholders' equity
Common Stock $.10 par value; authorized
10,000,000 shares;
issued and outstanding 5,387,355 and 5,358,422.. 539,000 536,000
Capital in excess of par value................... 29,555,000 29,443,000
Accumulated (deficit)............................ (2,510,000) (3,170,000)
Unrealized loss, investments..................... (49,000) --
----------- -----------
Total shareholders' equity..................... 27,535,000 26,809,000
----------- -----------
Total liabilities and shareholders' equity..... $29,986,000 $28,056,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 34
PPT VISION, INC.
STATEMENT OF CASH FLOWS
<TABLE>
YEAR ENDED OCTOBER 31,
-------------------------------------
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Net income................................$ 660,000 $ 3,711,000 $1,347,000
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 422,000 286,000 164,000
Deferred rent........................... (30,000) (6,000) 44,000
Deferred income tax benefit............. 405,000 (1,408,000) (407,000)
Accrued interest income................. (322,000) (149,000) --
Realized gain on sales of investments... (2,000) (4,000) --
Change in assets and liabilities:
Accounts receivable..................... 758,000 (1,764,000) (749,000)
Inventories............................. (513,000) (285,000) (158,000)
Other assets............................ (55,000) (104,000) (7,000)
Restricted cash......................... 135,000 78,000 --
Accounts payable........................ 256,000 190,000 102,000
Commissions payable..................... (2,000) 7,000 12,000
Accrued expenses........................ (20,000) 103,000 65,000
------------ ------------ ----------
Total adjustments..................... 1,032,000 (3,056,000) (934,000)
------------ ------------ ----------
Net cash provided by operating activities. 1,692,000 655,000 413,000
Cash flows from investing activities:
Purchase of fixed assets................ (1,095,000) (662,000) (349,000)
Purchase of investments................. (21,353,000) (17,007,000) --
Sales and maturities of investments..... 21,248,000 2,025,000 --
Net investment in other
long-term assets...................... (759,000) (20,000) --
------------ ------------ ----------
Net cash used by investing activities..... (1,959,000) (15,664,000) (349,000)
Cash flows from financing activities:
Proceeds from issuance of common stock.. 115,000 17,953,000 79,000
------------ ------------ ----------
Net cash provided by financing activities. 115,000 17,953,000 79,000
------------ ------------ ----------
Net increase in cash and cash equivalents. (152,000) 2,944,000 143,000
Cash and cash equivalents at beginning
of year................................. 4,179,000 1,235,000 1,092,000
------------ ------------ ----------
Cash and cash equivalents at end of year..$ 4,027,000 $ 4,179,000 $1,235,000
============ ============ ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income tax.............................. $ 3,000 $ 89,000 $ 42,000
Interest................................ -- 1,000 --
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 35
PPT VISION, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
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, 1994.................. 3,440,486 $344,000 $11,347,000 87,499 $256,000 $(8,228,000)
Stock issued through the
exercise of stock options...... 65,370 6,000 37,000
Stock issued through the
employee stock purchase plan... 16,599 2,000 35,000
Stock issued through
conversion of preferred shares. 56,250 6,000 249,000 (87,499) (256,000)
Net income...................... 1,347,000
--------- --------- ----------- --------- ---------- -----------
October 31, 1995.................. 3,578,705 358,000 11,668,000 0 0 (6,881,000)
Stock issued through
public offering
(net of issue costs)........... 1,600,000 160,000 17,459,000
Stock issued through the
exercise of stock options....... 94,526 9,000 123,000
Stock issued through the
employee stock purchase plan.... 35,691 4,000 74,000
Stock issued through the
exercise of warrants............ 49,500 5,000 119,000
Net income....................... 3,711,000
--------- --------- ----------- --------- ---------- -----------
October 31, 1996................. 5,358,422 $536,000 $29,443,000 0 0 (3,170,000)
Stock issued through the
exercise of stock options....... 23,705 2,000 77,000
Stock issued through the
employee stock purchase plan.... 5,228 1,000 35,000
Net income...................... 660,000
--------- --------- ----------- --------- ---------- -----------
October 31, 1997................ 5,387,355 $539,000 $29,555,000 0 0 $(2,510,000)
========= ========= =========== ========= ========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 36
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
$30,026 at October 31, 1997, and $35,110 at October 31, 1996.
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, 1997 and 1996
inventories consist of the following:
OCTOBER 31,
---------------------
1997 1996
---------- --------
Manufactured and purchased parts............ $1,223,000 $1,015,000
Work-in-process............................. 448,000 144,000
Finished goods.............................. 70,000 69,000
---------- ---------
Totals.................................. $1,741,000 $1,228,000
========== ==========
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
investments, short-term trade receivables and payables for which current
carrying amounts approximate fair market value.
Page 37
OTHER ASSETS
Other assets at October 31, 1997 and 1996 consist of the following:
OCTOBER 31,
-------------------
1997 1996
---------- --------
Patent and trademark............................... $1,654,000 $ 91,000
Security deposits.................................. -- --
Investment in related party........................ 53,000 53,000
Software development costs, net.................... 196,000 --
---------- --------
1,903,000 144,000
Less accumulated amortization...................... (75,000) (65,000)
---------- --------
Total other assets............................. $1,828,000 $ 79,000
========== ========
The patent and trademark balance of $1,654,000 as of October 31, 1997 includes
$1,500,000 which represents the value of a license agreement that the Company
entered into with Medar, Inc. Patent and trademark costs are amortized over
five to ten years.
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,
1997 and 1996 as the difference was not material.
Software development costs are treated in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed." Certain software development costs totaling $196,000 were
capitalized during the fiscal year ended October 31, 1997. No amortization
expense has yet been recorded related to these software development costs.
OTHER SHORT-TERM LIABILITIES
In September of 1997 the Company entered into a license agreement with Medar,
Inc. ("Medar") under which it acquired the exclusive worldwide rights to use of
Medar's patented 3D scanning technology for applications in the electronics and
semiconductor industries. Under the terms of the agreement, the Company will
pay Medar an initial license fee of $1,500,000 based on the achievement of
certain developmental milestones plus a royalty based on sales. The first
$500,000 due under this license agreement was paid upon execution of the
agreement. The remaining two $500,000 payments comprise the $1,000,000 short-
term liability.
Page 38
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, 1997 and 1996 furniture, fixtures and equipment consisted of the
following:
OCTOBER 31,
-----------------------
1997 1996
---------- ----------
Equipment....................................... $3,271,000 $2,215,000
Furniture and fixtures.......................... 438,000 407,000
---------- ----------
3,709,000 2,622,000
Less accumulated depreciation................... (2,163,000) (1,759,000)
---------- ----------
Total fixed assets.......................... $1,546,000 $ 863,000
========== ==========
REVENUE RECOGNITION
The Company records sales revenue upon 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 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 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 1997 consist of $6,228 related to the transfer of
long-term assets to inventory. Non-cash transactions in 1996 consist of $10,568
related to the transfer of long-term assets to inventory. In 1995 non-cash
Page 39
transactions 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.
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.
STOCK SPLIT
On March 14, 1996, the Board of Directors 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 have
been restated to reflect the stock split.
NOTE 3: CUSTOMER INFORMATION
SIGNIFICANT CUSTOMER INFORMATION
During 1997, 1996 and 1995, revenue from one customer accounted for 14%, 14%
and 17% of net revenues respectively. During 1997 and 1996, revenue from
another customer accounted for 14% and 12% of net revenues respectively.
