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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934
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Check the appropriate box:
/ / Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14c-5(d)(2))
/X/ Definitive Information Statement
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PERCEPTRONICS, INC.
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(Name of Registrant As Specified In Its Charter)
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(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined): $766,120, based on the book value of
the transferred assets and liabilities
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
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INFORMATION STATEMENT
AND
NOTICE OF STOCKHOLDER ACTION
PERCEPTRONICS, INC.
21010 ERWIN STREET
WOODLAND HILLS, CALIFORNIA 91367
------------------------
TO OUR STOCKHOLDERS:
Notice is hereby given to each stockholder of record, pursuant to
Section 228(d) of the Delaware General Corporation Law, that holders of a
majority of the shares of Common Stock of Perceptronics, Inc. ("Perceptronics"
or the "Company"), by written consent effective May 8, 2000, approved a
transaction, as described in more detail below, involving the sale of our
Precision Gunnery Training System ("PGTS") business to Eidetics Corporation, a
California corporation ("Eidetics").
THIS INFORMATION STATEMENT WAS FIRST MAILED TO ALL STOCKHOLDERS ON OR ABOUT
MAY 31, 2000, TO OUR STOCKHOLDERS OF RECORD AS OF THE CLOSE OF BUSINESS ON
MAY 8, 2000.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US ONE.
WE ARE SENDING THIS INFORMATION STATEMENT TO YOU ONLY FOR INFORMATIONAL
PURPOSES. THE TRANSACTION HAS ALREADY BEEN APPROVED BY WRITTEN CONSENT OF
HOLDERS OF A MAJORITY OF THE VOTES OF OUR OUTSTANDING CAPITAL STOCK. A VOTE OF
OUR REMAINING STOCKHOLDERS IS NOT NECESSARY.
DESCRIPTION OF THE TRANSACTION
SUMMARY
Pursuant to the Agreement of Purchase for the Precision Gunnery Training
System Assets dated as of April 30, 2000 between the Company and Eidetics (as it
may be amended from time to time, (the "PGTS Sale Agreement"), we have agreed to
sell to Eidetics our PGTS and training simulator business (the "PGTS Business")
and to consummate and perform the other transactions and acts contemplated by
the PGTS Sale Agreement (collectively, the "Transaction"). On April 27, 2000,
our Board of Directors unanimously approved the Transaction. The Transaction
currently is scheduled to close on or about June 19, 2000.
The Transaction includes, among other things: (a) transfer to Eidetics of
the PGTS Assets, as identified in the PGTS Sale Agreement, having a book value
of approximately $300,000 and a value in the PGTS Sale Agreement of $457,602;
(b) payment or assumption by Eidetics of certain liabilities of the Company
associated with the PGTS Business, having a book value of approximately $466,120
and a value in the PGTS Sale Agreement of $457,602; (c) transfer by the Company
to Eidetics of active contracts and/or proposals in the area of PGTS and
training simulator operations (collectively, "PGTS Contracts and Proposals"),
including, if regulatory approval is obtained, the recently awarded $3 million
contract with Egypt for Improved Tow Vehicle ("ITV") PGTS; and (d) payment by
Eidetics to the Company for four years of a 3% royalty on all Eidetics business
involving the PGTS Assets and/or transfer of the PGTS Contracts and Proposals.
The differences between the values attributed in the PGTS Sale Agreement and
book value is largely due to absence of book value for the PGTS Intellectual
Property asset, differences in valuation of the parts inventory between
Perceptronics and Eidetics, and taking into account the present value of certain
debts.
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As a background to the Transaction, we have experienced a decline in
revenues and a depressed valuation in the financial markets over the past years
with respect to our defense-related business. Defense simulator revenues have
historically represented a significant portion of our revenues, but the
tightening of defense budgets worldwide, combined with the continuing
consolidation and intense competition in the defense industry, have negatively
impacted the growth and profit opportunities for small companies such as
Perceptronics. At the same time, we have embarked on a transition to the larger
and rapidly growing Internet markets, based on commercialization of our
proprietary technology unrelated to the PGTS Business. Perceptronics' new "IC3D
Framework" technology for collaborative interaction on the Internet has made
significant recent technical and marketing achievements, which has been
recognized by the financial markets through an increase in the average price of
our stock over the past 18 months. Accordingly, the Board of Directors and
management has decided to divest the defense-related PGTS Business and focus the
Company entirely on the greater potential growth, profits and valuation
represented by the IC3D technology. The Company approached approximately a dozen
possible buyers, and received an offer only from Eidetics, in the form of a
Memorandum of Understanding dated as of December 27, 1999, which offer was
contingent on Perceptronics and Eidetics being awarded a new contract in Egypt
for an Improved TOW Vehicle ("ITV") PGTS training system. The team was awarded
this contract on March 15, 2000 and Perceptronics and Eidetics subsequently
negotiated and executed the PGTS Sale Agreement.
