SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
Commission File No. 0-20097
ADVANCED MACHINE VISION CORPORATION
A California Corporation
IRS Employer Identification No. 33-0256103
3709 Citation Way #102
Medford, OR 97504
Telephone: 541-776-7700
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 |_|
On March 31, 1999, registrant had 12,813,551 shares of Class A Common Stock, and
56,002 shares of Class B Common Stock, all no par value, issued and outstanding.
Exhibit Index at Page 16
i
<PAGE>
INDEX
-----
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets.........................................1
Consolidated Statements of Operations...............................2
Consolidated Statement of Shareholders' Equity......................3
Consolidated Statements of Cash Flows...............................4
Notes to Unaudited Consolidated Financial Statements................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................16
Signature...........................................................19
ii
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
- -----------------------------
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(unaudited) (audited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,057,000 $ 4,423,000
Accounts receivable - net 4,038,000 4,073,000
Inventories 7,826,000 7,379,000
Prepaid expenses 163,000 181,000
Current deferred tax asset 1,175,000 1,175,000
------------- -------------
Total current assets 16,259,000 17,231,000
Property, plant and equipment - net 5,103,000 5,274,000
Intangible assets - net 4,714,000 4,894,000
Deferred tax asset 925,000 925,000
Other assets 1,414,000 1,515,000
------------- -------------
$ 28,415,000 $ 29,839,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,436,000 $ 984,000
Accrued liabilities 781,000 997,000
Customer deposits 700,000 1,151,000
Accrued payroll 639,000 761,000
Warranty reserve 451,000 448,000
Current portion of notes payable 40,000 790,000
------------- -------------
Total current liabilities 4,047,000 5,131,000
------------- -------------
Notes payable, less current portion 6,324,000 7,862,000
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock 2,579,000 2,579,000
Common stock:
Class A and B - 12,870,000 and 10,720,000
shares issued and outstanding at March 31, 1999
and December 31, 1998, respectively 26,103,000 24,329,000
Common stock warrants -- 110,000
Additional paid in capital 5,020,000 4,910,000
Accumulated deficit (15,688,000) (15,112,000)
Cumulative translation adjustment 30,000 30,000
------------- -------------
Total shareholders' equity 18,044,000 16,846,000
------------- -------------
$ 28,415,000 $ 29,839,000
============= =============
See Accompanying Notes to Unaudited Consolidated Financial Statements.
1
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 5,158,000 $ 7,103,000
Cost of sales 2,504,000 3,770,000
------------ ------------
Gross profit 2,654,000 3,333,000
------------ ------------
Operating expenses:
Selling and marketing 947,000 937,000
Research and development 1,260,000 1,150,000
General and administrative 794,000 776,000
Amortization of intangible assets 180,000 174,000
------------ ------------
3,181,000 3,037,000
Income (loss) from operations before other income and expense (527,000) 296,000
Other income and expense:
Investment and other income 67,000 62,000
Interest expense (140,000) (168,000)
------------ ------------
Income (loss) before income taxes (600,000) 190,000
Provision for (benefit from) income taxes (24,000) 8,000
------------ ------------
Net income (loss) $ (576,000) $ 182,000
============ ============
Earnings (loss) per share (Note 5):
Basic $ (0.05) $ 0.02
============ ============
Diluted $ (0.05) $ 0.02
============ ============
Average shares outstanding - assuming dilution 11,520,000 13,255,000
============ ============
See Accompanying Notes to Unaudited Consolidated Financial Statements.
2
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statement of Shareholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Class A and B Other Compre-
Series B Preferred Stock Common Stock Common Additional Compre- hensive
------------------------ -------------------- Stock Paid in Accumulated hensive Income
Shares Amount Shares Amount Warrants Capital Deficit Income (loss)
----- ------ ------ ------ -------- ---------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1998 119,106 $ 2,579,000 10,720,000 $24,329,000 $ 110,000 $ 4,910,000 $ (15,112,000) $ 30,000
Conversion of
note payable -- -- 1,800,000 1,774,000 -- -- -- --
Issuance of
restricted stock -- -- 350,000 -- -- -- -- --
Cancellation/
expiration of
warrants -- -- -- -- (110,000) 110,000 -- --
Net loss -- -- -- -- -- -- (576,000) -- $(576,000)
--------- ----------- ----------- ----------- ---------- ----------- ------------- ---------- ---------
Balance,
March 31, 1999 119,106 $ 2,579,000 12,870,000 $26,103,000 $ -- $ 5,020,000 $ (15,688,000) $ 30,000
========= =========== =========== =========== =========== =========== ============= =========
Comprehensive loss $(576,000)
=========
See Accompanying Notes to Consolidated Financial Statements.
3
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Advanced Machine Vision Corporation
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (576,000) $ 182,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 373,000 332,000
Changes in assets and liabilities:
Accounts receivable 35,000 (1,383,000)
Inventories (447,000) (226,000)
Prepaid expenses and other assets 119,000 (91,000)
Accounts payable, accrued liabilities, customer
deposits, accrued payroll and warranty reserve (89,000) 119,000
------------ ------------
Net cash (used in) operating activities (585,000) (1,067,000)
------------ ------------
Cash (used in) investing activities:
Purchases of property and equipment (22,000) (195,000)
------------ ------------
Net cash (used in) investing activities (22,000) (195,000)
------------ ------------
Cash (used in) provided by financing activities:
Notes payable to bank and others, net (759,000) (8,000)
Proceeds from exercise of stock options -- 2,000
------------ ------------
Net cash (used in) provided by financing activities (759,000) (6,000)
------------ ------------
Net (decrease) in cash (1,366,000) (1,268,000)
Cash and cash equivalents, beginning of the period 4,423,000 6,045,000
------------ ------------
Cash and cash equivalents, end of period $ 3,057,000 $ 4,777,000
============ ============
See Accompanying Notes to Unaudited Consolidated Financial Statements.
4
</TABLE>
<PAGE>
ADVANCED MACHINE VISION CORPORATION AND SUBSIDIARIES
----------------------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Principles of Consolidation
- ------------------------------------
In the opinion of the management of Advanced Machine Vision Corporation (the
"Company" or "AMV"), the accompanying consolidated financial statements, which
have not been audited by independent accountants (except for the balance sheet
as of December 31, 1998), reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the Company's financial position
at March 31, 1999, and December 31, 1998, the results of operations for the
three-month period ended March 31, 1999 and cash flows for the three-month
period ended March 31, 1999. The financial statements include the accounts of
the Company and its four wholly-owned subsidiaries, Applied Laser Systems, Inc.,
SRC VISION, Inc. ("SRC"), ARC Netherlands BV and Ventek, Inc. ("Ventek"). The
Company's current operating subsidiaries are SRC and Ventek.
Certain notes and other information are condensed or omitted in the interim
financial statements presented in this Quarterly Report on Form 10-Q. These
financial statements should be read in conjunction with the Company's 1998
annual report on Form 10-K.
Note 2. Nature of Operations
- -----------------------------
Through its subsidiaries, the Company designs, manufactures and markets
computer-aided vision defect detection and sorting and defect removal equipment
for use in a variety of industries, including food processing, wood products and
recycling. The Company's systems combine optical and mechanical systems
technologies to perform diverse scanning, analytical sensing, measuring and
sorting applications on a variety of products such as food, wood and plastic.
The Company sells its products throughout the world.
Note 3. Financing
- ------------------
In April 1996, the Company borrowed $3,400,000 pursuant to a convertible secured
note, $900,000 of which remains outstanding at March 31, 1999. The nominal 6.75%
interest rate may be adjusted upward on each anniversary date (April 13) of the
note if the market price of the Company's Class A Common Stock fails to reach
certain levels. In April 1998, the interest rate was adjusted to 10.25%. The
maximum possible coupon interest rate is 11.25% if none of the market price
thresholds are met. The note is secured by 54% of the stock of ARC Netherlands
BV. The note is convertible into the Company's Class A Common Stock at $2.125
per share.
In July 1996, AMV issued the following notes in connection with the acquisition
of Ventek: (i) a 6.75% $1,000,000 note due July 23, 1999; (ii) a 6.75%
$2,250,000 note due July 23, 1999 convertible into the Company's Class A Common
Stock at $2.25 per share; and (iii) a $1,125,000 note and stock appreciation
rights payable (a) by issuance of up to 1,800,000 shares of Class A Common Stock
or at the Company's option, in cash on July 23, 1999, or (b) solely in cash in
the event AMV Common Stock is delisted from the Nasdaq Stock Market. The
$1,125,000 note and stock appreciation rights payable were valued at $1,529,000
on the acquisition date based upon an independent appraisal received by the
Company. All three notes are secured by all of the issued and outstanding shares
of Ventek.
5
In February 1999, the Ventek notes were restructured. $750,000 of the $1,000,000
note was prepaid. The maturity dates of the remaining $250,000 and the
$2,250,000 note were extended to July 23, 2000. The $1,125,000 note was paid in
full by delivery of 1,800,000 restricted shares (see Note 10) and the stock
appreciation rights were cancelled.
In April 1998, AMV entered into a credit relationship with Bank of America NT&SA
("BofA") for a line of credit and a new mortgage. The line of credit agreement
provided that AMV could borrow the lesser of $2,000,000 or the collateral value
of pledged marketable securities, and had an April 30, 1999 expiration date (see
below for a description of a replacement credit facility). The $3,000,000
mortgage replaced the 9.75% $2,680,000 prior mortgage, provides for fixed
interest at 8.3% and is due on May 1, 2008.