CUSTOMER GEOGRAPHIC DATA
North American and export sales as a percentage of net revenues in 1997, 1996
and 1995 are as follows:
YEAR ENDED
OCTOBER 31,
----------------
1997 1996 1995
---- ---- ----
North America......... 78% 73% 67%
Europe................ 14% 14% 21%
Far East.............. 8% 13% 12%
Page 40
NOTE 4: ACCRUED EXPENSES
Accrued expenses at October 31, 1997 and 1996 include:
OCTOBER 31,
----------------
1997 1996
-------- --------
Vacation............................................... $ 25,000 $ 30,000
Employee Stock Purchase Plan payroll deductions........ 78,000 42,000
Compensation........................................... 64,000 67,000
Other.................................................. 78,000 126,000
-------- --------
Total.............................................. $245,000 $265,000
======== ========
NOTE 5: COMMON STOCK OPTIONS AND WARRANTS
Under the Company's 1988 Stock Option Plan and 1997 Stock Option Plan the
Company may issue options to purchase up to 1,100,000 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.
A summary of stock options issued and outstanding under these plans is as
follows:
NUMBER OF SHARES
-------------------------
EMPLOYEE WEIGHTED AVG
OPTIONS OPTION PRICE
----------- ------------
Balance at October 31, 1994........................... 323,718 $ 2.14
Granted............................................. 22,125 $ 2.95
Exercised........................................... (65,370) $ 0.66
Forfeited........................................... (4,687) $ 3.07
----------- ------------
Balance at October 31, 1995........................... 275,786 $ 2.55
Granted............................................. 126,850 $11.81
Exercised........................................... (94,526) $ 1.41
Forfeited........................................... (350) $ 9.86
----------- ------------
Balance at October 31, 1996........................... 307,760 $ 6.70
Granted............................................. 364,200 $ 6.91
Exercised........................................... (23,705) $ 3.34
Forfeited........................................... (126,375) $11.68
----------- ------------
Balance at October 31, 1997........................... 521,880 $ 5.79
=========== ============
Page 41
As of October 31, 1997:
Price Range of Outstanding Options
Options...........................................$2.33-$12.00
Expiration Dates.................................. 1997-2004
Options Exercisable............................... 146,680
In May of 1997, 122,150 options granted in fiscal years 1996 and 1997 with
exercise prices ranging from $7.19 to $18.13 were repriced to $6.875 per share,
the market price at the time of the repricing. The repricing is reflected in
the table above as a grant cancellation and a new grant issuance.
The estimated weighted average grant-date fair value of stock options granted
is as follows: 1997--$4.23 and 1996--$5.64. The Company accounts for stock
options and other equity instruments in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Statement of Financial Accounting
Standards ("SFAS")No. 123, "Accounting for Stock-Based Compensation," was issued
in October 1995. SFAS No. 123 establishes a fair value based method of
accounting for employee stock based compensation plans and encourages companies
to adopt that method. However, it also allows companies to continue to apply
the intrinsic value based method currently prescribed under APB Opinion No. 25,
provided certain pro forma disclosures are made. Had the Company's stock option
plans and its stock purchase plans compensation costs been determined based on
the fair value at the option grant dates for awards consistent with the
accounting provision of SFAS No. 123 the Company's net income and earnings per
share for fiscal years 1997 and 1996 would have been adjusted to the pro forma
amount indicated below:
Fiscal Year Ended October 31, 1997 1996
------------------------------------ ---------- ----------
Net income............ As reported... $ 660,000 $3,711,000
Pro forma..... $ 197,000 $3,594,000
Net income per share.. As reported... $ 0.12 $ 0.84
Pro forma..... $ 0.04 $ 0.81
The following table summarizes stock options outstanding and exercisable at
October 31, 1997.
Outstanding Exercisable
- -------------------------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Exercise Contractual Average Average
Price Range Options Life Remaining Exercise Price Options Exercise Price
- --------------- ------- -------------- -------------- ------- --------------
$ 2.33 - $ 3.50 148,630 1.30 $ 3.03 135,880 $ 3.02
$ 3.67 - $ 4.17 6,375 1.69 $ 3.88 6,375 $ 3.88
$ 5.67 - $ 8.19 361,625 6.43 $ 6.88 2,175 $ 5.90
$ 9.62 - $12.00 5,250 5.82 $11.66 2,250 $12.00
------- -------------- -------------- ------- --------------
521,880 4.90 $ 5.79 146,680 $ 3.24
Page 42
The fair value of options granted under the Company's fixed stock option plans
during fiscal 1997 and 1996 was estimated on the dates of grant using the Black-
Scholes options-pricing model. The assumptions for fiscal 1997 and 1996 were as
follows:
Fiscal Year Ended October 31 1997 1996
--------------------------------- ----------- -----------
Risk free interest rates......... 5.6% - 5.9% 5.6% - 5.9%
Expected life.................... 6.9 4.0
Expected volatility.............. 54% 54%
Expected dividends............... 0% 0%
Pro forma compensation cost related to shares purchased under the Company's
Employee Stock Purchase Plan is measured based on the discount from market
value. The effects of applying SFAS No. 123 does not apply to awards prior to
fiscal 1996, and additional awards in future years are anticipated.
In September of 1997, the Company issued a warrant to purchase 25,000 shares
of common stock with an exercise price of $12.00 and an expiration date of
September of 2004. The warrant becomes exercisable upon completion of certain
technical milestones which have not yet been achieved.
NOTE 6: STOCK OFFERINGS
In June of 1996, the Company completed a public stock offering, issuing
1,600,000 shares of common stock at $12.00 per share, that raised $17,618,522
net of offering costs of $1,581,478.
NOTE 7: 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 Plan, 225,000 shares have been
reserved for issuance under the Plan.
The third phase of the 1995 Plan began on June 1, 1997 and employees were
granted the right to purchase 28,055 shares at $6.69 per share under the Plan.
The second phase of the 1995 Plan ended on May 31, 1997 and employees
purchased 5,228 shares at $6.69 per share under the Plan.
The first phase of the 1995 Plan ended on May 31, 1996 and employees purchased
35,691 shares at $2.19 per share under the Plan.
Page 43
NOTE 8: COMMITMENTS & CONTINGENCIES
Rental expense under operating leases was $188,000, $170,987, and $163,100 in
1997, 1996, and 1995 respectively. Minimum future rental payments due under
noncancelable operating lease agreements are as follows:
1998............................ 185,000
1999............................ 189,000
2000............................ 196,000
2001............................ 66,000
--------
Total....................... $636,000
========
NOTE 9: 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 $1,000 annually.
The Company's contributions under this program were approximately $66,000,
$52,250, and $30,876 for the years ended October 31, 1997, 1996 and 1995
respectively.
NOTE 10: INCOME TAXES
The provision for income taxes differs from the statutory U.S. federal tax rate
of 34% applied to earnings before income taxes as follows:
1997 1996
----------- -----------
Expected tax provision
at statutory rate..........................$ 362,000 $ 783,000
State income tax provision,
net of federal tax effect.................. 42,000 138,000
Permanent differences...................... 11,000 (11,000)
(Reduction) of valuation allowance......... (2,219,000)
Other...................................... (10,000)
----------- -----------
Total...................................$ 405,000 $(1,309,000)
=========== ===========
Page 44
Deferred tax assets (liabilities) are comprised of the following at October 31:
1997 1996
---------- ----------
Depreciation.............................$ 93,000 $ 147,000
Deferred rent............................ 52,000 66,000
Other.................................... (199,000) (129,000)
Net operating loss carry forwards........ 959,000 1,281,000
Credit carry forwards.................... 505,000 450,000
---------- ----------
Net deferred tax asset................$1,410,000 $1,815,000
========== ==========
At October 31, 1997, the Company has available net operating loss and tax credit
carry forwards for income tax purposes of $2.8 million and $505,000,
respectively. These carry forwards expire in the years ending October 31, 2001
through 2009. No current tax provisions were recorded in the fiscal years ended
October 31, 1997 and 1996 due to the utilization of net operating loss (NOL)
carry forwards. The entire tax provisions consist of deferred taxes.