The Board of Directors believes that the Transaction is in the best
interests of the Company and its stockholders and has unanimously approved the
PGTS Sale Agreement. The Board of Directors, in approving the Transaction,
considered a number of factors, including: (a) our IC3D Technology opportunity
offers greater potential for growth and profits, despite the risks of being
wholly dependent on the new Internet related business; (b) the PGTS marketing
efforts, contracting and financing conditions, manufacturing infrastructure and
future developments requirements are not compatible with the IC3D strategic
direction, and involve a completely separate set of resources, including
intellectual property, facilities, and personnel; (c) recent activity in the
PGTS business segment has been sporadic, with considerable and costly gaps
between contracts, which cause a further drain on critical cash resources;
(d) divestiture of the defense-related PGTS Business and complete future focus
on the Internet-related IC3D could result in an higher overall valuation for the
Company, despite the near term reduction in revenues; (e) the total purchase
price is fair and improves our balance sheet, which will potentially help in
achieving required future financing; and (f) we may continue to benefit from the
PGTS Business through future royalty fees on contracts, which could potentially
provide important revenues and cash resources.
Following unanimous approval by the Board of Directors, approximately 29
stockholders representing approximately 54% of the outstanding shares approved
the Transaction by means of written consents executed between April 27, 2000 and
May 19, 2000. On May 8, 2000, there were 7,732,760 shares of Common Stock
outstanding.
THE PGTS SALE AGREEMENT
The following summarizes the key terms of the PGTS Sale Agreement.
(i) Eidetics has agreed to buy from Perceptronics and Perceptronics has
agreed to sell to Eidetics, under the terms of the Agreement, all of the
assets (the "Purchased Assets") associated with the PGTS Business. All
other assets of Perceptronics are excluded from the Purchased Assets.
The Purchased Assets are: (a) manufacturing equipment, furniture and
property; (b) supplies and other material, promotional and otherwise,
including finished goods and parts inventories, used in the PGTS
Business; (c) ongoing proposals or arrangements with potential
customers, (d) all proprietary rights used in the PGTS Business,
including the right to use the name Perceptronics Training Systems and
PGTS which are associated with Perceptronics' products, (e) all
transferable licenses, permits or other governmental authorizations
affecting or relating
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to the PGTS Business; (f) the books, records, files and papers related
to the PGTS Business, and (g) all goodwill associated with the PGTS
Business or the purchased assets, together with the right to represent
to third parties that Eidetics is the successor to the PGTS Business.
(ii) The purchase price for the Purchased Assets is $457,602. The allocation
of the purchase price to the assets is as follows: (a) Finished goods
inventory, $120,000; (b) Other inventory, fixtures and equipment,
$86,982; (c) Intellectual Property, technology, product rights,
drawings documentation, $150,000; and (d) Pre-inventory engineering
costs, $100,000.
(iii) The purchase price will be paid in the following manner: (a) Eidetics
shall retire by means of cash payments made to the respective banks or
offices two SBA loans to the Company in the aggregate principal and
interest amount of $180,102; (b) Eidetics shall assume the full
responsibility for payment of $277,500 owed by Perceptronics to
Almona Ltd. of Cairo, Egypt ("Almona") under a prior Representation and
Support Agreement between Perceptronics and Almona. There may be small
adjustments made to the purchase price for actual interest at the time
the loans are paid; calculated on or about June 19, 2000.
(iv) In addition to the purchase price described above, for a period of four
years from the closing date Eidetics shall pay to Perceptronics a three
percent (3%) royalty fee on those gross revenues that are received
actually or constructively by Eidetics for PGTS sales and/or sales of
simulators using as a material and integral component the acquired
Perceptronics simulation technology.
(v) For a period of five years from the closing date Perceptronics will be
prohibited from: (a) engaging in a business that competes directly with
the PGTS Business anywhere in the world; (b) soliciting for employment
any employee of Eidetics or any former employee of Perceptronics whose
primary duties and responsibilities were or are related to the PGTS
Business.