In April 1999, the Company entered into a new line of credit Business Loan
Agreement with BofA for two loan facilities. The first provides for borrowings
of up to $2,000,000, interest at prime rate plus .5% or BofA's offshore rate
plus 2.35%, and is secured by accounts receivable, inventory and equipment. The
second provides for borrowings of up to $500,000 for letters of credit to be
secured by cash instruments. Both facilities expire April 30, 2000.
Note 4. Equity Transactions; Reduction in Outstanding Securities; Effect of
Remaining Warrants, Options and Convertible Securities; Stock Rights
Plan
- -----------------------------------------------------------------------------
In October 1998, the Company sold 119,106 shares of Series B Preferred Stock to
FMC Corporation ("FMC") for $2,620,000. The preferred stock is convertible into
1,191,000 shares of Class A Common Stock, which, if converted, represents a 10%
ownership position based on the number of common shares outstanding on the
transaction date. Each share of preferred stock is allowed ten votes in matters
placed before the common stockholders except in the election of directors, in
which case FMC has the right to elect one director. The preferred stock pays no
dividends. The preferred stock has a $22 per share liquidation preference. FMC
also has a five-year option to purchase a number of shares of common stock equal
to 15% of the shares outstanding on the exercise date at a price equal to the
greater of the then-current market value of the AMV common stock or $2.20 per
share.
In January 1997, the 1997 Restricted Stock Plan ("1997 Plan") was established to
retain the services of selected employees, officers and directors of the Company
and provide them with strong incentives to enhance the Company's growth. The
total number of shares of Class A Common Stock issuable under the 1997 Plan
shall not exceed 2,000,000. Under the 1997 Plan, there are currently 200,000
shares issued to three key employees of the Company. The shares cannot be traded
or transferred unless (i) the employee remains in the employ of the Company
until January 10, 2000 and (ii) the employee makes a payment of $1.80 per share
to AMV. If any of the conditions are not met, the stock will be forfeited and
returned to the Company.
Between March 8, 1997 and February 28, 1999, 188,400 Unit Purchase Options (to
acquire 1,696,000 shares of stock) originally issued in connection with the
Company's 1992 initial public offering, 135,000 Laidlaw warrants, 300,000
Gerinda warrants, the Company's Class A, B and C Warrants to purchase
approximately 11.4 million shares, 275,000 Class D Warrants and 240,000 Class G
Warrants expired unexercised.
In August 1997, the Company purchased 1,001,640 shares of its Class A Common
Stock, 300,000 Class F Warrants and 340,000 Class H Warrants in a private
transaction for $1.9 million.
In September 1997, the Company purchased at par $2.5 million of the $3.4 million
outstanding 6.75% Convertible Note.
In June 1998, the Class I Warrant, originally issued in the Ventek acquisition,
was amended to reduce the number of shares issuable pursuant to the warrant from
1,000,000 to 250,000. In connection with the February 1999 Ventek debt
restructuring (see Note 3), the remaining Class I Warrant was canceled and the
Company issued 350,000 restricted shares of Class A Common Stock. The 350,000
shares cannot be traded or transferred unless $1.25 per share is paid to the
Company between February 1, 2000 and January 31, 2001. Absent such payment, the
shares shall be forfeited and returned to the Company for cancellation.
Schedule of Outstanding Stock, Warrants and Potential Dilution:
- ----------------------------------------------------------------- The following
table summarizes, as of March 31, 1999, outstanding common stock, potential
dilution to the outstanding common stock upon exercise of warrants or conversion
of convertible debt, and proforma proceeds or debt reduction from the exercise
or conversion. The table also sets forth the exercise or conversion prices and
warrant expiration and debt due dates.
<TABLE>
<CAPTION>
Proforma
Number or Principal Common Exercise or Proceeds
Amount Outstanding Stock After Conversion or Debt
Security at March 31, 1999 Conversion Price Reduction
- ------------------------------ ------------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Outstanding Common Stock 12,870,000
Warrants (expiration date):
J (9/30/99) 300,000 300,000 $ 2.03 $ 609,000
------------ ------------
Convertible Debt (due date):
6.75% Notes (4/16/01) $ 900,000 423,000 2.13 900,000
6.75% Ventek Note (7/23/00) $ 2,250,000 1,000,000 2.25 2,250,000
------------ ------------
1,423,000 3,150,000
------------ ------------
Convertible Preferred Stock 119,100 1,191,000
------------
Potentially outstanding shares
and proforma proceeds
or reduction of debt 15,784,000 $ 3,759,000
============ ============
</TABLE>
The proforma amounts above are for illustrative purposes only. Unless the market
price of AMV's Class A Common Stock rises significantly above the exercise or
conversion prices, it is unlikely that any warrants will be exercised or that
the debt or preferred stock will be converted.
In addition to the FMC option described above, on March 31, 1999, AMV had
outstanding options to purchase 3,253,000 shares of Class A Common Stock,
2,622,000 of which are under its stock option plans.
The existence of these outstanding warrants, options, and convertible debt and
preferred stock, including options that may be granted under AMV's Stock Option
Plans or otherwise, could adversely affect AMV's ability to obtain future
financing. The price which AMV may receive for the Class A Common Stock issued
upon exercise of options and warrants, or amount of debt forgiven in the case of
conversion of debt, may be less than the market price of Class A Common Stock at
the time such options and warrants are exercised or debt is converted. For the
life of the warrants, options, convertible debt and preferred stock, the holders
are given, at little or no cost, the opportunity to profit from a rise in the
market price of their Class A Common Stock without assuming the risk of
ownership. Moreover, the holders of the options and warrants might be expected
to exercise them at a time when AMV would, in all likelihood, be able to obtain
needed capital by a new offering of its securities on terms more favorable than
those provided for by the options and warrants.
Stock Rights Plan:
- ------------------ In February 1998, the Company implemented a stock rights
program. Pursuant to the program, stockholders of record on February 27, 1998
received a dividend of one right to purchase for $15 one one-hundredth of a
share of a newly created Series A Junior Participating Preferred Stock. The
rights are attached to AMV's Class A Common Stock and will also become attached
to shares issued in the future. The rights will not be traded separately and
will not become exercisable until the occurrence of a triggering event, defined
as an accumulation by a single person or group of 20% or more of AMV's Class A
Common Stock. The rights will expire on February 26, 2008 and are redeemable at
$.0001 per right.
After a triggering event, the rights will detach from the Class A Common Stock.
If AMV is then merged into, or is acquired by, another corporation, the Company
has the opportunity to either (i) redeem the rights or (ii) permit the rights
holder to receive in the merger stock of AMV or the acquiring company equal to
two times the exercise price of the right (i.e., $30). In the latter instance,
the rights attached to the acquirer's stock become null and void. The effect of
the rights program is to make a potential acquisition of the Company more
expensive for the acquirer if, in the opinion of AMV's Board of Directors, the
offer is inadequate. In December 1998, the Rights Plan was amended to permit FMC
to acquire up to 1,600,000 shares of AMV Common Stock on the open market without
causing a triggering event.
Note 5. Earnings (Loss) Per Share
- ----------------------------------
The computation of earnings (loss) per share is presented in the following
tables:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1999 1998
--------------------------------- --------------------------------
Income Shares Income Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Calculation of EPS
- ------------------
Income (loss) available to
common shareholders $ (576,000) 11,914,000 $ 182,000 10,712,000
Reduction for contingently
returnable shares as all conditions
were not met as of period end -- (394,000) -- (200,000)
------------- ------------- ------------- -------------
Income (loss) available to
common shareholders $ (576,000) 11,520,000 $ 182,000 10,512,000
============= ============= ============= =============
- -----------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ (0.05) $ 0.02
- -----------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities:
- ------------------------------
Stock options and warrants $ -- -- $ -- 943,000
Note and stock appreciation
rights agreement -- 25,000 1,800,000
------------- ------------- ------------- -------------
Income (loss) available to
common shareholders and
assumed conversions $ (576,000) 11,520,000 $ 207,000 13,255,000
============= ============= ============= =============
- -----------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ (0.05) $ 0.02
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The number of shares of Class A Common Stock, along with their respective
exercise prices, underlying options, warrants and convertible debt, which were
excluded from the computation of diluted EPS because their exercise prices were
greater than the average market price of common stock, are listed below.
March 31,
-----------------------------
1999 1998
---- ----
Number of shares of common stock
exercisable from:
Options 3,253,000 645,000
Warrants 300,000 1,275,000
Convertible debt 1,424,000 1,424,000
------------- -------------
4,977,000 3,344,000
Exercise price ranges $1.00 - $3.00 $2.13 - $4.94
Note 6. Inventories
- --------------------
Inventories are stated at the lower of cost or market and include material,
labor and related manufacturing overhead. The Company determines cost based on
the first-in, first-out (FIFO) method. Inventories consisted of:
March 31, Dec. 31,
1999 1998
---- ----
Raw materials $ 3,093,000 $ 2,837,000
Work-in-process 1,058,000 1,563,000
Finished goods 3,675,000 2,979,000
------------- -------------
$ 7,826,000 $ 7,379,000
============= =============
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The Company's backlog at March 31, 1999, was $5,645,000 compared to $8,824,000
as of March 31, 1998.