The utilization of the net operating loss and tax credit carry forwards is
dependent upon the Company's ability to generate sufficient taxable income
during the carry forward period. A valuation allowance was established in 1994
and subsequent taxable earnings and an analysis of likely taxable income
resulted in the elimination of the allowance for the year ended October 31,
1996.
Page 45
SCHEDULE VIII
Valuation and Qualifying Accounts
Allowance for Doubtful Accounts:
Balance at Additions Deductions Balance at
Beginning Charged to and Write- End of
of Period Earnings offs Period
---------- ---------- ---------- ----------
Year Ended October 31, 1995 $55,000 $ 69,000 ($ 89,000) $35,000
Year Ended October 31, 1996 $35,000 $ 2,000 ($ 2,000) $35,000
Year Ended October 31, 1997 $35,000 $ 95,000 ($100,000) $30,000
Page 46
PPT VISION, INC.
1988 STOCK OPTION PLAN
1. Purpose. The purpose of the PPT Vision, Inc. 1988 Stock Option Plan
is to provide a continuing, long-term incentive to selected eligible officers,
directors and key employees of PPT Vision, Inc. (the "Corporation") and of any
subsidiary corporation of the Corporation (the "Subsidiary"), as herein defined;
to provide a means of rewarding outstanding performance; and to enable the
Corporation to maintain a competitive position to attract and retain key
personnel necessary for continued growth and profitability.
2. Definitions. The following words and phrases as used herein shall
have the meanings set forth below:
2.1. "Board" shall mean the Board of Directors of the Corporation.
2.2. "Change in Control" shall mean the time at which any entity,
person or group (other than the Corporation, any subsidiary of the
Corporation or any savings, pension or other benefit plan for the benefit
of any employees of the Corporation or its subsidiaries) which prior to
such time beneficially owned less than twenty percent (20%) of the then
outstanding Common Stock acquires such additional shares of Common Stock in
one or more transactions, or a series of transactions, such that following
such transaction or transactions such entity, person or group beneficially
owns, directly or indirectly, twenty percent (20%), or more, of the
outstanding Common Stock.
2.3. "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4. "Committee" shall mean a committee of the Board as may be
designated by the Board, from time to time, for the purpose of
administering this plan as contemplated by Article 4 hereof.
2.5. "Common Stock" shall mean the common stock, no par value, of the
Corporation.
Page 47
2.6. "Corporation" shall mean PPT Vision, Inc., a Minnesota
corporation.
2.7. "Non-Employee Directors" shall mean a "Non-Employee Director"
within the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act,
as amended, or any successor rule.
2.8. "Fair Market Value" of any security on any given date shall be
determined by the Committee as follows: (a) if the security is listed for
trading on one or more national securities exchanges, or is traded on the
Nasdaq National Market System, the last reported sales price on the
principal such exchange or Nasdaq System on the date in question, or if
such security shall not have been traded on such principal exchange on such
date, the last reported sales price on such principal exchange or the
Nasdaq System on the first day prior thereto on which such security was so
traded; or (b) if the security is not listed for trading on a national
securities exchange or the Nasdaq National Market System, but is traded in
the over-the-counter market, including the NASDAQ System, closing bid price
for such security on the date in question, or if there is no such bid price
for such security on such date, the closing bid price on the first day
prior thereto on which such price existed; or (c) if neither (a) nor (b) is
applicable, by any means deemed fair and reasonable by the Committee, which
determination shall be final and binding on all parties.
2.9. "ISO" shall mean any stock option granted pursuant to this Plan
as an "incentive stock option" within the meaning of Section 422 of the
Code.
2.10. "NQO" shall mean any stock option granted pursuant to this Plan
which is not an ISO.
2.11. "Option" shall mean any stock option granted pursuant to this
Plan, whether an ISO or an NQO.
2.12. "Optionee" shall mean any person who is the holder of an Option
granted pursuant to this Plan.
Page 48
2.13. "Outside Director" shall mean a director who (a) is not a
current employee of the Corporation or any member of an affiliated group
which includes the Corporation; (b) is not a former employee of the
Corporation who receives compensation for prior services (other than
benefits under a tax-qualified retirement plan) during the taxable year;
(c) has not been an officer of the Corporation; (d) does not receive
remuneration from the Corporation, either directly or indirectly, in any
capacity other than as a director, except as otherwise permitted under Code
Section 162(m) and regulations thereunder. For this purpose, remuneration
includes any payment in exchange for goods or services. This definition
shall be further governed by the provisions of Code Section 162(m) and
regulations promulgated thereunder.
2.14. "Plan" shall mean this 1988 Stock Option Plan of the
Corporation.
2.15. "Subsidiary" shall mean any corporation which at the time
qualifies as a subsidiary of the Corporation under Section 425(f) of the
Code.
2.16. "Tax Date" shall mean the date on which the amount of tax to be
withheld is determined under the Code.
3. Shares Available Under Plan. The number of shares which may be issued
pursuant to Options granted under this Plan shall not exceed 600,000 shares of
the Common Stock of the Corporation; provided, however, that shares which become
available as a result of cancelled, unexercised, lapsed or terminated Options
granted under this Plan shall be available for issuance pursuant to Options
subsequently granted under this Plan. The shares issued upon exercise of
Options granted under this Plan may be authorized and unissued shares or shares
previously acquired or to be acquired by the Corporation.
4. Administration.
4.1. The Plan will be administered by the Board or a Committee of at
least two directors, all of whom shall be Outside Directors and
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Non-Employee Directors. The Committee may be a subcommittee of the
Compensation Committee of the Board.
4.2. The Committee will have plenary authority, subject to provisions
of the Plan, to determine when and to whom Options will be granted, the
term of each Option, the number of shares covered by it, the participation
by the Optionee in other plans, and any other terms or conditions of each
Option. The Committee shall determine with respect to each grant of an
Option whether a participant shall receive an ISO or an NQO. The number of
shares, the term and the other terms and conditions of a particular kind of
Option need not be the same, even as to Options granted at the same time.
The Committee's recommendations regarding Option grants and terms and
conditions thereof will be conclusive.
4.3. The Committee will have the sole responsibility for construing
and interpreting the Plan, for establishing and amending any rules and
regulations as it deems necessary or desirable for the proper
administration of the Plan, and for resolving all questions arising under
the Plan. Any decision or action taken by the Committee arising out of or
about the construction, administration, interpretation and effect of the
Plan and of its rules and regulations will, to the extent permitted by law,
be within its absolute discretion, except as otherwise specifically
provided herein, and will be conclusive and binding on all Optionees, all
successors, and any other person, whether that person is claiming under or
through any Optionee or otherwise.
4.4. The Committee will designate one of its members as chairman. It
will hold its meetings at the times and places as it may determine. A
majority of its members will constitute a quorum, and all determinations of
the Committee will be made by a majority of its members. Any determination
reduced to writing and signed by all members will be fully as effective as
if it had been made by a majority vote at a meeting duly called and held.
The Committee may appoint a secretary, who need not be a member of the
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Committee, and may make such rules and regulations for the conduct of its
business as it may deem advisable.
4.5. No member of the Committee will be liable, in the absence of bad
faith, for any act or omission with respect to his services on the
Committee. Service on the Committee will constitute service as a member of
the Board, so that the members of the Committee will be entitled to
indemnification and reimbursement as Board members pursuant to its Bylaws.