The Transaction currently is scheduled to close on or about June 20, 2000.
BACKGROUND TO THE TRANSACTION
Historically, development and manufacturing of defense simulation systems
has been the mainstay of our business, contributing a great majority to revenues
and profits. In the 1980's, defense simulation systems, including SIMNET, AGPT
and the PGTS Precision Gunnery and Training Systems accounted for tens of
millions of dollars annually of our sales. Starting in the late 1980's and
continuing into the 1990's, the ending of the Cold War, the consequent reduction
in U.S. and international defense budgets and the consolidation of the U.S.
defense industry, caused our revenues from defense simulation to fall
significantly. In the late 1990's our defense simulation business was
essentially concentrated on delivering TOW PGTS systems to international
customers, and represented approximately $3 million in annual sales.
Most recently, in 1999 and 2000, there have been major delays in acquisition
of new PGTS contracts, due in part to a temporary but prolonged fall in middle
eastern oil prices and also to administrative delays in conducting competitive
and other procurements. In particular, there was an approximately one year delay
in Egyptian negotiations for acquisition of new ITV (Improved TOW Vehicle) PGTS.
Perceptronics submitted a proposal on January 11, 1999 in response to a Request
for Proposal received January 6, 1999. Negotiations were expected to begin in
May 1999, but did not actually occur until March 2000. Our unsteady financial
condition and continuing cash problems made it prohibitively expensive to
maintain at full strength the engineering and manufacturing capability required
to perform on eventual PGTS contracts in the face of such long and
non-productive periods between contracts. Likewise, our lack of a bank line of
credit made it both difficult and costly to obtain production financing for
international PGTS contracts; this effectively limited the number and size of
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contracts on which we could bid, and reduced the profitability of such contracts
when they were acquired.
Fortunately, at this same time Perceptronics was starting a new venture in
the area of Internet enabling technology. The Internet market, in contrast to
the defense simulation market, was and has been undergoing an almost explosive
expansion in size and opportunity. The Internet venture involves meeting the
increasing need for multi-user, online collaborative interaction on the Internet
by adapting and commercializing the simulator networking concepts, architecture
and protocols we helped develop for the U.S. Department of Defense.
Initial funding for Internet product development and commercialization came
from a combination of Department of Defense Small Business Innovative Research
(SBIR) contracts, State of California grants, private equity investment and
internal resources. Our proprietary product, which we call the IC3D-TM-
Framework, was initially focused on allowing multiple users to collaborate in 3D
virtual environments over the Internet. Proof of concept was completed in
March 1998 for 3D applications. We have subsequently demonstrated that the IC3D
Framework technology will also permit collaborative interaction with a variety
of Internet animation and streaming media players, including such commercial
products as Macromedia's Flash and Shockwave, Microsoft's Windows Media Player,
and Realnetworks' Real Audio and Real Video. This is potentially very
significant financially, because we believe that in the near term, the Internet
applications based on these and similar products will outnumber applications
based on 3D visualization. We have initiated marketing and technical strategic
alliances to help develop and promote the technology in its key application
areas, identified as entertainment, e-commerce, education and business
communication. We see an immediate market for IC3D products and services, and
believe we can achieve a steady increase in market size as the Internet reaches
the 300 million user mark and beyond in the next few years.
Response to the IC3D Framework venture, from its earliest stages, has been
highly encouraging both in the commercial arena and in the financial community.
We are traded on the over the counter bulletin board (OTC BB). Our stock price
began to rise following announcement of the Internet related IC3D development
project, and continued to rise as the focus of Company resources and activities
clearly shifted to this area. When the IC3D project was first announced in
September 1997, Perceptronics' share price was approximately $0.15; when the
SBIR Phase II contract was announced in June 1998, the share price rose as high
as $1.10; and in March 2000, following several other announcements of technical
and strategic accomplishments, the share price was as high as $2.50. Our share
price was $1.03 as of May 12, 2000, following a general downturn in the Internet
technology market. Fluctuations notwithstanding, the post-IC3D average stock
price has remained markedly higher than when Perceptronics was perceived as
essentially a small defense simulation company. We believe this increase in
valuation reflects the greater potential of the Internet market for our growth
in revenues and profit. It has occurred even though we are not yet deriving
significant revenues from the IC3D product, are not profitable and will be
dependent on continued equity investment for the foreseeable future.