Results of Operations - Comparison between three months ended March 31, 1999 and
March 31, 1998
- -------------- Sales for the three months ended March 31, 1999 ("Q1 1999") were
$5,158,000, down 27% when compared to sales for the three months ended March 31,
1998 ("Q1 1998") of $7,103,000. The $1,945,000 decrease in sales is due to lower
demand for the Company's products.
Gross profit decreased by $679,000 to $2,654,000 in Q1 1999 when compared to
$3,333,000 of gross profit in Q1 1998. The decrease in gross profit is due to
the decrease in sales. Gross profit as a percentage of sales was 51% in 1999 and
47% in 1998. The increase in gross profit as a percentage of sales is due to a
larger percentage of higher-margin products included in Q1 1999 sales.
Selling and marketing expense increased by $10,000 in Q1 1999 from Q1 1998 to
$947,000 amounting to 18% of sales in Q1 1999. Similar expenses in Q1 1998 were
$937,000, or 13% of sales. The increase in selling and marketing expenses as a
percentage of sales is due to the fixed selling expenses spread over a lower
sales base.
Research and development expenses were $1,260,000 and $1,150,000 in Q1 1999 and
Q1 1998, or 24% and 16% of sales, respectively. The increase in research and
development expenses is related to the continuing development of new products
for softwood veneer production applications.
General and administrative expenses increased $18,000 to $794,000 in Q1 1999
from $776,000 in Q1 1998.
The net loss for Q1 1999 was $576,000 as compared to net income of $182,000 in
Q1 1998.
Liquidity and Capital Resources
- ------------------------------- The Company's cash balance and working capital
were $3,057,000 and $12,212,000, respectively, at March 31, 1999 as compared
to $4,423,000 and $12,100,000, respectively, at December 31, 1998. The Company's
long-term debt decreased by approximately $2.2 million primarily as a result of
the Ventek debt restructuring. Equity at March 31, 1999 increased from December
31, 1998 due to the Ventek debt restructuring, offset by a net loss for Q1 1999.
During the Q1 1999, net cash used in operating activities totaled $585,000
compared to cash used for operating activities of $1,067,000 in Q1 1998. The Q1
1999 usage was due to the net loss and increase in inventory. The Q1 1998 usage
was due principally to an increase in accounts receivable.
Cash used in investment activities totaled $22,000 in Q1 1999 compared to cash
used in investment activities of $195,000 in Q1 1998. The Company has no
material commitments for capital expenditures at March 31, 1999.
Cash used in financing activities totaled $759,000 in Q1 1999 as compared to
cash used in financing activities of $6,000 in Q1 1998. In February 1999, the
Company paid $750,000 of a $1,000,000 note and issued 1,800,000 shares of Class
A Common Stock in payment of a $1,529,000 note as part of the Ventek debt
restructuring.
9
<PAGE>
In October 1998, the Company received $2,620,000 from FMC Corporation for
119,106 shares of newly issued Series B Preferred Stock (see Note 4 to
Consolidated Financial Statements).
In April 1999, the Company entered into a Business Loan Agreement providing up
to $2,500,000 of working capital financing (see Note 3 to Consolidated Financial
Statements).
Management believes that the Company has sufficient cash to enable the Company
to sustain its operations and to adequately fund the cash flow expected to be
used in operating activities for the next twelve months.
Cautionary Statements and Risk Factors
- -------------------------------------- The Company and its representatives may
from time to time make written or oral forward-looking statements with respect
to long-term objectives or expectations of the Company, including statements
contained in the Company's filings with the Securities and Exchange Commission,
in its reports to stockholders and in information provided in its web site.
The words or phrases "will likely," "are expected to," "is anticipated," "is
predicted," "forecast," "estimate," "project," "plans to continue," "believes,"
or similar expressions identify "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. In connection with the "Safe Harbor" provisions on the Private
Securities Litigation Reform Act of 1995, the Company is hereby identifying
important factors that could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements.
The Company cautions that the following list of important factors may not be all
inclusive, and it specifically declines to undertake any obligation to publicly
revise any forward-looking statements that have been made to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events. Among the factors that could have an impact
on the Company's ability to achieve its operating results and growth plan goals
and/or affect the market price of the Company's stock are:
* The Company's history of losses and negative cash flow.
* Fluctuations in quarterly operating results and seasonality in certain of
the Company's markets.
* Rapid technological change in the Company's markets and the need for new
product development.
* Market acceptance of the Company's new products.
* AMV's dependence on certain markets and the need to expand into new
markets.
* The lengthy sales cycle for the Company's products.
* The Company's highly competitive marketplace.
* The dependence on certain suppliers.
* The risks associated with dependence upon significant customers and
reliance on certain distribution channels.
* The risks associated with international sales.
* The uncertain ability to manage growth and integrate acquired businesses.
* Risks associated with acquisitions and other relationships.
* Dependence upon key personnel.
* The Company's ability to protect its intellectual property.
* The possibility of product liability or other legal claims.
* Exposure to possible warranty and litigation claims.
* The possible need for additional financing.
* The impact of the 1998 Shareholder Rights Plan.
* The inability of the Company or its suppliers or customers to remedy
potential problems with information systems related to the arrival of the
year 2000.
These risk factors are discussed in further detail below.
History of Losses; Negative Cash Flow:
- --------------------------------------- Prior to 1995 and in 1996 and in certain
fiscal quarters thereafter, the Company experienced losses and negative
operating cash flow. The Company believes it may operate at a negative cash flow
for certain periods in the future due to (i) the need to fund certain
development projects, (ii) cash required to enter new market areas, (iii)
irregular bookings by customers due to seasonality or economic downturns in some
markets and the relatively high per-unit cost of the Company's products which
may cause fluctuations in quarterly or yearly revenues, (iv) cash required for
the repayment of debt, especially $2.5 million due in July 2000, and (v)
possible cash needed to fully integrate SRC's and Ventek's operations. If the
Company is unable to consistently generate sustained positive cash flow from
operations, the Company must rely on debt or equity financing.
Although the Company achieved profitability in 1995, 1997 and 1998, there can be
no assurance as to the Company's profitability on a quarterly or annual basis in
the future.
Fluctuations in Quarterly Operating Results; Seasonality:
- -------------------------------------------------------------- The Company has
experienced and may in the future experience significant fluctuations in
revenues and operating results from quarter to quarter as a result of a number
of factors, many of which are outside the control of the Company. These factors
include the timing of significant orders and shipments, product mix, delays in
shipment, capital spending patterns of customers, competition and pricing, new
product introductions by the Company or its competitors, the timing of research
and development expenditures, expansion of marketing and support operations,
changes in material costs, production or quality problems, currency
fluctuations, disruptions in sources of supply, regulatory changes and general
economic conditions. These factors are difficult to forecast, and these or other
factors could have a material adverse effect on the Company's business and
operating results. Moreover, due to the relatively fixed nature of many of the
Company's costs, including personnel and facilities costs, the Company would not
be able to reduce costs in any quarter to compensate for any unexpected
shortfall in net sales, and such a shortfall would have a proportionately
greater impact on the Company's results of operations for that quarter. For
example, a significant portion of the Company's quarterly net sales depends upon
sales of a relatively small number of high-priced systems. Thus, changes in the
number of such systems shipped in any given quarter can produce substantial
fluctuations in net sales, gross profits, and net income from quarter to
quarter. In addition, in the event the Company's machine vision systems' average
selling price increases, of which there can be no assurance, the addition or
cancellation of sales may exacerbate quarterly fluctuations in revenues and
operating results.
The Company's operating results may also be affected by certain seasonal trends.
For example, the Company may experience lower sales and order levels in the
first quarter when compared with the preceding fourth quarter due to the
seasonality of certain harvested food items and the timing of annual or
semi-annual customer plant shut-downs during which systems are installed. The
Company expects these patterns to continue.
Rapid Technological Change; Product Development:
- ------------------------------------------------- The markets for the Company's
machine vision products are characterized by rapidly changing technology,
evolving industry standards and frequent new product introductions and
enhancements. For example, the Company believes that the 1995 introduction by
Key Technology, Inc. of its new line of vision sorting equipment adversely
affected bookings in late 1995 and 1996. Sales of the Company's products depend
in part on the continuing development and deployment of new technology and
services and applications. The Company's success will depend to a significant
extent upon its ability to enhance its existing products and develop new
products that gain market acceptance. There can be no assurance that the Company
will be successful in selecting, developing and manufacturing new products or
enhancing its existing products on a timely or cost-effective basis or that
products or technologies developed by others will not render the Company's
products noncompetitive or obsolete. Moreover, the Company may encounter
technical problems in connection with its product development that could result
in the delayed introduction of new products or product enhancements.
Market Acceptance of New Products:
- ----------------------------------- The Company's future operating results will
depend upon its ability to successfully introduce and market, on a timely and
cost-effective basis, new products and enhancements to existing products. There
can be no assurance that new products or enhancements, if developed and
manufactured, will achieve market acceptance. The Company is marketing its new
generation of high-speed software and digital signal processing technology
designed to significantly improve system performance. There can be no assurance
that a market for this system will develop (i.e., that a need for the system
will exist, that the system will be favored over other products on the market,
etc.).