4.6. The Committee will regularly inform the Board as to its actions
with respect to all Options granted under the Plan and the terms and
conditions and any such Options in a manner, at any times, and in any form
as the Board may reasonably request.
4.7. Any other provision of the Plan to the contrary notwithstanding,
the Committee is authorized to take such action as it, in its discretion,
may deem necessary or advisable and fair and equitable to Optionees in the
event of: a Change in Control of the Corporation; a tender, exchange or
similar offer for all or any part of the Common Stock made by any entity,
person or group (other than the Corporation, any Subsidiary of the
Corporation or any savings, pension or other benefit plan for the benefit
of employees of the Corporation or its Subsidiaries); a merger of the
Corporation into, a consolidation of the Corporation with, or an
acquisition of the Corporation by another corporation; or a sale or
transfer of all or substantially all of the Corporation's assets. Such
action, in the Committee's discretion, may include (but shall not be deemed
limited to): establishing, amending or waiving the forms, terms,
conditions or duration of Options so as to provide for earlier, later,
extended or additional terms for exercise of the whole, or any installment,
thereof; alternate forms of payment; or other modifications. The Committee
may take any such actions pursuant to this Section 4.7 by adopting rules or
regulations of general applicability to all Optionees, or to certain
categories of Optionees: by amending or waiving terms and conditions in
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stock option agreements; or by taking action with respect to individual
Optionees. The Committee may take any such actions before or after the
public announcement of any such Change in Control, tender offer, exchange
offer, merger, consolidation, acquisition or sale or transfer of assets.
5. Participants.
5.1. Participation in this Plan shall be limited to officers and
regular full-time executive, administrative, professional, production and
technical employees of the Corporation or of a Subsidiary, who are salaried
employees of the Corporation or of a Subsidiary and to all Directors of the
Company.
5.2. Subject to other provisions of this Plan, Options may be granted
to the same participants on more than one occasion.
5.3. The Committee's determination under the Plan including, without
limitation, determination of the persons to receive Options, the form,
amount and type of such Options, and the terms and provisions of Options
need not be uniform and may be made selectively among otherwise eligible
participants, whether or not the participants are similarly situated.
5.4 No person shall receive Options under this Plan which exceed
50,000 shares during any fiscal year of the Corporation.
6. Terms and Conditions.
6.1. Each Option granted under the Plan shall be evidenced by a
written agreement, which shall be subject to the provisions of this Plan
and to such other terms and conditions as the Corporation may deem
appropriate.
6.2. Each Option agreement shall specify the period for which the
Option thereunder is granted (which in no event shall exceed ten years from
the date of the grant for any Option granted pursuant to Section 6.3(a)
hereof, five years from the date of grant for any Option granted pursuant
to 6.3(b) hereof and ten years and one day from the date of grant for any
Option designated by the Committee as an NQO and shall provide that the
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Option shall expire at the end of such period; provided, however, the term
of each Option shall be subject to the power of the Committee, among other
things, to accelerate or otherwise adjust the terms for exercise of Options
pursuant to Section 4.7 hereof in the event of the occurrence of any of the
events set forth therein.
6.3. The exercise price per share shall be determined by the Committee
at the time any Option is granted; provided, however, that in no event
shall the exercise price per share purchasable under a NQO be less than 85%
of the Fair Market Value of the Common Stock of the Corporation on the date
the Option is granted, and, if the Option is an ISO, shall be determined as
follows:
(a) For employees who do not own stock possessing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation or of any Subsidiary, the ISO exercise price
per share shall not be less than one hundred percent (100%) of Fair
Market Value of the Common Stock of the Corporation on the date the
Option is granted, as determined by the Committee.
(b) For employees who own stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Corporation or of any Subsidiary, the ISO exercise price
per share shall not be less than one hundred ten percent (110%) of the
Fair Market Value of the Common Stock of the Corporation on the date
the Option is granted, as determined by the Committee.
6.4. The aggregate Fair Market Value (determined as of the time the
Option is granted) of the Common Stock with respect to which an ISO under
this Plan or any other plan of the Corporation or its Subsidiaries is
exercisable for the first time by an Optionee during any calendar year
shall not exceed $100,000.
6.5. An Option shall be exercisable at such time or times, and with
respect to such minimum number of shares, as may be determined by the
Page 53
Corporation at the time of the grant. The Option agreement may require, if
so determined by the Corporation, that no part of the Option may be
exercised until the Optionee shall have remained in the employ of the
Corporation or of a Subsidiary for such period after the date of the Option
as the Corporation may specify. Notwithstanding the foregoing and subject
to the discretionary acceleration rights of the Committee, an Option
granted to a director, officer or 10% shareholders of the Corporation shall
not be exercisable for a period of six (6) months unless the Option has
been approved by the Board, the Committee or the shareholders of the
Corporation.
6.6. The Corporation may prescribe the form of legend which shall be
affixed to the stock certificate representing shares to be issued and the
shares shall be subject to the provisions of any repurchase agreement or
other agreement restricting the sale or transfer thereof. Such agreements
or restrictions shall be noted on the certificate representing the shares
to be issued.
7. Exercise of Option.
7.1. Each exercise of an Option granted hereunder, whether in whole or
in part, shall be by written notice thereof, delivered to the Secretary of
the Corporation (or such other person as he may designate). The notice
shall state the number of shares with respect to which the Options are
being exercised and shall be accompanied by payment in full for the number
of shares so designated. Shares shall be registered in the name of the
Optionee unless the Optionee otherwise directs in his or her notice of
election.
7.2. Payment shall be made to the Corporation either (i) in cash,
including certified check, bank draft or money order, (ii) at the
discretion of the Corporation, by delivering Common Stock of the
Corporation already owned by the participant, (iii) at the discretion of
the Corporation, by delivering a promissory note, containing such terms and
Page 54
conditions acceptable to the Corporation, for all or a portion of the
purchase price of the shares so purchased, or a combination of (i), (ii)
and (iii). With respect to (ii) the Fair Market Value of stock so
delivered shall be determined as of the date immediately preceding the date
of exercise.
7.3. Upon notification of the amount due and prior to, or concurrently
with, the delivery to the Optionee of a certificate representing any shares
purchased pursuant to the exercise of an Option, the Optionee shall
promptly pay to the Corporation any amount necessary to satisfy applicable
federal, state or local withholding tax requirements.
7.4. If the terms of an Option so permit, an Optionee, other than a
member of the Committee, may elect by written notice to the Secretary of
the Corporation (or such other person as he may designate), to satisfy the
withholding tax requirements associated with the exercise of an Option by
authorizing the Corporation to retain from the number of shares of Common
Stock that would otherwise be deliverable to the Optionee that number of
shares having an aggregate Fair Market Value on the Tax Date equal to the
tax payable by the Optionee under Section 7.3. Where shares are
transferred to an Optionee prior to the Tax Date, the Optionee shall agree
in any such election to surrender that number of shares having an aggregate
Fair Market Value on the Tax Date equal to the tax payable by the Optionee
under Section 7.3. Where the Optionee is an officer, Director or
beneficial owner of more than 10% of the Corporation's Common Stock, any
such election shall be made (a) at least six (6) months following the grant
of the Option, and (b) (i) at least six (6) months prior to the Tax Date,
or (ii) within a ten-day "window period" following release of the
Corporation's annual or quarterly financial results, all as required by
Rule 16b-3 under the Securities Exchange Act of 1934. In addition, any
Page 55
election to have shares withheld pursuant to this Section 7.4 will be
irrevocable by the Optionee and will in any event be subject to the
disapproval of the Committee.