On September 21, 1999 the Board of Directors of Perceptronics held its
annual meeting, at which were also present representatives of Vantera Partners,
the Company's financial consultants. The Board discussed the future prospects of
the Company and received advice from its financial consultants. Based on the
above factors, and on other considerations, the Board decided that it would be
in the best interests of the Company and its stockholders for Perceptronics to
devote itself entirely to the Internet-based IC3D Framework products and
services and directly related projects. After considering various options for
building on the IC3D opportunity, including an independent spin-off of the IC3D
business, the Board concluded that the only feasible present course was that
Perceptronics divest itself of its defense simulation operations, including the
PGTS product line, and the remaining business become in essence an Internet
start-up company. At the same time, the Board directed management to reduce PGTS
operating expenses to a minimum consistent with maintaining the value of the
PGTS Assets,
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including the viability of currently outstanding proposals. On October 11, 1999
we made a public announcement of our intent to divest the PGTS Business and
associated operations.
The PGTS Assets offered for sale related only to the PGTS and defense
simulator portion of our business, and did not involve any assets, intellectual
property or other resources related to the IC3D Framework technology and the
Internet portion of the Company's business, which were completely separate.
From October 1999 through December 1999 we identified and contacted
approximately a dozen candidates for acquisition of the assets. The candidates
were primarily companies already active in identical or similar defense
simulation businesses or associated with the TOW anti-armor missile system
production and support, but also included some potential start-up companies. The
candidates included the Fire Arms Training Systems Company (FATS), Kollsman
Corporation, ECC International, Lockheed Martin Fairchild Corporation, Raytheon
Systems Company, EDS and others. As a result of this process we received only
one expression of interest from a potential buyer; this was from Eidetics
Corporation of Torrance, California, a manufacturer of low-cost aircraft
simulators and other simulation devices.
During November and December 1999 we conducted negotiations with Eidetics
regarding the valuation of the assets, the means by which payment would be made,
and the terms and conditions of the transfer of assets and subsequent operation
of the PGTS business. On December 27, 1999 we signed a Memorandum of
Understanding (the "MOU") with Eidetics that gave Eidetics the right to purchase
the PGTS Assets on terms essentially the same as those of the present
Transaction. Under the MOU, the offer was conditional on Perceptronics and
Eidetics entering into a Teaming Agreement for Egypt ITV PGTS program, on the
Perceptronics/Eidetics team winning the competitive Egyptian program, and on the
parties subsequently negotiating in good faith a PGTS Sale Agreement by May 30,
2000. As part of the MOU, Perceptronics agreed to not enter into any discussions
or agreement with respect to the sale of the PGTS Assets with anyone other than
Eidetics prior to the later of two months after the award of the initial
Egyptian ITV PGTS contract or April 30, 2000.
On December 27, 1999 we also signed a Teaming Agreement with Eidetics under
which we agreed to pursue the Egyptian ITV PGTS contract as a team, with
Perceptronics as the prime contractor and Eidetics as the major subcontractor.
Under the Teaming Agreement and associated MOU, Eidetics agreed to pay
Perceptronics' reasonable costs for participating in the Egyptian ITV PGTS
negotiations in Cairo, Egypt and also to provide the financing necessary for the
Letter of Guarantee for 10% of the contract amount and Letter of Credit for the
15% advanced payment that are usually required as part of an Egyptian sale
contract. On January 5, 2000 we made a public announcement of the MOU and
Teaming Agreement.
Based on the Eidetics agreement, Perceptronics engaged Tom Lubaczewski, our
former Senior Vice President for training systems, as a consultant. His tasks
were to prepare for and conduct the anticipated Egyptian negotiations and to
help move forward such other PGTS and simulator proposals that the Company had
in progress up to the point of actual asset sale. All of Mr. Lubaczewski's
consulting fees to date have been paid by Eidetics.
Perceptronics was invited by the Egyptian Ministry of Defense to
negotiations in Cairo for the ITV PGTS contract, starting on March 4, 2000. The
negotiations were conducted for Perceptronics by Mr. Lubaczewski as an
authorized representative of the Company; also attending was Allan Klein as the
president of Eidetics, our major subcontractor. On March 15, 2000, following a
series of intense negotiating sessions, the Perceptronics/Eidetics team was
awarded the Egyptian ITV PGTS contract. On the same date we made a public
announcement of the award and of our intent to proceed with the PGTS Asset sale
under the terms of the MOU.