Dependence on Certain Markets and Expansion Into New Markets:
- ------------------------------------------------------------- The future success
and growth of the Company is dependent upon continuing sales in domestic and
international food processing markets as well as successful penetration of other
existing and potential markets. A substantial portion of the Company's
historical sales has been in the potato and other vegetable processing markets.
Reductions in capital equipment expenditures by such processors due to commodity
surpluses, product price fluctuations, changing consumer preferences, longer
product evaluation periods or other factors could have an adverse effect on the
Company's results of operations. The Company also intends to expand the
marketing of its processing systems in additional food markets such as meat and
granular food products, as well as non-food markets such as plastics, wood
products and tobacco, and to expand its sales activities in foreign markets. In
the case of Ventek, the wood products market served is narrow and cyclical, and
saturation of that market and the potential inability to identify and develop
new markets could adversely affect Ventek's growth rate. The Company may not be
able to successfully penetrate additional food and non-food markets or expand
further in foreign markets.
Lengthy Sales Cycle:
- -------------------- The sales cycle in the marketing and sale of the Company's
machine vision systems, especially in new markets or in a new application, is
lengthy and can be as long as three years. Even in existing markets, due to the
$150,000 to $600,000 price range for each system and possibly significant
ancillary costs required for a customer to install the system, the purchase of a
machine vision system can constitute a substantial capital investment for a
customer (which may need more than one machine for its particular proposed
application) requiring lengthy consideration and evaluation. In particular, a
potential customer must develop a high degree of assurance that the product will
meet its needs, successfully interface with the customer's own manufacturing,
production or processing system, and have minimal warranty, safety and service
problems. Accordingly, the time lag from initiation of marketing efforts to
final sales can be lengthy.
Competition:
- ------------ The markets for the Company's products are highly competitive. A
major competitor of the Company introduced several years ago a new optical
sorter product which has increased the competition that the Company faces. In
the case of Ventek, the wood industry continues to develop alternative products
to plywood (e.g., oriented strand board) which do not require vision systems for
quality control. Some of the Company's competitors may have substantially
greater financial, technical, marketing and other resources than the Company.
Important competitive factors in the Company's markets include price,
performance, reliability, customer support and service. Although the Company
believes that it currently competes effectively with respect to these factors,
the Company may not be able to continue to compete effectively in the future.
Dependence Upon Certain Suppliers:
- ---------------------------------- Certain key components and subassemblies used
in the Company's products are currently obtained from sole sources or a limited
group of suppliers, and the Company does not have any long-term supply
agreements to ensure an uninterrupted supply of these components. Although the
Company seeks to reduce dependence on sole or limited source suppliers, the
inability to obtain sufficient sole or limited source components as required, or
to develop alternative sources if and as required, could result in delays or
reductions in product shipments which could materially and adversely affect the
Company's results of operations and damage customer relationships. The purchase
of certain of the components used in the Company's products require an 8 to 12
week lead time for delivery. An unanticipated shortage of such components could
delay the Company's ability to timely manufacture units, damage customer
relations, and have a material adverse effect on the Company. In addition, a
significant increase in the price of one or more of these components or
subassemblies could adversely affect the Company's results of operations.
Dependence Upon Significant Customers and Distribution Channel:
- --------------------------------------------------------------- The Company sold
equipment to an unaffiliated customer totaling 14% of sales in 1997 and to two
unaffiliated customers totaling 13% and 12% of sales in 1996. Ventek's sales
have been to a relatively small number of multi-location plywood manufacturers.
In the emerging pulp wood industry, the Company utilizes a single exclusive
distributor for its products in North America. In 1998, the Company entered an
agreement with FMC Corporation to be its exclusive or nonexclusive sales
representative in much of the United States and in many areas in the rest of the
world. While the Company strives to create long-term relationships with its
customers, distributors and representatives, there can be no assurance that they
will continue ordering or selling additional systems. The Company may continue
to be dependent on a small number of customers, distributors and
representatives, the loss of which would adversely affect the Company's
business.
Risk of International Sales:
- ---------------------------- Due to its export sales, the Company is subject to
the risks of conducting business internationally, including unexpected changes
in regulatory requirements; fluctuations in the value of the U. S. dollar which
could increase the sales prices in local currencies of the Company's products in
international markets; delays in obtaining export licenses, tariffs and other
barriers and restrictions; and the burdens of complying with a variety of
international laws. For example, the possibility of sales to Indonesian
customers has been adversely affected by that country's currency devaluation
when compared to the U. S. dollar over the past few years. In addition, the laws
of certain foreign countries may not protect the Company's intellectual property
rights to the same extent as do the laws of the United States.
Uncertain Ability to Manage Growth and Integrate Acquired Businesses:
- --------------------------------------------------------------------- As part of
its business strategy, the Company intends to pursue rapid growth. In March and
July 1996, the Company acquired Pulsarr and Ventek. Pulsarr was subsequently
sold in May 1997. A growth strategy involving the integration of new entities
will require the establishment of a sales representative and distribution
relationships, expanded customer service and support, increased personnel
throughout the Company and the continued implementation and improvement of the
Company's operational, financial and management information systems. There is no
assurance that the Company will be able to attract qualified personnel or to
accomplish other measures necessary for successful integration of entities that
may be acquired in the future or for internal growth, or that the Company can
successfully manage expanded operations. As the Company expands, it may from
time to time experience constraints that will adversely affect its ability to
satisfy customer demand in a timely fashion. Failure to manage growth
effectively could adversely affect the Company's financial condition and
results of operations.
Risks Associated With Acquisitions:
- ---------------------------------------- The Company may pursue strategic
acquisitions or joint ventures in addition to the acquisitions of Pulsarr
(subsequently divested in May 1997) and Ventek as part of its growth strategy.
While the Company presently has no understandings, commitments or agreements
with respect to any further acquisition, the Company anticipates that one or
more potential opportunities may become available in the future. Acquisitions
and joint ventures would require investment of operational and financial
resources and could require integration of dissimilar operations, assimilation
of new employees, diversion of management resources, increases in administrative
costs and additional costs associated with debt or equity financing. For these
reasons, any acquisition or joint venture by the Company may have an adverse
effect on the Company's results of operations or may result in dilution to
existing shareholders. If additional attractive opportunities become available,
the Company may decide to pursue them actively. Any future acquisitions or joint
ventures may materially and adversely affect the Company.
Dependence Upon Key Personnel:
- ------------------------------- The Company's success depends to a significant
extent upon the continuing contributions of its key management, technical, sales
and marketing and other key personnel. Except for William J. Young, the
Company's President and Chief Executive Officer, Alan R. Steel, the Company's
Chief Financial Officer, Dr. James Ewan, SRC's President and Chief Executive
Officer, and the four former stockholders of Ventek, the Company does not have
long-term employment agreements or other arrangements with such individuals
which would encourage them to remain with the Company. The Company's future
success also depends upon its ability to attract and retain additional skilled
personnel. Competition for such employees is intense. The loss of any current
key employees or the inability to attract and retain additional key personnel
could have a material adverse effect on the Company's business and operating
results.
Intellectual Property:
- ---------------------- The Company's competitive position may be affected by its
ability to protect its proprietary technology. Although the Company has a number
of United States and foreign patents, such patents may not provide meaningful
protection for its product innovations. The Company may experience additional
intellectual property risks in international markets where it may lack patent
protection.
Product Liability and Other Legal Claims:
- ----------------------------------------- From time to time, the Company may be
involved in litigation arising out of the normal course of its business,
including product liability, patent and other legal claims. While the Company
has a general liability insurance policy which includes product liability
coverage up to an aggregate amount of $10 million, the Company may not be able
to maintain product liability insurance on acceptable terms in the future.
Litigation, regardless of its outcome, could result in substantial cost to and
diversion of effort by the Company. Any infringement claims or litigation
against the Company could materially and adversely affect the Company's
business, operating results and financial condition. If a substantial product
liability or other legal claim against the Company were sustained that was not
covered by insurance, there could be an adverse effect on the Company's
financial condition and marketability of the affected products.
Warranty Exposure and Performance Specifications:
- ------------------------------------------------- The Company generally provides
a one-year limited warranty on its products. In addition, for certain
custom-designed systems, the Company contracts to meet certain performance
specifications. In the past, the Company has incurred higher warranty expenses
related to new products than it typically incurs with established products. The
Company may incur substantial warranty expenses in the future with respect to
new products, as well as established products, or with respect to its
obligations to meet performance specifications, which may have an adverse effect
on its results of operations and customer relationships.
Possible Need for Additional Financing:
- ------------------------------------------- The Company may seek additional
financing; however, the Company may not be able to obtain any additional
financing on terms satisfactory to the Company, if at all. Potential increases
in the number of outstanding shares of the Company's Class A Common Stock due to
convertible debt and preferred stock, warrants and stock options, a substantial
loss in 1996 and debt incurred for the acquisition of Ventek due in 2000, may
limit the Company's ability to negotiate additional debt or equity financing.
Shareholder Rights Plan:
- ------------------------- In February 1998, the Company implemented a stock
rights program. Pursuant to the program, stockholders of record on February 27,
1998 received a dividend of one right to purchase for $15 one one-hundredth of a
share of a newly created Series A Junior Participating Preferred Stock. The
rights are attached to AMV's Class A Common Stock and will also become attached
to shares issued in the future. The rights will not be traded separately and
will not become exercisable until the occurrence of a triggering event, defined
as an accumulation by a single person or group of 20% or more of AMV's Class A
Common Stock. The rights will expire on February 26, 2008 and are redeemable at
$.0001 per right.