8. Adjustments of Option Stock. In case the shares issuable upon
exercise of any Option granted under the Plan at any time outstanding shall be
subdivided into a greater or combined into a lesser number of shares (whether
with or without par value), the number of shares purchasable upon exercise of
such Option immediately prior thereto shall be adjusted so that the Optionee
shall be entitled to receive a number of shares which he or she would have owned
or have been entitled to receive after the happening of such event had such
Option been exercised immediately prior to the happening of such subdivision or
combination or any record date with respect thereto. An adjustment made
pursuant to this paragraph shall become effective immediately after the
effective date of such subdivision or combination retroactive to the record
date, if any, for such subdivision or combination. The Option price (as such
amount may have theretofore been adjusted pursuant to the provisions hereof)
shall be adjusted by multiplying the Option price immediately prior to the
adjustment of the number of shares purchasable under the Option by a fraction,
of which the numerator shall be the number of shares purchasable upon the
exercise of the Option immediately prior to such adjustment, and of which the
denominator shall be the number of shares so purchasable immediately thereafter.
Substituted shares of stock shall be deemed shares under Section 3 of the Plan.
9. Assignments. Any Option granted under this Plan shall be exercisable
only by the Optionee to whom granted during his or her lifetime and shall not be
assignable or transferable otherwise than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Board or the Committee may,
in its discretion, determine that an Option may be exercised by a person other
than the Optionee and that an Option may be transferable based on he tax and
federal securities law considerations then in effect for such Options.
Page 56
10. Severance; Death; Disability. An Option shall terminate, and no
rights thereunder may be exercised, if the person to whom it is granted ceases
to be employed by the Corporation or by a Subsidiary except that:
10.1. If the employment of the Optionee is terminated by any reason
other than his or her death or disability, the Optionee may at any time
within not more than three months after termination of his or her
employment, exercise his or her Option rights but only to the extent they
were exercisable by the Optionee on the date of termination of his or her
employment; provided, however, that if the employment is terminated by
deliberate, willful or gross misconduct as determined by the Committee, all
rights under the Option shall terminate and expire upon such termination.
10.2. If the Optionee dies while in the employ of the Corporation or a
Subsidiary, or within not more than three months after termination of his
or her employment, the Optionee's rights under the Option may be exercised
at any time within one year following such death by his or her personal
representative or by the person or persons to whom such rights under the
Option shall pass by will or by the laws of descent and distribution, but
only to the extent they were exercisable by the Optionee on the date of
death.
10.3. If the employment of the Optionee is terminated because of
permanent disability, the Optionee, or his or her legal representative, may
at any time within not more than one year after termination of his or her
employment, exercise his or her Option rights but only to the extent they
were exercisable by the Optionee on the date of termination of his or her
employment.
10.4. Notwithstanding anything contained in Sections 10.1, 10.2 and
10.3 to the contrary, no Option rights shall be exercisable by anyone after
the expiration of the term of the Option.
10.5. Transfers of employment between the Corporation and a
Subsidiary, or between Subsidiaries, will not constitute termination of
Page 57
employment for purposes of any Option granted under this Plan. The
Committee may specify in the terms and conditions of an Option whether any
authorized leave of absence or absence for military or government service
or for any other reasons will constitute a termination of employment for
purposes of the Option and the Plan.
11. Rights of Participants. Neither the participant nor the personal
representatives, heirs, or legatees of such participant shall be or have any of
the rights or privileges of a shareholder of the Corporation in respect of any
of the shares issuable upon the exercise of an Option granted under this Plan
unless and until certificates representing such shares shall have been issued
and delivered to the participant or to such personal representatives, heirs or
legatees.
12. Securities Registration. If any law or regulation of the Securities
and Exchange Commission or of any other body having jurisdiction shall require
the Corporation or the participant to take any action in connection with the
exercise of an Option, then notwithstanding any contrary provision of an Option
agreement or this Plan, the date for exercise of such Option and the delivery of
the shares purchased thereunder shall be deferred until the completion of the
necessary action. In the event that the Corporation shall deem it necessary,
the Corporation may condition the grant or exercise of an Option granted under
this Plan upon the receipt of a satisfactory certificate that the Optionee is
acquiring the Option or the shares obtained by exercise of the Option for
investment purposes and not with the view or intent to resell or otherwise
distribute such Option or shares. In such event, the stock certificate
evidencing such shares shall bear a legend referring to applicable laws
restricting transfer of such shares. In the event that the Corporation shall
deem it necessary to register under the Securities Act of 1933, as amended, or
any other applicable statute, any Options or any shares with respect to which an
Option shall have been granted or exercised, then the participant shall
Page 58
cooperate with the Corporation and take such action as is necessary to permit
registration or qualification of such Options or shares.
13. Duration and Amendment.
13.1. There is no express limitation upon the duration of the Plan,
except for the requirement of the Code that all ISOs must be granted within
ten years from the date the Plan is approved by the shareholders.
13.2. The Board may terminate or may amend the Plan at any time,
provided, however, that the Board may not, without approval of the
shareholders of the Corporation, (i) increase the maximum number of shares
as to which options may be granted under the Plan, (ii) permit the granting
of ISO's at less than 100% of Fair Market Value at time of grant, or (iii)
change the class of employees eligible to receive Options under the Plan.
14. Granting of Options to Directors Who Are Not Employees. Each
person who is not an employee of the Corporation or its Subsidiaries who on
and after the date this Plan is approved by shareholders of the Corporation
(i) is elected or reelected or (ii) is elected as a Director of the
Corporation at any special meeting of holders of Common Stock of the
Corporation, shall as of the date of such election, reelection, or annual
or special meeting automatically be granted an Option to purchase 1,500
shares of the Corporation's Common Stock at an option price per share equal
to 100% of the Fair Market Value of a share on such date. In the case of a
special meeting, the action of the holders of shares in electing a Director
who is not an employee of the Corporation or its Subsidiaries shall
constitute the granting of the Option to such Director, and, in the case of
an annual meeting, the action of the holders of shares in electing or
reelecting such Director shall constitute the granting of an Option to such
Director; and the date when the holders of shares shall take such action
shall be the date of grant of the Option. In addition, each Director who
was not an employee on June 18, 1996 shall receive an option to purchase
1,500 shares of the Company's Common Stock at a price of $12.00 per share,
Page 59
the price at which the Company issued 1,600,000 shares of Common Stock in
its public offering. All such Options shall be designated as NQOs and
shall be subject to the same terms and provisions as are then in effect
with respect to granting of NQOs to salaried officers and key employees of
the Corporation, except that the Option shall be exercisable as to all or
any part of the shares subject to the Option from the date the Option is
granted, and shall expire on the earliest of (i) twelve months after the
Optionee ceases to be a director (except by death) (ii) one year after the
death of the optionee, or (iii) five years after the date of grant, unless
the Board, in its discretion, shall waive or modify the term of the grant.
Directors shall always have the right to deliver stock in exercise of
Options as provided in Section 8.2.
In the event discretionary Options are granted to members of the
Committee, such Options shall be granted by the Board.
15. Approval of Shareholders. This Plan expressly is subject to
approval of holders of a majority of the outstanding shares of Common Stock
of the Corporation, and if it is not so approved on or before one year
after the date of adoption of this Plan by the Board, the Plan shall not
come into effect, and any Options granted pursuant to this Plan shall be
deemed cancelled.
16. Conditions of Employment. The granting of an Option to a
participant under this Plan who is an employee shall impose no obligation
on the Corporation to continue the employment of any participant and shall
not lessen or affect the right of the Corporation to terminate the
employment of the participant.