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During March and April 2000 Perceptronics and Eidetics negotiated the
details of the PGTS Asset Sale Agreement (the "Agreement") and submitted the
terms to the Board of Directors of Perceptronics for approval.
A special meeting of the Board of Directors was held on April 27, 2000 to
consider the proposed Transaction with Eidetics as negotiated by management. The
meeting was attended in person by all of the Company's directors except Robert
Parker and Amos Freedy, who attended telephonically. Also in attendance was
Robert Anderson, the Company's controller, and Allan Klein, the president of
Eidetics, who addressed the Board concerning Eidetics intent and ability to
consummate the Agreement. Members of the Board discussed the proposed
Transaction in detail. Following this discussion, the Board approved the terms
of the PGTS Asset Sale Agreement by unanimous resolution, for the reasons
described in this Information Statement, contingent upon receiving stockholder
approval of the Transaction.
APPROVAL OF THE TRANSACTION
Perceptronics is a Delaware corporation. Under Delaware law, the sale, lease
or exchange by a corporation of all or substantially all of its property or
assets requires both board of director and stockholder approval. As described in
this Information Statement, we believe that we now hold, through our proprietary
technologies for the Internet market utilizing our IC3D Framework, significant
assets to build our business strategy on the Internet related opportunity and
therefore the Transaction may not require stockholder approval. Nonetheless,
given the relative significance of the PGTS and defense related simulator
business to our historical results of operations, we have elected to obtain the
approval of a majority of stockholders to the Transaction. Consequently,
approval of the Board was likewise conditional on obtaining stockholder consent.
Delaware law permits the Company to obtain the written consent of a majority
of stockholders, in lieu of the more costly and time consuming process of
holding a special stockholders meeting preceded by distribution of a formal
proxy statement for a vote of all the stockholders. Consequently, on May 19,
2000 we received the written consent of 29 stockholders holding approximately
54% of shares outstanding, which met the Delaware requirement for stockholder
consent to the Transaction. On May 8, 2000, there were 7,732,760 shares of
Common Stock outstanding.
Section 228(d) of the Delaware General Corporation requires that the Company
provide prompt notice to all stockholders who have not consented in writing to
the Transaction. Accordingly, this Information Statement is being distributed to
all stockholders of record on May 8, 2000. The Transaction will not be submitted
to our other stockholders for a vote and this Information Statement is being
furnished to you solely to provide you with information concerning the
Transaction in accordance with the requirements of the Securities Exchange Act
of 1934, as amended and the regulations promulgated under such Act, including
Regulation 14C.
None of the corporate actions described in this Information Statement,
including consummation of the Transaction, will afford our stockholders the
opportunity to dissent from the actions described herein, or to receive an
agreed or judicially determined value for their stock.
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REASONS FOR THE TRANSACTION; BOARD OF DIRECTORS RECOMMENDATIONS
The Board of Directors has unanimously approved the PGTS Sale Agreement and
believes that the Transaction is in the best interests of the Company and its
stockholders. Each of the directors and officers of the Company has executed and
delivered a written consent, pursuant to which each director and officer has
agreed to vote all shares of Common Stock owned of record by him in favor of the
PGTS Sale Agreement. The Board of Directors, in approving the Transaction and
recommending stockholder approval of the PGTS Sale Agreement, considered a
number of factors, including, without limitation, the following:
(i) The PGTS business and the defense simulation business as a whole has
historically been a major element in our revenues, accounting for a
majority of our historical revenues. But this market has decreased in
absolute terms over the last decade due to worldwide reductions in
defense budgets following the end of the Cold War and also the major
consolidation of the defense industry, providing far less contract
opportunities to the small, niche supplier.
(ii) At the same time, our contract activity in the PGTS business segment
was very sporadic, with considerable and costly gaps between projects,
as evidenced by the continual delay in the Egypt contract negotiations.
Maintenance of the PGTS capability during such delays and gaps has
caused a major drain on critical cash resources and negatively impacted
other, potentially more rewarding business pursuits.
(iii) In contrast, the Internet product and services market has been growing
at a tremendous rate during the past several years, and is projected to
continue this growth as hundreds of millions of people worldwide
connect to the Internet. There is a well expressed need on the Internet
for enhanced collaborative interaction; which we believe holds for a
number of key end user application areas, including entertainment,
e-commerce, education and business communication. The overall market
for enabling collaborative products and services is estimated at over
$20 billion now, and over $100 billion in several years.