After a triggering event, the rights will detach from the Class A Common Stock.
If AMV is then merged into, or is acquired by, another corporation, the Company
has the opportunity to either (i) redeem the rights or (ii) permit the rights
holder to receive in the merger stock of AMV or the acquiring company equal to
two times the exercise price of the right (i.e., $30). In the latter instance,
the rights attached to the acquirer's stock become null and void. The effect of
the rights program is to make a potential acquisition of the Company more
expensive for the acquirer if, in the opinion of AMV's Board of Directors, the
offer is inadequate.
In October 1998, FMC acquired 119,106 shares of the Company's Series B Preferred
Stock, which, if converted into common stock in accordance with its terms,
represented a 10% ownership position in the Company on that date. FMC also
received a five-year option to acquire 15% of the Company's outstanding common
stock on the date of exercise. While FMC's resulting beneficial ownership
exceeds 20%, the transaction was not a triggering event as defined in the Stock
Rights Plan since FMC acquired the shares directly from the Company. As stated
in a Schedule 13D filed with the Securities and Exchange Commission on October
22, 1998, FMC's purpose was to invest in the Company and its technology. FMC
currently intends to review its investment position in the Company periodically
and, depending on such review and factors including market conditions and share
prices, the Company's business prospects, technology, future developments and
applicable legal requirements, FMC may seek to acquire additional securities of
the Company from time to time in the open market or in negotiated transactions.
In December 1998, the Company amended the Shareholder Rights Plan to permit FMC
to purchase on the open market up to 1,600,000 shares of Class A Common Stock
without such purchase being a triggering event.
While the Company is not aware of any other circumstance that might result in
the acquisition of a sufficient number of shares of the Company's common stock
to trigger distribution of the Rights, existence of the Rights could discourage
offers for the Company's stock that may exceed the current market price of the
stock, but that the Board of Directors deems inadequate.
Year 2000 Issues:
- ------------------ The Company is aware of the potential for industry-wide
business disruption, which could occur due to problems related to the "Year
2000" issue. Management believes that it has a prudent plan in place to address
this issue within the Company and its supply chain. The components of this plan
include: an assessment of internal systems for modification and/or replacement,
communication with external suppliers to determine their state of readiness to
maintain an uninterrupted supply of goods and services to the Company, and an
evaluation of products sold by the Company to customers as to the ability of the
products to work properly after the turn of the century.
Internal Systems:
The Company's process for achieving Year 2000 compliance for internal systems is
as follows:
1. Develop an inventory of all internal systems that may be affected by Year
2000 issues;
2. Determine the Year 2000 compliance status of each internal system;
3. Prioritize the importance of Year 2000 compliance for each internal system;
4. Determine the method to be used to achieve compliance (modify, replace,
cease use);
5. Complete the planned action;
6. Test the system.
The six steps for internal systems in use throughout the Company that may be
affected by Year 2000 issues have been completed. The Company is internally Year
2000-compliant.
Suppliers:
The Company has initiated a program to survey the Year 2000 readiness of its
major and critical suppliers. The Company has sent letters to these suppliers
outlining its approach towards the Year 2000 issue and asking for either their
certification that their product is Year 2000-compliant or their commitment to
resolve any issues they may have. The Company has identified suppliers it
views as critical to its business. Management has defined a critical supplier as
one whose inability to continue to provide goods and services would have a
serious adverse impact on the Company's ability to produce, deliver and
collect payment for its product. To date, the Company has received responses
from nearly all critical suppliers. The Company is following up on those
suppliers who have not responded.
Products:
The main functionality of the Company's products is not affected by the date
function. The Company's products shipped subsequent to June 1998 are Year
2000-compliant. For products shipped prior to June 1998, the Company has
provided instructions to its customers on how to make the Company's equipment
fully compliant. The Company will contact all customers by June 1999 to ensure
they have ample time to become fully complaint.
Costs:
Costs incurred in the Company's Year 2000 compliance effort are expensed as
incurred and funded with cash generated from operations. These costs are
included in the normal, recurring costs incurred for product development and
systems maintenance and are not material to the Company's results of operations,
nor are they expected to be in the future. There have been no significant
deferrals of other information technology projects.
Risks and Contingency Plan:
Although the Company believes it is taking prudent action related to the
identification and resolution of issues related to the Year 2000, its
assessment is still in progress. It may never be able to know with certainty
whether certain critical suppliers are compliant. Failure of critical suppliers
to make their computer systems Year 2000 compliant could result in delaying
deliveries of products and services to the Company. If such delays are
extensive, they could have a material adverse effect on the Company's business.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 issue, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers, the Company is unable to determine
at this time whether the consequences of Year 2000 failures will have a material
impact on the Company's results of operations, liquidity or financial position.
The Year 2000 compliance project is expected to reduce, but not eliminate, the
Company's level of uncertainty about the Year 2000 issue and, in particular,
about the Year 2000 compliance and readiness of its critical suppliers. The
Company believes that, with the completion of the Year 2000 compliance project
as scheduled, the possibility of significant interruptions to normal operations
should be reduced.
The Company continues to evaluate the risks associated with potential Year
2000-related failures. As management better understands the risks within the
Company's unique set of internal systems, business partners and products, a
formal contingency plan to alleviate the impact of high potential or serious
failures will be developed. The Company anticipates having this contingency plan
outlined by September 30, 1999. The components of this plan will likely include
raw material and finished goods' inventory levels, alternative suppliers and
backup systems. Until the contingency plan is completed, the Company does not
possess the information necessary to estimate the potential negative impact of
Year 2000 compliance issues related to internal systems, its suppliers, its
customers or other parties.
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
- --------------
Exhibit
Number Description
------ -----------
3.1 Restated Articles of Incorporation of the Company as amended
to date. (9)
3.2 Restated and Amended By-Laws of the Company. (2)
4.1 Form of Class G Warrant Agreement. (5)
4.2 Form of Class H Warrant Agreement. (8)
4.3 Form of Class I Warrant Agreement. (6)
4.4 Form of stock option plan and stock option agreement. (1)
4.5 Form of 1997 Restricted Stock Plan and restricted stock
agreement. (7)
4.6 Form of amendments to restricted stock agreements. (19)
4.7 Rights Agreement dated February 27, 1998 between the Company
and American Stock Transfer and Trust Company ("AST"). (13)
4.8 Amendment to Rights Agreement between the Company and AST.
(20)
4.9 Amendment to Class I Warrant Agreement. (15)
4.10 Form of Certificate of Determination for Series A Junior
Participating Preferred Stock. (16)
4.11 Form of Certificate of Determination for Series B Preferred
Stock. (18)
10.1 Form of Indemnity Agreement between the Company and each of
its officers and directors. (1)
10.2 Employment Agreement between Alan R. Steel and the Company
dated January 1, 1998. (14)
10.3 Employment Agreement between William J. Young and the Company
dated January 1, 1998. (14)
10.4 Employment Agreement between William J. Young and SRC VISION,
Inc. dated January 1, 1998. (14)
10.5 Employment Agreement between James Ewan and SRC VISION, Inc.
dated January 1, 1998. (14)
16
<PAGE>
10.6 Stock Purchase Agreement dated March 1, 1996 (without
exhibits) between Meijn Beheer BV and ARC Netherlands BV, a
wholly-owned subsidiary of the Company. (4)
10.7 Stock Purchase Agreement dated March 1, 1996 between J. C.
Scholt and ARC Netherlands BV, a wholly-owned subsidiary of
the Company. (4)
10.8 Convertible Note dated March 1, 1996 issued in connection with
that certain Stock Purchase Agreement dated March 1, 1996
between J. C. Scholt and ARC Netherlands BV. (4)
10.9 Subscription Agreement dated January 18, 1996 between the
Company and Swiss American Securities, Inc, as agent for
Credit Suisse related to the private placement of 1,400,000
shares of the Company's Class A Common Stock. (4)
10.10 Subscription Agreement dated April 9, 1996, between the
Company and Swiss American Securities, Inc., as agent for
Credit Suisse, related to the private placement of $3,400,000
of convertible secured notes. (5)
10.11 Convertible Secured Note dated April 17, 1996, between the
Company and Ilverton International, Inc. (8)
10.12 $1,000,000 Note dated July 24, 1996, between AMV and Ventek.
(6)
10.13 $2,250,000 Convertible Note dated July 24, 1996, between AMV
and Ventek. (6)
10.14 $1,125,000 Note dated July 24, 1996, between AMV and Ventek.