17. Other Options. Nothing in the Plan will be construed to limit
the authority of the Corporation to exercise its corporate rights and
powers, including, by way of illustration and not by way of limitation, the
right to grant options for proper corporate purposes otherwise than under
the Plan to any employee or any other person, firm, corporation,
Page 60
association, or other entity, or to grant Options to, or assume Options of,
any person for the acquisition by purchase, lease, merger, consolidation,
or otherwise, of all or any part of the business and assets of any person,
firm, corporation, association, or other entity.
As amended March 5, 1997. Reflects the Company's April 5, 1996 2 for
1 stock split in the form of a 50% stock dividend.
Page 61
PPT VISION, INC.
1997 STOCK OPTION PLAN
1. Purpose. The purpose of the PPT Vision, Inc. 1997 Stock Option Plan is
to provide a continuing, long-term incentive to selected eligible officers and
key employees of PPT Vision, Inc. (the "Corporation") and of any subsidiary
corporation of the Corporation (the "Subsidiary"), as herein defined to provide
a means of rewarding outstanding performance; and to enable the Corporation to
maintain a competitive position to attract and retain key personnel necessary
for continued growth and profitability.
2. Definitions. The following words and phrases as used herein shall have
the meanings set forth below:
2.1. "Board" shall mean the Board of Directors of the
Corporation.
2.2. "Change in Control" shall mean the time at which any
entity, person or group (other than the Corporation, any subsidiary of
the Corporation or any savings, pension or other benefit plan for the
benefit of any employees of the Corporation or its subsidiaries) which
prior to such time beneficially owned less than twenty percent (20%) of
the then outstanding Common Stock acquires such additional shares of
Common Stock in one or more transactions, or a series of transactions,
such that following such transaction or transactions such entity,
person or group beneficially owns, directly or indirectly, twenty
percent (20%), or more, of the outstanding Common Stock.
2.3. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
2.4. "Committee" shall mean a committee of the Board as may be
designated by the Board, from time to time, for the purpose of
administering this plan as contemplated by Article 4 hereof.
Page 62
2.5. "Common Stock" shall mean the common stock, no par value,
of the Corporation.
2.6. "Corporation" shall mean PPT Vision, Inc., a Minnesota
corporation.
2.7. "Non-Employee Directors" shall mean a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under
the Securities Exchange Act, as amended, or any successor rule.
2.8. "Fair Market Value" of any security on any given date shall
be determined by the Committee as follows: (a) if the security is
listed for trading on one or more national securities exchanges, or is
traded on the Nasdaq National Market System, the last reported sales
price on the principal such exchange or Nasdaq System on the date in
question, or if such security shall not have been traded on such
principal exchange on such date, the last reported sales price on such
principal exchange or the Nasdaq System on the first day prior thereto
on which such security was so traded; or (b) if the security is not
listed for trading on a national securities exchange or the Nasdaq
National Market System, but is traded in the over-the-counter market,
including the Nasdaq System, closing bid price for such security on the
date in question, or if there is no such bid price for such security on
such date, the closing bid price on the first day prior thereto on
which such price existed; or (c) if neither (a) nor (b) is applicable,
by any means deemed fair and reasonable by the Committee, which
determination shall be final and binding on all parties.
2.9. "ISO" shall mean any stock option granted pursuant to this
Plan as an "incentive stock option" within the meaning of Section 422
of the Code.
2.10. "NQO" shall mean any stock option granted pursuant to this
Plan which is not an ISO.
Page 63
2.11. "Option" shall mean any stock option granted pursuant to
this Plan, whether an ISO or an NQO.
2.12. "Optionee" shall mean any person who is the holder of an
Option granted pursuant to this Plan.
2.13. "Outside Director" shall mean a director who (a) is not a
current employee of the Corporation or any member of an affiliated
group which includes the Corporation; (b) is not a former employee of
the Corporation who receives compensation for prior services (other
than benefits under a tax-qualified retirement plan) during the taxable
year; (c) has not been an officer of the Corporation; (d) does not
receive remuneration from the Corporation, either directly or
indirectly, in any capacity other than as a director, except as
otherwise permitted under Code Section 162(m) and regulations
thereunder. For this purpose, remuneration includes any payment in
exchange for goods or services. This definition shall be further
governed by the provisions of Code Section 162(m) and regulations
promulgated thereunder.
2.14. "Plan" shall mean this 1997 Stock Option Plan of the
Corporation.
2.15. "Subsidiary" shall mean any corporation which at the time
qualifies as a subsidiary of the Corporation under Section 425(f) of
the Code.
2.16. "Tax Date" shall mean the date on which the amount of tax
to be withheld is determined under the Code.
3. Shares Available Under Plan. The number of shares which may be issued
pursuant to Options granted under this Plan shall not exceed 500,000 shares of
the Common Stock of the Corporation; provided, however, that shares which become
available as a result of cancelled, unexercised, lapsed or terminated Options
granted under this Plan shall be available for issuance pursuant to Options
subsequently granted under this Plan. The shares issued upon exercise of
Page 64
Options granted under this Plan may be authorized and unissued shares or shares
previously acquired or to be acquired by the Corporation.
4. Administration.
4.1. The Plan will be administered by the Board or a Committee
of at least two directors, all of whom shall be Outside Directors and
Non-Employee Directors. The Committee may be a subcommittee of the
Compensation Committee of the Board.
4.2. The Committee will have plenary authority, subject to
provisions of the Plan, to determine when and to whom Options will be
granted, the term of each Option, the number of shares covered by it,
the participation by the Optionee in other plans, and any other terms
or conditions of each Option. The Committee shall determine with
respect to each grant of an Option whether a participant shall receive
an ISO or an NQO. The number of shares, the term and the other terms
and conditions of a particular kind of Option need not be the same,
even as to Options granted at the same time. The Committee's
recommendations regarding Option grants and terms and conditions
thereof will be conclusive.
4.3. The Committee will have the sole responsibility for
construing and interpreting the Plan, for establishing and amending any
rules and regulations as it deems necessary or desirable for the proper
administration of the Plan, and for resolving all questions arising
under the Plan. Any decision or action taken by the Committee arising
out of or about the construction, administration, interpretation and
effect of the Plan and of its rules and regulations will, to the extent
permitted by law, be within its absolute discretion, except as
otherwise specifically provided herein, and will be conclusive and
binding on all Optionees, all successors, and any other person, whether
that person is claiming under or through any Optionee or otherwise.
Page 65
4.4. The Committee will designate one of its members as
chairman. It will hold its meetings at the times and places as it may
determine. A majority of its members will constitute a quorum, and all
determinations of the Committee will be made by a majority of its
members. Any determination reduced to writing and signed by all
members will be fully as effective as if it had been made by a majority
vote at a meeting duly called and held. The Committee may appoint a
secretary, who need not be a member of the Committee, and may make such
rules and regulations for the conduct of its business as it may deem
advisable.
4.5. No member of the Committee will be liable, in the absence
of bad faith, for any act or omission with respect to his services on
the Committee. Service on the Committee will constitute service as a
member of the Board, so that the members of the Committee will be
entitled to indemnification and reimbursement as Board members pursuant
to its Bylaws.
4.6. The Committee will regularly inform the Board as to its
actions with respect to all Options granted under the Plan and the
terms and conditions and any such Options in a manner, at any times,
and in any form as the Board may reasonably request.