(iv) Perceptronics believes that we have a good chance to capturing a
portion of this large and growing market with our open IC3D Framework,
which can provide collaborative interaction over a wide range of
applications incorporating a variety of 3D visualization, animation and
streaming media engines. Technical progress on the IC3D Framework has
been excellent to date, and we have also initiated significant
marketing and technical alliances to help promote IC3D applications.
(v) In the opinion of the Board, building our business strategy on its
Internet related opportunity at this time offers a far greater potential
for growth in revenues and profits than does the PGTS and defense
related simulator business.
(vi) The PGTS and defense simulator related marketing efforts, contracting
and financing conditions, manufacturing infrastructure and future
developments requirements are not compatible with the IC3D strategic
direction, and involve completely separate sets of resources, including
intellectual property, facilities, and personnel. As a result, the
Company presents a divided and contradictory appearance to the
financial and investment communities and to its customers.
(vii) The Board of Directors believes it is clear the Company should use its
available and future resources to focus entirely on the Internet
related IC3D opportunity. The Board also believes that of the options
for accomplishing this, in the most feasible and expeditious way is to
divest the PGTS and defense related simulator business by selling the
PGTS Business to a company (Eidetics) that considers such business all
or a major part of its business strategy.
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(viii) In the judgement of the Board and its financial consultants,
divestiture of the defense-related PGTS Business and complete future
focus on the Internet-related IC3D business would also improve the
probability of an overall higher future valuation for the company,
although this cannot be assured. The Board bases this opinion on the
increase in the Company's stock price following announcement of the
IC3D venture, and the maintenance of this increase following the
announced intent to divest the PGTS operation.
(ix) The Board believes that management had identified and contacted an
adequate set of potential purchasers of the PGTS Assets prior to
receiving only one viable expression of interest, from the Eidetics, a
completely independent company. The Board further believes that the MOU
and Teaming Agreement subsequently signed with Eidetics was fair and
met the Company's goals in initiating the PGTS divestiture.
(x) The Eidetics MOU and Teaming Agreement with Eidetics resulted in a
strong Perceptronics/ Eidetics team. The team was able to pursue and win
the long awaited contract from Egypt, with an initial value of
$3 million. In the Board's opinion, Perceptronics could not have won the
Egyptian ITV PGTS contract without Eidetics' participation for several
reasons: (a) our financial difficulties and need to reduce PGTS
operating costs so severely weakened our competitive position;
(b) Eidetics provided immediate financing for Perceptronics' presence in
Cairo and assured future financing for the production program; and
(c) Eidetics' agreement to assume our obligations to our Egyptian
representative Almona, if the contract was won, motivated Almona to
perform their marketing and support duties in a diligent and effective
manner.
(xi) Being awarded this contract allowed the parties to go forward, under
the terms of the MOU, to negotiate the final PGTS Sale Agreement. In
the opinion of the Board, the subsequent negotiation was conducted in
good faith by both parties, and resulted in an Agreement that was fair
to Perceptronics and adhered to the terms and intent of the previously
signed MOU.
(xii) The PGTS Sale Agreement with Eidetics values the entire PGTS Assets as
slightly above book value at the time of the agreement, and provides
for payment through the discharge by Eidetics of certain Perceptronics'
loans and other obligations with a book value above the book value of
the assets. Payment of these loans and obligations are a necessary
condition for transfer of the PGTS Assets and continuing the PGTS
business.
(xiii) While the immediate Transaction is essentially a cashless one for the
Company, it nevertheless has the significant benefits of providing a
capital gain of approximately $160,000, improving the Company's
financial statements for future banking and financing considerations,
and also improving future cash flow by eliminating ongoing expenses
associated with the PGTS operation, such as rent and utilities for the
production facility, storage fees, etc.
(xiv) In addition, there are long term potential benefits to the Company that
may significantly increase the effective sale price. The PGTS Asset
Sale Agreement provides for payment to the Company of a 3% fee on the
initial Egypt contract and all directly related Egypt contracts for a
period of four years, and also a 3% royalty fee on all sales by
Eidetics for deriving from the PGTS Assets for a period of four years.
While no firm amount can be guaranteed for such fees, the initial Egypt
contract plus the identified potential market suggests that the total
fees received could be about $250,000 or even more, or about $62,500
per year. This compares favorably with the average of $51,000 in annual
net profits for PGTS systems over the past four years.
In considering the Transaction, the Board of Directors considered certain
consequences that could result from the Transaction that are described below
under "Certain Considerations."