(6)
10.15 Stock Appreciation Rights Agreement dated July 24, 1996
between AMV and Ventek. (6)
10.16 Form of Employment Agreement dated July 24, 1996 between
Ventek and each of the four stockholders of Ventek. (6)
10.17 Pledge and Security Agreement dated July 24, 1996, by and
among AMV, AMV Subsidiary, Inc., Ventek and Solin and
Associates, P.C. (6)
10.18 1997 SRC VISION, Inc. Stock Option Plan and forms of stock
option agreements. (12)
10.19 Plan of Merger between ARC Capital and AMV to effect an
amendment to the Company's Articles of Incorporation to change
the Company's name from ARC Capital to Advanced Machine Vision
Corporation. (9)
10.20 Share Purchase Agreement dated April 29, 1997 between Barco NV
and ARC Netherlands BV. (10)
10.21 Settlement Agreement dated August 12, 1997. (11)
10.22 1997 Nonqualified Stock Option Plan and form of option
agreement. (11)
10.23 Business Loan Agreement dated April 30, 1998 between AMV and
Bank of America NT&SA, together with related documents. (17)
10.24 Promissory Note dated April 24, 1998 to Bank of America NT&SA,
together with related documents. (17)
10.25 $250,000 Note dated June 5, 1998 from Rodger A. Van Voorhis to
Ventek. (15)
10.26 Series B Preferred Stock Purchase Agreement between AMV and
FMC Corporation dated October 14, 1998. (18)
10.27 Intellectual Property and Security Agreement dated October 14,
1998 between SRC VISION, Inc. and FMC Corporation. (18)
10.28 1998 Senior Management and Director Stock Purchase Plan. (20)
10.29 Business Loan Agreement dated April 12, 1999 between AMV and
Bank of America NT&SA.
27 Financial Data Schedule.
- ----------------------
(1) Previously filed as an exhibit to Form S-1 (File No. 33-45126).
(2) Previously filed as an exhibit to Form S-3 (File No. 333-10847).
(3) Filed with the SEC on October 5, 1995, as an exhibit to the Company's
Form 8-K dated October 2, 1995.
(4) Filed with the SEC on March 6, 1996, as an Exhibit to the Company's Form
8-K dated March 1, 1996.
(5) Filed with the SEC on April 14, 1996, as an exhibit to the Company's
Form 10-K for the year ended December 31, 1995.
(6) Filed with the SEC on July 30, 1996, as an exhibit to the Company's Form
8-K dated July 24, 1996.
(7) Filed with the SEC on January 22, 1997, as an exhibit to the Company's
Form 8-K dated January 9, 1997.
(8) Filed with the SEC on May 14, 1996, as an exhibit to the Company's Form
10-Q for the quarter ended March 31, 1996.
(9) Filed with the SEC on May 14, 1997 as an exhibit to the Company's Form
10-Q for the quarter ended March 31, 1997.
(10) Filed with the SEC on May 9, 1997 as an exhibit to the Company's Form
8-K regarding the sale of Pulsarr.
(11) Filed with the SEC on October 30, 1997 as an exhibit to the Company's
Form 10-Q for the quarter ended September 30, 1997.
(12) Filed with the SEC on March 31, 1997 as an exhibit to the Company's Form
10-K for the year ended December 31, 1996.
(13) Filed with the SEC on February 20, 1998 as an exhibit to the Company's
Form 8-A.
(14) Filed with the SEC on February 27, 1998 as an exhibit to the Company's
Form 8-K regarding implementation of a stock rights program and
employment contracts.
(15) Filed with the SEC on June 15, 1998 as an exhibit to the Company's Form
8-K dated June 5, 1998.
(16) Filed with the SEC on February 27, 1998 as an exhibit to the Company's
Form 8-A dated February 27, 1998.
(17) Filed with the SEC on August 4, 1998 as an exhibit to the Company's Form
10-Q dated August 4, 1998.
(18) Filed with the SEC on October 19, 1998 as an exhibit to the Company's
Form 8-K dated October 14, 1998.
(19) Filed with the SEC on October 30, 1998 as an exhibit to the Company's
Form 10-Q dated October 30, 1998.
(20) Filed with the SEC on January 14, 1999 as an exhibit to the Company's
Form 8-K dated December 22, 1998.
(b) Reports on Form 8-K:
- ---------------------------
On January 14, 1999, a Form 8-K was filed with the SEC regarding the
adoption of the 1998 Senior Management and Director Stock Purchase Plan
and an amendment to the Company's Stock Rights Agreement.
On February 16, 1999, a Form 8-K was filed with the SEC regarding the
restructuring of debt due to the former owners of Ventek.
SIGNATURE
---------
Pursuant to the requirements 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.
May 11, 1999 /s/ Alan R. Steel
- ------------------------------- -------------------------------
Alan R. Steel
Vice President, Finance
(Principal Financial and duly
Authorized Officer)
19
Exhibit 10.29
BANK OF AMERICA NT&SA
BUSINESS LOAN AGREEMENT
-----------------------
This Agreement dated as of April 12, 1999 is between Bank of America NT&SA
(the "Bank") and Advanced Machine Vision Corporation (the "Borrower").
1. FACILITY NO. 1 LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is Two Million Dollars ($2,000,000).
(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of
the line of credit to exceed the Facility No. 1 Commitment.
1.2 Availability Period. The line of credit is available between the date
of this Agreement and April 30, 2000 (the "Facility No. 1 Expiration Date")
unless the Borrower is in default.
1.3 Interest Rate.
(a) Unless the Borrower elects an Optional interest rate as described
below, the interest rate is the Reference Rate plus .50 percentage point.
(b) The Reference Rate is the rate of interest publicly announced from time
to time by Bank as its Reference Rate. The Reference Rate is set based on
various factors, including Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans. The Bank may price loans to its customers at, above, or below the
Reference Rate. Any change in the Reference Rate shall take effect at the
opening of business on the day specified in the public announcement of a change
in the Reference Rate.
1.4 Repayment Terms.
(a) The Borrower will pay interest on May 30, 1999, and then monthly
thereafter until payment in full of any principal outstanding under this line of
credit.
(b) The Borrower will repay in full all principal and any unpaid interest
or other charges outstanding under this line of credit no later than the
Facility No. 1 Expiration Date.
1.5 Optional Interest Rates. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the line of
credit (during the availability period) bear interest at the rate(s) described
below during an interest period agreed to by the Bank and the Borrower. Each
interest rate is a rate per year. Interest will be paid on the last day of every
month and on the last day of each interest period. At the end of any interest
period, the interest rate will revert to the rate based on the Reference Rate,
unless the Borrower has designated another optional interest rate for the
portion.
1.6 Offshore Rate. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Offshore Rate plus
2.35 percentage points.
Designation of an Offshore Rate portion is subject to the following
requirements:
(a) The interest period during which the Offshore Rate will be in effect
will be no shorter than 30 days and no longer than 360 days. The last day of the
interest period will be determined by the Bank using the practices of the
offshore dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(c) The "Offshore Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100th of one percent. (All amounts in
the calculation will be determined by the Bank as of the first day of the
interest period.)
Offshore Rate = Grand Cayman Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded upward to
the nearest 1/16th of one percent) at which the Bank's Grand
Cayman Branch, Grand Cayman, British West Indies, would offer
U. S. dollar deposits for the applicable interest period to
other major banks in the offshore dollar inter-bank market.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal Reserve Board Regulation
D, rounded upward to the nearest 1/100th of one percent. The
percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special
and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to any portion
of the principal balance of the line of credit which is scheduled to be repaid
before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already
bearing interest at the Offshore Rate will not be converted to a different rate
during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the offshore dollar
market for a period starting on the date on which it was prepaid
and ending on the last day of the interest period for such
portion.
(g) The Bank will have no obligation to accept an election for an Offshore
Rate portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal
to the interest period, of an Offshore Rate portion are not
available in the offshore dollar inter-bank market; or
(ii) the Offshore Rate does not accurately reflect the cost of an
Offshore Rate portion.
2. FACILITY NO. 2 LETTERS OF CREDIT.
2.1 At the request of Borrower, between the date of this Agreement and
April 30, 2000 (the "Facility No. 2 Expiration Date"), the Bank will issue
standby letters of credit with a maximum maturity of 365 days but not to extend
365 days beyond the Facility No. 2 Expiration Date; provided, however, that the
maturity date may be automatically extended each year for an additional year
unless the Bank gives written notice to the contrary.
2.2 Amount. The amount of the letters of credit (including the drawn and
unreimbursed amounts of the letters of credit) may not exceed Five Hundred
Thousand Dollars ($500,000).
2.3 Other Terms. The Borrower agrees:
(a) if there is a default under this Agreement, to immediately prepay and
make the Bank whole for any outstanding letters of credit.
(b) the issuance of any letter of credit is subject to the Bank's express
approval and must be in form and content satisfactory to the Bank and in favor
of a beneficiary acceptable to the Bank.
(c) to sign the Bank's form Application and Agreement for Standby Letter of
Credit.
(d) to pay any issuance and/or other fees that the Bank notifies the
Borrower will be charged for issuing and processing letters of credit for the
Borrower.
(e) to allow the Bank to automatically charge its checking account for
applicable fees, discounts and other charges.
3. FEES AND EXPENSES
3.1 Loan Fee. The Borrower agrees to pay a Two Thousand Five Hundred Dollar
($2,500) fee due upon execution of this Agreement.
3.2 Expenses.
(a) The Borrower agrees to immediately repay the Bank for expenses that
include, but are not limited to, filing, recording and search fees, appraisal
fees, title report fees and documentation fees.
(b) The Borrower agrees to reimburse the Bank for any expenses it incurs in
the preparation of this Agreement and any agreement or instrument required by
this Agreement. Expenses include, but are not limited to, reasonable attorneys'
fees, including any allocated costs of the Bank's in-house counsel.