4.7. Any other provision of the Plan to the contrary
notwithstanding, the Committee is authorized to take such action as it,
in its discretion, may deem necessary or advisable and fair and
equitable to Optionees in the event of: a Change in Control of the
Corporation; a tender, exchange or similar offer for all or any part of
the Common Stock made by any entity, person or group (other than the
Corporation, any Subsidiary of the Corporation or any savings, pension
or other benefit plan for the benefit of employees of the Corporation
or its Subsidiaries); a merger of the Corporation into, a consolidation
of the Corporation with, or an acquisition of the Corporation by
Page 66
another corporation; or a sale or transfer of all or substantially all
of the Corporation's assets. Such action, in the Committee's
discretion, may include (but shall not be deemed limited to):
establishing, amending or waiving the forms, terms, conditions or
duration of Options so as to provide for earlier, later, extended or
additional terms for exercise of the whole, or any installment,
thereof; alternate forms of payment; or other modifications. The
Committee may take any such actions pursuant to this Section 4.7 by
adopting rules or regulations of general applicability to all
Optionees, or to certain categories of Optionees: by amending or
waiving terms and conditions in stock option agreements; or by taking
action with respect to individual Optionees. The Committee may take
any such actions before or after the public announcement of any such
Change in Control, tender offer, exchange offer, merger, consolidation,
acquisition or sale or transfer of assets.
5. Participants.
5.1. Participation in this Plan shall be limited to officers and
regular full-time executive, administrative, professional, production
and technical employees of the Corporation or of a Subsidiary, who are
salaried employees of the Corporation or of a Subsidiary and to all
Directors of the Company.
5.2. Subject to other provisions of this Plan, Options may be
granted to the same participants on more than one occasion.
5.3. The Committee's determination under the Plan including,
without limitation, determination of the persons to receive Options,
the form, amount and type of such Options, and the terms and provisions
of Options need not be uniform and may be made selectively among
otherwise eligible participants, whether or not the participants are
similarly situated.
Page 67
5.4 No person shall receive Options under this Plan which
exceed 50,000 shares during any fiscal year of the Corporation.
6. Terms and Conditions.
6.1. Each Option granted under the Plan shall be evidenced by a
written agreement, which shall be subject to the provisions of this
Plan and to such other terms and conditions as the Corporation may deem
appropriate.
6.2. Each Option agreement shall specify the period for which
the Option thereunder is granted (which in no event shall exceed ten
years from the date of the grant for any Option granted pursuant to
Section 6.3(a) hereof, five years from the date of grant for any Option
granted pursuant to 6.3(b) hereof and ten years and one day from the
date of grant for any Option designated by the Committee as an NQO and
shall provide that the Option shall expire at the end of such period;
provided, however, the term of each Option shall be subject to the
power of the Committee, among other things, to accelerate or otherwise
adjust the terms for exercise of Options pursuant to Section 4.7 hereof
in the event of the occurrence of any of the events set forth therein.
6.3. The exercise price per share shall be determined by the
Committee at the time any Option is granted; provided, however, that in
no event shall the exercise price per share purchasable under a NQO be
less than 85% of the Fair Market Value of the Common Stock of the
Corporation on the date the Option is granted, and, if the Option is an
ISO, shall be determined as follows:
(a) For employees who do not own stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation or of any Subsidiary, the ISO
exercise price per share shall not be less than one hundred
percent (100%) of Fair Market Value of the Common Stock of the
Page 68
Corporation on the date the Option is granted, as determined by
the Committee.
(b) For employees who own stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Corporation or of any Subsidiary, the ISO exercise
price per share shall not be less than one hundred ten percent
(110%) of the Fair Market Value of the Common Stock of the
Corporation on the date the Option is granted, as determined by
the Committee.
6.4. The aggregate Fair Market Value (determined as of the time
the Option is granted) of the Common Stock with respect to which an ISO
under this Plan or any other plan of the Corporation or its
Subsidiaries is exercisable for the first time by an Optionee during
any calendar year shall not exceed $100,000.
6.5. An Option shall be exercisable at such time or times, and
with respect to such minimum number of shares, as may be determined by
the Corporation at the time of the grant. The Option agreement may
require, if so determined by the Corporation, that no part of the
Option may be exercised until the Optionee shall have remained in the
employ of the Corporation or of a Subsidiary for such period after the
date of the Option as the Corporation may specify. Notwithstanding the
foregoing and subject to the discretionary acceleration rights of the
Committee, an Option granted to a director, officer or 10% shareholder
of the Corporation shall not be exercisable for a period of six (6)
months unless the Option has been approved by the Board, the Committee
or the shareholders of the Corporation.
6.6. The Corporation may prescribe the form of legend which
shall be affixed to the stock certificate representing shares to be
issued and the shares shall be subject to the provisions of any
repurchase agreement or other agreement restricting the sale or
Page 69
transfer thereof. Such agreements or restrictions shall be noted on
the certificate representing the shares to be issued.
7. Exercise of Option.
7.1. Each exercise of an Option granted hereunder, whether in
whole or in part, shall be by written notice thereof, delivered to the
Secretary of the Corporation (or such other person as he may
designate). The notice shall state the number of shares with respect
to which the Options are being exercised and shall be accompanied by
payment in full for the number of shares so designated. Shares shall
be registered in the name of the Optionee unless the Optionee otherwise
directs in his or her notice of election.
7.2. Payment shall be made to the Corporation either (i) in
cash, including certified check, bank draft or money order, (ii) at the
discretion of the Corporation, by delivering Common Stock of the
Corporation already owned by the participant, (iii) at the discretion
of the Corporation, by delivering a promissory note, containing such
terms and conditions acceptable to the Corporation, for all or a
portion of the purchase price of the shares so purchased, or a
combination of (i), (ii) and (iii). With respect to (ii) the Fair
Market Value of stock so delivered shall be determined as of the date
immediately preceding the date of exercise.
7.3. Upon notification of the amount due and prior to, or
concurrently with, the delivery to the Optionee of a certificate
representing any shares purchased pursuant to the exercise of an
Option, the Optionee shall promptly pay to the Corporation any amount
necessary to satisfy applicable federal, state or local withholding tax
requirements.
7.4. If the terms of an Option so permit, an Optionee, other
than a member of the Committee, may elect by written notice to the
Secretary of the Corporation (or such other person as he may
Page 70
designate), to satisfy the withholding tax requirements associated with
the exercise of an Option by authorizing the Corporation to retain from
the number of shares of Common Stock that would otherwise be
deliverable to the Optionee that number of shares having an aggregate
Fair Market Value on the Tax Date equal to the tax payable by the
Optionee under Section 7.3. Where shares are transferred to an
Optionee prior to the Tax Date, the Optionee shall agree in any such
election to surrender that number of shares having an aggregate Fair
Market Value on the Tax Date equal to the tax payable by the Optionee
under Section 7.3. Where the Optionee is an officer, Director or
beneficial owner of more than 10% of the Corporation's Common Stock,
any such election shall be made (a) at least six (6) months following
the grant of the Option, and (b) (i) at least six (6) months prior to
the Tax Date, or (ii) within a ten-day "window period" following
release of the Corporation's annual or quarterly financial results, all
as required by Rule 16b-3 under the Securities Exchange Act of 1934.
In addition, any election to have shares withheld pursuant to this
Section 7.4 will be irrevocable by the Optionee and will in any event
be subject to the disapproval of the Committee.
8. Adjustments of Option Stock. In case the shares issuable upon exercise
of any Option granted under the Plan at any time outstanding shall be subdivided
into a greater or combined into a lesser number of shares (whether with or
without par value), the number of shares purchasable upon exercise of such
Option immediately prior thereto shall be adjusted so that the Optionee shall be
entitled to receive a number of shares which he or she would have owned or have
been entitled to receive after the happening of such event had such Option been
exercised immediately prior to the happening of such subdivision or combination
or any record date with respect thereto. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
subdivision or combination retroactive to the record date, if any, for such
Page 71
subdivision or combination. The Option price (as such amount may have
theretofore been adjusted pursuant to the provisions hereof) shall be adjusted
by multiplying the Option price immediately prior to the adjustment of the
number of shares purchasable under the Option by a fraction, of which the
numerator shall be the number of shares purchasable upon the exercise of the
Option immediately prior to such adjustment, and of which the denominator shall
be the number of shares so purchasable immediately thereafter. Substituted
shares of stock shall be deemed shares under Section 3 of the Plan.