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In view of the variety of factors considered by the Board in connection with
its evaluation of the Transaction, the Board of Directors did not find it
practical to, and did not, quantify or otherwise assign relative weights to the
individual factors considered in reaching its determination and recommendations
set forth herein. Neither the Board nor any individual director articulated the
consideration of, or otherwise identified, any one factor or group of factors as
more significant than any other in reaching the determination or recommendation
set forth herein.
THE BOARD OF DIRECTORS BELIEVES THAT THE PGTS SALE AGREEMENT AND THE
TRANSACTION ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS
STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED THE SALE AGREEMENT.
CERTAIN CONSIDERATIONS
While the Board of Directors is of the opinion that the PGTS Sale Agreement
is fair to, and its approval is advisable and in the best interests of, the
Company and its stockholders, stockholders are advised of the following possible
effects of the Transaction.
COMPLETE DEPENDENCE ON INTERNET RELATED BUSINESS
Following the Transaction, we will be completely dependent on our Internet
related business, in which we are relatively inexperienced. The Internet
software products and service industry is characterized by rapid technological
change and is highly competitive. Our future success will depend on our ability
to develop new products and product enhancements to keep up with technological
advances and to meet customer needs. Any failure 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 our financial condition and results of operations. We
currently have limited development, production and marketing capabilities and
resources and will be dependent upon establishing relationships with strategic
and marketing partners to be able to fully exploit its proposed networking
product. There can be no assurance that the networking product or future new
products will achieve market acceptance, result in increased revenues, or be
profitable. Such products could also be subject to technological obsolescence
and intense competition from companies with greater resources than us.
MANAGEMENT OF GROWTH
Successful expansion of our Internet related operations will depend on,
among other things, the ability to develop and commercialize new products, to
attract and retain skilled management and other personnel, to secure adequate
sources of capital to finance growth on reasonable terms and to successfully
manage growth. To manage growth effectively, we will have to continue to
implement and improve its operational, financial and management information
systems, procedures and controls. As we expand, it may from time to time
experience constraints that will adversely effect its ability to satisfy
customer demand in a timely fashion. Failure to manage growth effectively could
adversely effect our financial condition and results of operations.
COMPETITION
We expect to encounter intense competition in the area of multi-user online
collaborative products and services from companies that have substantially
greater financial, manufacturing and marketing capabilities than we do. We also
expect to experience competition from emerging companies. There can be no
assurance that our products will be competitive with existing or future
products, or that we will be able to establish or maintain a profitable price
structure for its products.
10
<PAGE>
PROTECTION OF INTELLECTUAL PROPERTY
We rely on a combination of patents, trade secrets, and other intellectual
property law, nondisclosure agreements and other protective measures to preserve
our proprietary rights pertaining to its IC3D Technology and products. Such
protection, however, may not preclude competitors from developing products or
technology similar or superior to ours. In addition, the laws of certain foreign
countries do not protect intellectual property rights to the same extent as the
laws of the United States. Although we implement protective measures and intends
to defend our proprietary rights, there can be no assurance that these efforts
will be successful. Furthermore, there can be no assurance that our products or
technologies are not or will not be in violation of the patent rights of third
parties, or that any of our patents will not be challenged, invalidated or
circumvented.