9. Assignments. Any Option granted under this Plan shall be exercisable
only by the Optionee to whom granted during his or her lifetime and shall not be
assignable or transferable otherwise than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Board or the Committee may, in
its discretion, determine that an Option may be exercised by a person other than
the Optionee and that an Option may be transferable based on the tax and federal
securities law considerations then in effect for such Options.
10. Severance; Death; Disability. An Option shall terminate, and no rights
thereunder may be exercised, if the person to whom it is granted ceases to be
employed by the Corporation or by a Subsidiary except that:
10.1. If the employment of the Optionee is terminated by any
reason other than his or her death or disability, the Optionee may at
any time within not more than three months after termination of his or
her employment, exercise his or her Option rights but only to the
extent they were exercisable by the Optionee on the date of termination
of his or her employment; provided, however, that if the employment is
terminated by deliberate, willful or gross misconduct as determined by
the Committee, all rights under the Option shall terminate and expire
upon such termination.
10.2. If the Optionee dies while in the employ of the Corporation
or a Subsidiary, or within not more than three months after termination
of his or her employment, the Optionee's rights under the Option may be
Page 72
exercised at any time within one year following such death by his or
her personal representative or by the person or persons to whom such
rights under the Option shall pass by will or by the laws of descent
and distribution, but only to the extent they were exercisable by the
Optionee on the date of death.
10.3. If the employment of the Optionee is terminated because of
permanent disability, the Optionee, or his or her legal representative,
may at any time within not more than one year after termination of his
or her employment, exercise his or her Option rights but only to the
extent they were exercisable by the Optionee on the date of termination
of his or her employment.
10.4. Notwithstanding anything contained in Sections 10.1, 10.2
and 10.3 to the contrary, no Option rights shall be exercisable by
anyone after the expiration of the term of the Option.
10.5. Transfers of employment between the Corporation and a
Subsidiary, or between Subsidiaries, will not constitute termination of
employment for purposes of any Option granted under this Plan. The
Committee may specify in the terms and conditions of an Option whether
any authorized leave of absence or absence for military or government
service or for any other reasons will constitute a termination of
employment for purposes of the Option and the Plan.
11. Rights of Participants. Neither the participant nor the personal
representatives, heirs, or legatees of such participant shall be or have any of
the rights or privileges of a shareholder of the Corporation in respect of any
of the shares issuable upon the exercise of an Option granted under this Plan
unless and until certificates representing such shares shall have been issued
and delivered to the participant or to such personal representatives, heirs or
legatees.
12. Securities Registration. If any law or regulation of the Securities
and Exchange Commission or of any other body having jurisdiction shall require
Page 73
the Corporation or the participant to take any action in connection with the
exercise of an Option, then notwithstanding any contrary provision of an Option
agreement or this Plan, the date for exercise of such Option and the delivery of
the shares purchased thereunder shall be deferred until the completion of the
necessary action. In the event that the Corporation shall deem it necessary,
the Corporation may condition the grant or exercise of an Option granted under
this Plan upon the receipt of a satisfactory certificate that the Optionee is
acquiring the Option or the shares obtained by exercise of the Option for
investment purposes and not with the view or intent to resell or otherwise
distribute such Option or shares. In such event, the stock certificate
evidencing such shares shall bear a legend referring to applicable laws
restricting transfer of such shares. In the event that the Corporation shall
deem it necessary to register under the Securities Act of 1933, as amended, or
any other applicable statute, any Options or any shares with respect to which an
Option shall have been granted or exercised, then the participant shall
cooperate with the Corporation and take such action as is necessary to permit
registration or qualification of such Options or shares.
13. Duration and Amendment.
13.1. There is no express limitation upon the duration of the
Plan, except for the requirement of the Code that all ISOs must be
granted within ten years from the date the Plan is approved by the
shareholders.
13.2. The Board may terminate or may amend the Plan at any time,
provided, however, that the Board may not, without approval of the
shareholders of the Corporation, (i) increase the maximum number of
shares as to which options may be granted under the Plan, (ii) permit
the granting of ISO's at less than 100% of Fair Market Value at time of
grant, or (iii) change the class of employees eligible to receive
Options under the Plan.
Page 74
14. Granting of Options to Directors Who are Not Employees. Each person
who is not an employee of the Corporation or its Subsidiaries who on and after
the date this Plan is approved by shareholders of the Corporation (i) is elected
or reelected or (ii) is elected as a Director of the Corporation at any special
meeting of holders of Common Stock of the Corporation, shall as of the date of
such election, reelection, or annual or special meeting automatically be granted
an Option to purchase 1,500 shares of the Corporation's Common Stock at an
option price per share equal to 100% of the Fair Market Value of a share on such
date. In the case of a special meeting, the action of the holders of shares in
electing a Director who is not an employee of the Corporation or its
Subsidiaries shall constitute the granting of the Option to such Director, and,
in the case of an annual meeting, the action of the holders of shares in
electing or reelecting such Director shall constitute the granting of an Option
to such Director; and the date when the holders of shares shall take such action
shall be the date of grant of the Option. All such Options shall be designated
as NQOs and shall be subject to the same terms and provisions as are then in
effect with respect to granting of NQOs to salaried officers and key employees
of the Corporation, except that the Option shall be exercisable as to all or any
part of the shares subject to the Option from the date the Option is granted,
and shall expire on the earliest of (i) twelve months after the Optionee ceases
to be a director (except by death) (ii) one year after the death of the
optionee, or (iii) five years after the date of grant, unless the Board, in its
discretion, shall waive or modify the term of the grant. Directors shall always
have the right to deliver stock in exercise of Options as provided in Section
8.2.
In the event discretionary Options are granted to members of the Committee,
such Options shall be granted by the Board.
15. Approval of Shareholders. This Plan expressly is subject to approval
of holders of a majority of the outstanding shares of Common Stock of the
Corporation, and if it is not so approved on or before one year after the date
Page 75
of adoption of this Plan by the Board, the Plan shall not come into effect, and
any Options granted pursuant to this Plan shall be deemed cancelled.
16. Conditions of Employment. The granting of an Option to a participant
under this Plan who is an employee shall impose no obligation on the Corporation
to continue the employment of any participant and shall not lessen or affect the
right of the Corporation to terminate the employment of the participant.
17. Other Options. Nothing in the Plan will be construed to limit the
authority of the Corporation to exercise its corporate rights and powers,
including, by way of illustration and not by way of limitation, the right to
grant options for proper corporate purposes otherwise than under the Plan to any
employee or any other person, firm, corporation, association, or other entity,
or to grant Options to, or assume Options of, any person for the acquisition by
purchase, lease, merger, consolidation, or otherwise, of all or any part of the
business and assets of any person, firm, corporation, association, or other
entity.
Adopted by the Board of Directors on December 19, 1996.
Approved by Shareholders on March 5, 1997.
Page 76
EXHIBIT 23: CONSENT OF INDEPENDENT ACCOUNTANTS
-----------------------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8, Numbers 33-39459, 33-61266 and 333-00665 of PPT Vision,
Inc. of our report dated November 21, 1997 appearing in this Annual Report on
Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE, LLP
Minneapolis, Minnesota
January 26, 1998
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