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<PAGE>
PRO FORMA FINANCIAL INFORMATION
Set forth below is certain unaudited financial information for the Company
as of March 31, 2000, giving the effect of the Transaction as if it had occurred
on March 31, 2000 on the unaudited balance sheet and income statement for the
12 months ended March 31, 2000.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
----------- -----------
<S> <C> <C>
CASH........................................................ $ 355,781 $ 355,781
ACCOUNTS RECEIVABLE......................................... 10,573 10,573
INVENTORY................................................... 300,620 0
PREPAID EXPENSE............................................. 17,620 17,620
EQUIPMENT AND LEASEHOLDS.................................... 38,039 38,039
DEFERRED TAXES.............................................. 932,566 932,566
OTHER ASSETS................................................ 82,930 76,230
----------- -----------
TOTAL ASSETS.......................................... $ 1,738,129 $ 1,430,809
=========== ===========
CURRENT PORTION OF LTD...................................... $ 105,886 $ 39,363
SHORT TERM DEBT............................................. 54,000 54,000
ACCOUNTS PAYABLE............................................ 638,903 368,903
ACCRUED COMPENSATION........................................ 172,499 172,499
OTHER ACCRUED LIABILITIES................................... 105,245 97,265
LONG TERM DEBT.............................................. 103,029 0
OTHER LONG TERM LIABILITIES................................. 23,000 0
TOTAL LIABILITIES..................................... $ 1,202,562 $ 732,030
=========== ===========
EQUITY...................................................... 535,567 698,779
TOTAL LIABILITIES & EQUITY............................ $ 1,738,129 $ 1,430,809
=========== ===========
NET SALES................................................... $ 720,985 $ 720,985
COST OF SALES............................................... 886,223 886,223
----------- -----------
GROSS PROFIT................................................ (165,238) (165,238)
SELLING AND G&A............................................. 770,809 770,809
RESEARCH AND DEVELOPMENT.................................... 195,800 195,800
----------- -----------
OPERATING LOSS.............................................. (1,131,847) (1,131,847)
INTEREST EXPENSE............................................ 39,881 39,881
GAIN ON SALE OF PGTS ASSETS................................. 0 163,212
----------- -----------
LOSS BEFORE INCOME TAX...................................... (1,171,728) (1,008,516)
INCOME TAX.................................................. 800 800
----------- -----------
NET INCOME.................................................. $(1,172,528) $(1,009,316)
=========== ===========
</TABLE>
This pro forma information is based on information as of approximately
May 8, 2000. Actual pro forma information will vary depending on the ultimate
closing date and prorations and closing adjustments. The Company will file
definitive pro forma financial statements with the SEC following consummation of
the Transaction within the required time periods for filing.
The unaudited pro forma information is not necessarily indicative of future
results or what our financial position or results of operations would actually
have been had the Transaction occurred on such date. Such information should not
be used to project results for any future period.
12
<PAGE>
FORWARD-LOOKING STATEMENTS
This Information Statement contains forward-looking statements based on
Perceptronics' current expectations about itself and its industry. These
forward-looking statements can be identified with text containing words such as
"expects", "anticipates", "estimates", "believes" and other similar expressions.
These forward-looking statements involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of factors as discussed in this
Information Statement and our filings with the Securities and Exchange
Commission. We undertake no obligation to publicly update any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of our outstanding securities as of May 8, 2000 by the following
parties:
- All those persons or entities known by us to be beneficial owners of 5% or
more of each class of our outstanding securities, or "5% Shareholders"
- Each director and each of our Chief Executive Officer and the next four
highest paid officers, or our Named Executive Officers
- All directors and our executive officers as a group.
The data presented are based on information provided to us by the parties
specified above and are being included in this Information Statement to provide
you with information regarding the relative ownership interests of the parties
who have consented in writing to the Transaction and who hold management
positions with us.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
NAME OF BENEFICIAL OWNER TITLE STOCK
------------------------ -------------------- ---------
<S> <C> <C>
Richard Moskowitz........................................... CEO, Director 400,000(2)
Dr. Gershon Weltman......................................... President, Chairman 247,511(2)
Dr. Amos Freedy............................................. Director 251,363(2)
Dr. John Lyman.............................................. Director 190,911(2)
Stanley Schneider........................................... Director 131,111(2)
Robert Parker............................................... Director (1)(2)
All Executive Officers and Directors as a Group (6
persons).................................................. 1,220,896
Eagle Capital, Ltd.......................................... 391,933(2)
3836 No. Keeler St, Suite 200
Chicago, IL 60641
Puglisi Capital Partners.................................... 750,000(2)
399 Park Avenue, 37(th) Floor
New York, NY 10022
</TABLE>
------------------------
(1) Less than 1%
(2) Indicates a party that has delivered a written consent to the Transaction.
13
<PAGE>
AVAILABLE INFORMATION
A schedule of the consenting stockholders and list of all the stockholders
is available to you and will be provided by the Company without charge upon
request. Requests for such information should be directed to our Corporate
Secretary, at 21010 Erwin Street, Woodland Hills, California 91367, by facsimile
at (818) 348-0540 or by e-mail at [email protected] are required to
file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any documents filed by us at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the public reference room. Our filings with the Securities and Exchange
Commission are also available to the public through the Securities and Exchange
Commission's Internet site at http://www.sec.gov.
By order of the Board of Directors,
PERCEPTRONICS, INC.
<TABLE>
<S> <C> <C>
By: /s/ GERSHON WELTMAN
-----------------------------------------
Gershon Weltman, Chairman
</TABLE>
Dated: May 8, 2000
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