(c) The Borrower agrees to reimburse the Bank for the cost of periodic
audits and appraisals of the personal property collateral securing this
Agreement, at such intervals as the Bank may reasonably require. The audits and
appraisals may be performed by employees of the Bank or by independent
appraisers.
4. COLLATERAL
4.1 Facility No. 1 Personal Property. The Borrower's obligations to the
Bank under Facility No. 1 will be secured by personal property the Borrower now
owns or will own in the future as listed below. The collateral is further
defined in security agreement(s) executed by the Borrower. In addition, all
personal property collateral securing this Agreement shall also secure all other
present and future obligations of the Borrower to the Bank (excluding any
consumer credit covered by the Federal Truth in Lending law, unless the Borrower
has otherwise agreed in writing). All personal property collateral securing any
other present or future obligations of the Borrower to the Bank shall also
secure this Agreement.
(a) Machinery, equipment and fixtures.
(b) Inventory.
(c) Receivables.
4.2 Lent Collateral. The Borrower's obligations to the Bank under Facility
No. 1 will be secured by personal property now owned or owned in the future by
Ventek, Inc. and SRC Vision, Inc. as listed below. The collateral is further
defined in security agreement(s) executed by Ventek, Inc. and SRC Vision, Inc.
(a) Machinery, equipment and fixtures.
(b) Inventory.
(c) Receivables.
4.3 Facility No. 2 Personal Property. The Borrower's obligations to the
Bank under Facility No. 2 will be secured by personal property the Borrower now
owns or will own in the future as listed below. The collateral is further
defined in security agreement(s) executed by the Borrower. In addition, all
personal property collateral securing this Agreement shall also secure all other
present and future obligations of the Borrower to the Bank (excluding any
consumer credit covered by the Federal Truth in Lending law, unless the Borrower
has otherwise agreed in writing). All personal property collateral securing any
other present or future obligations of the Borrower to the Bank shall also
secure this Agreement. If at any time the outstanding balance of Facility No. 2
is less than the Commitment, securities pledged under Section 4.3 may be
released from pledge upon request by Borrower, so long as the loan value of the
remaining securities equals or exceeds the outstanding principal balance of the
line of credit.
(a) Marketable securities.
Regulation U of the Board of Governors of the Federal Reserve System places
certain restrictions on loans secured by margin stock (as defined in the
Regulation). If any of the collateral is margin stock, the Borrower shall
provide to the Bank a Form U-1 Purpose Statement, confirming that none of the
proceeds of the loan will be used to buy or carry any margin stock. If the
Borrower has any other loan made for the purpose of buying or carrying margin
stock (purpose loan), then the collateral securing this loan shall not secure
the purpose loan, and the collateral securing the purpose loan shall not secure
this loan.
5. DISBURSEMENTS, PAYMENTS AND COSTS
5.1 Requests for Credit. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
5.2 Disbursements and Payments. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from
time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory notes.
5.3 Telephone Authorization.
(a) The Bank may honor telephone instructions for advances and repayments
or for the designation of optional interest rates given by the individual
signer(s) of this Agreement or a person or persons authorized by the signer(s)
of this Agreement.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 2801300995, or such other accounts with the Bank as
designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees and agents) for, from and against all liability, loss and costs in
connection with any act resulting from telephone instructions it reasonably
believes are made by a signer of this Agreement or a person authorized by a
signer. This indemnity and excuse will survive this Agreement's termination.
5.4 Direct Debit (Pre-Billing)
(a) The Borrower agrees that the Bank will debit the Borrower's deposit
account number 2801300995 (the "Designated Account") on the date each payment of
principal and interest and any fees from the Borrower becomes due (the "Due
Date"). If the Due Date is not a banking day, the Designated Account will be
debited on the next banking day.
(b) Approximately 1 day prior to each Due Date, the Bank will mail to the
Borrower a statement of the amounts that will be due on that Due Date (the
"Billed Amount"). The calculation will be made on the assumption that no new
extensions of credit or payments will be made between the date of the billing
statement and the Due Date, and that there will be no changes in the applicable
interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount of principal due and interest accrued
(collectively, the "Accrued Amount").
If the Billed Amount debited to the Designated Account differs from the
Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the
Billed Amount for the following Due Date will be increased by
the amount of the discrepancy. The Borrower will not be in
default by reason of any such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the Billed
Amount for the following Due Date will be decreased by the
amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue based
on the actual amount of principal outstanding without compounding. The Bank will
not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account
to cover each debit. If there are insufficient funds in the Designated Account
on the date the Bank enters any debit authorized by this Agreement, the debit
will be reversed.
5.5 Banking Days. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday or a Sunday on which the Bank is open for
business in Oregon and banks are open for business in California. For amounts
bearing interest at an offshore rate (if any), a banking day is a day other than
a Saturday or a Sunday on which the Bank is open for business in Oregon and the
Bank is dealing in offshore dollars. All payments and disbursements which would
be due on a day which is not a banking day will be due on the next banking day.
All payments received on a day which is not a banking day will be applied to the
credit on the next banking day.
5.6 Taxes. The Borrower will not deduct any taxes from any payments it
makes to the Bank. If any government authority imposes any taxes or charges on
any payments made by the Borrower, the Borrower will pay the taxes or charges.
Upon request by the Bank, the Borrower will confirm that it has paid the taxes
by giving the Bank official tax receipts (or notarized copies) within 30 days
after the due date. However, the Borrower will not pay the Bank's net income
taxes.
5.7 Additional Costs. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency. The costs and losses will be allocated to
the loan in a manner determined by the Bank, using any reasonable method. The
costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments
for credit.
5.8 Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.
5.9 Interest on Late Payments. At the Bank's sole option in each instance,
any amount not paid when due under this Agreement (including interest) shall
bear interest from the due date at the Reference Rate. This may result in
compounding of interest.
5.10 Default Rate. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will, at the option
of the Bank, bear interest at a rate per annum which is 2.0 percentage points
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any event of default.
6. CONDITIONS
The Bank must receive the following items, in form and content acceptable
to the Bank, before it is required to extend any credit to the Borrower under
this Agreement:
6.1 Authorizations. Evidence that the execution, delivery and performance
by the Borrower and each guarantor or subordinating creditor of this Agreement
and any instrument or agreement required under this Agreement have been duly
authorized.
6.2 Security Agreements. Signed original security agreements, financing
statements and fixture filings (together with collateral in which the Bank
requires a possessory security interest), which the Bank requires.
6.3 Evidence of Priority. Evidence that security interests and liens in
favor of the Bank are valid, enforceable and prior to all others' rights and
interests, except those the Bank consents to in writing.
6.4 Insurance. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
6.5 Environmental Questionnaire. A completed Bank form Environmental
Questionnaire and Disclosure Statement, together with an environmental site
assessment concerning any potential toxic or hazardous condition.
6.6 Guaranties. Guaranties signed by Ventek, Inc. and SRC Vision, Inc.,
each in the amount of Two Million Dollars ($2,000,000).
6.7 Subordination Agreements. Subordination agreements in favor of the Bank
signed by Veneer Technology, Inc.
6.8 Other Items. Any other items that the Bank reasonably requires.
7. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in
full, the Borrower makes the following representations and warranties. Each
request for an extension of credit constitutes a renewed representation:
7.1 Organization of Borrower. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
7.2 Authorization. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
7.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
7.4 Good Standing. In each state in which the Borrower does business, it is
properly licensed, in existence and in good standing, and, where required, in
compliance with fictitious name statutes.
7.5 No Conflicts. This Agreement does not conflict with any law, agreement
or obligation by which the Borrower is bound.
7.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank, including the Borrower's financial
statement dated as of December 31, 1998, is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's financial condition.
(b) In form and content required by the Bank.
(c) in compliance with all government regulations that apply.
Since the date of the financial statement specified above, there has been
no material adverse change in the assets or the financial condition of the
Borrower.
7.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
7.8 Collateral. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
7.9 Permits, Franchises. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged without conflict with the rights
of others.
7.10 Other Obligations. The Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
7.11 Income Tax Returns. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year, except as have been
disclosed in writing to the Bank.
7.12 No Event of Default. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
7.13 ERISA Plans.
(a) The Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and is in
compliance in all material respects with the presently applicable provisions of
ERISA and the Code, and has not incurred any liability with respect to any Plan
under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA for
which the PBGC requires 30-day notice.
(c) No action by the Borrower to terminate or withdraw from any Plan has
been taken, and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section
4042 of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(ii) "ERISA" means the Employee Retirement Income Act of 1974, as
amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension
Benefit Guaranty Corporation under Title IV of ERISA.
Year 2000 Compliance. On the basis of a comprehensive review and assessment
of Borrower's systems and equipment and inquiry made of Borrower's material
suppliers, vendors and customers, Borrower reasonably believes that the "Year
2000 problem" (that is, the inability of computers, as well as embedded
microchips in non-computing devices, to perform properly date-sensitive
functions with respect to certain dates prior to and after December 31, 1999),
including costs of remediation, will not result in a material adverse change in
the operations, business, properties, condition (financial or otherwise) or
prospects of Borrower. Borrower has developed feasible contingency plans
adequately to ensure uninterrupted and unimpaired business operation in the
event of failure of its own or a third party's systems or equipment due to the
Year 2000 problem, including those of vendors, customers and suppliers, as well
as a general failure of or interruption in its communications and delivery
infrastructure.
8. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement
and until the Bank is repaid in full:
8.1 Use of Proceeds. To use the proceeds of the credit only for short-term
working capital.
8.2 Financial Information. To provide the following financial information
and statements and such additional information as requested by the Bank from
time to time:
(a) Within 120 days of the Borrower's fiscal year-end, the Borrower's
annual financial statements. These financial statements must be audited by a
Certified Public Accountant ("CPA") acceptable to the Bank.
(b) Within 45 days of the period's end, the Borrower's quarterly financial
statements. These financial statements may be Borrower-prepared.
(c) Within 45 days of period's end, the Borrower's quarterly accounts
receivable aging.
8.3 Total Liabilities to Tangible Net Worth. To maintain a ratio of total
liabilities to tangible net worth, calculated on a fiscal-quarter basis, not
exceeding the amounts indicated for each period specified below:
Period Ratio
------------------------------- --------
From the date of this Agreement
Through December 30, 1999 2.20:1.0
December 31, 1999 through
December 30, 2000 1.65:1.0
December 31, 2000 through
December 30, 2001 1.25:1.0
"Total liabilities" means the sum of current liabilities plus long-term
liabilities, excluding debt subordinated to the Borrower's obligations to the
Bank in a manner acceptable to the Bank, using the Bank's standard form.
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles, and
monies due from affiliates, officers, directors or shareholders of the
Borrower), plus liabilities subordinated to the Bank in a manner acceptable to
the Bank (using the Bank's standard form), less total liabilities, including but
not limited to, accrued and deferred income taxes, and any reserves against
assets.
8.4 Minimum Trading Asset Ratio. To maintain a minimum trading asset ratio,
calculated on a fiscal-quarter basis, of at least 2.65:1.0.
"Minimum Trading Asset Ratio" means the ratio of Accounts Receivable plus
Inventory divided by Accounts Payable plus Short-Term Bank Debt.
8.5 Cash Flow Ratio. To maintain a cash flow ratio, calculated on a fiscal
year-end basis, of at least 1.20:1.0.
"Cash Flow Ratio" means the ratio of Cash Flow to Current Portion of
Long-Term Debt plus Interest Expense plus Income Taxes plus Dividends plus
Capital Expenditures. "Cash Flow" is defined as Earnings before Interest
Expense, Income Taxes, Depreciation and Amortization. This ratio will be
calculated at the end of each fiscal year. The current portion of long-term debt
will exclude the Notes to Veneer Technology, Inc.
8.6 Other Debts. Not to have outstanding or incur any direct or contingent
debts (other than those to the Bank and its affiliates), or become liable for
the debts of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies or merchandise on a normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Additional debts and lease obligations for the acquisition of fixed or
capital assets, to the extent permitted elsewhere in this Agreement.
(e) Additional debts and lease obligations for business purposes, which,
together with the debts permitted under subparagraphs (a) through (d) above, do
not exceed a total principal amount of Five Hundred Thousand Dollars ($500,000).
(f) Accrual of normal expenses incurred in the ordinary course of business,
including but not limited to, payroll, payroll taxes and deferred taxes.
8.7 Other Liens. Not to create, assume or allow any security interest or
lien (including judicial liens) on property the Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank and its
affiliates.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to
the Bank.
(d) Additional purchase money security interests in personal or real
property acquired after the date of this Agreement if the principal amount of
debts secured by such liens does not exceed Five Hundred Thousand Dollars
($500,000) at any one time.
8.8 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit over One Million Dollars ($1,000,000) against the Borrower.
(b) any substantial dispute between the Borrower and any government
authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's financial condition or
operations.
(e) any change in the Borrower's name, address or legal structure.
8.9 Books and Records. To maintain adequate books and records.
8.10 Audits. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
8.11 Compliance with Laws. To comply with the laws (including any
fictitious name statute), regulations and orders of any government body with
authority over the Borrower's business.
8.12 Maintenance of Properties. To make any repairs, renewals or
replacements to keep the Borrower's properties in good working condition.
8.13 Perfection of Liens. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
8.14 Cooperation. To take any action requested by the Bank to carry out the
intent of this Agreement.
8.15 Insurance.
(a) Insurance Covering Collateral. To maintain all risk property damage
insurance policies covering the tangible property comprising the collateral.
Each insurance policy must be in an amount acceptable to the Bank.
(b) General Business Insurance. To maintain insurance as is usual for the
business it is in.
(c) Evidence of Insurance. Upon the request of the Bank, to deliver to the
Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
8.16 Additional Negative Covenants. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate or
other combination.
(d) acquire or purchase a business or its assets for a consideration,
including assumption of debt, in excess of Two Million Dollars ($2,000,000) in
any fiscal year.
(e) sell or otherwise dispose of any assets for less than fair market
value, or enter into any sale and leaseback agreement covering any of its fixed
or capital assets.
8.17 ERISA Plans. to give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of ERISA
for which the PBGC requires 30-days notice.
(b) Any action by the Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.
(c) Any notice of non-compliance made with respect to a Plan under Section
4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under Section
4042 of ERISA.
9. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank for, from and
against any loss or liability directly or indirectly arising out of the use,
generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence of a hazardous substance. This indemnity will
apply whether the hazardous substance is on, under or about the Borrower's
property or operations or property leased to the Borrower. The indemnity
includes, but is not limited to, attorneys' fees (including the reasonable
estimate of the allocated cost of in-house counsel and staff). The indemnity
extends to the Bank, its parent, subsidiaries and all of their directors,
officers, employees, agents, successors, attorneys and assigns. For these
purposes, the term "hazardous substances" means any substance which is or
becomes designated as "hazardous" or "toxic" under any federal, state or local
law, or any petroleum products, including crude oil and any product derived
directly or indirectly from, or any fraction or distillate of, crude oil. This
indemnity will survive repayment of the Borrower's obligations to the Bank.
10. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If a bankruptcy petition is filed with
respect to the Borrower, the entire debt outstanding under this Agreement will
automatically become due immediately.
Failure to Pay. The Borrower fails to make a payment under this Agreement
when due.
10.2 Non-compliance. The Borrower fails to meet the condition of, or fails
to perform any obligation under:
(a) this Agreement,
(b) any other agreement made in connection with this loan, or
(c) any other agreement the Borrower has with the Bank or any affiliate of
the Bank.
10.3 Cross-default. Any default occurs under any agreement and is not cured
in any applicable cure period in connection with any credit the Borrower or any
guarantor has obtained from anyone else or which the Borrower or any guarantor
has guaranteed.
10.4 Lien Priority. The Bank fails to have an enforceable first lien
(except for any prior liens to which the Bank has consented in writing) on or
security interest in any property given as security for this loan.
10.5 False Information. The Borrower has given the Bank false or misleading
information or representations.
10.6 Bankruptcy. The Borrower files a bankruptcy petition, a bankruptcy
petition is filed against the Borrower, or the Borrower makes a general
assignment for the benefit of creditors.
10.7 Receivers. A receiver or similar official is appointed for the
Borrower's business, or the business is terminated.
10.8 Judgments. Any judgments or arbitration awards are entered against the
Borrower or any guarantor; or the Borrower or any guarantor enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of One Million Dollars ($1,000,000) or more in excess of any
insurance coverage and any such judgment is not discharged, vacated or reversed,
or its execution stayed pending appeal, within 60 days of entry, or is not
discharged within 60 days after the expiration of such stay.
10.9 Government Action. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's or any guarantor's
financial condition or ability to repay.
10.10 Default under Guaranty or Subordination Agreement. Any guaranty,
subordination agreement, security agreement, deed of trust or other document
required by this Agreement is violated or no longer in effect.
10.11 Material Adverse Change. A material adverse change occurs, or is
reasonably likely to occur, in the Borrower's or any guarantor's business
condition (financial or otherwise), operations, properties or prospects, or
ability to repay the credit.
10.12 ERISA Plans. The occurrence of any one or more of the following
events with respect to the Borrower, provided such event or events could
reasonably be expected, in the judgment of the Bank, to subject the Borrower to
any tax, penalty or liability (or any combination of the foregoing) which, in
the aggregate, could have a material adverse effect on the financial condition
of the Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan, which is, in the
reasonable judgment of the Bank, likely to result in the termination of such
Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to terminate a
Plan) or the Borrower's full or partial withdrawal from a Plan.
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
11.2 Oregon Law. This Agreement is governed by Oregon law.
11.3 Successors and Assigns. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.
11.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including, but not limited to, those that
arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered
in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury
to persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though this
Agreement provides that it is governed by Oregon law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated under
this paragraph is subject to any applicable statute of limitations. The
arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss the
arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law before, during or after the arbitration
proceeding to obtain:
(A) a provisional or interim remedy; and/or
(B) additional or supplementary remedies.
(h) The pursuit of or a successful action for provisional, interim,
additional or supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including the
suing party, to submit the controversy or claim to arbitration if the other
party contests the lawsuit.
(i) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under the deed
of trust or mortgage, or to proceed by judicial foreclosure.
11.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
11.6 Costs. If the Bank incurs any expenses in connection with enforcing
this Agreement or administering this Agreement (including in connection with
extending, amending, renewing or modifying this Agreement), or if the Bank takes
collection action under this Agreement, it is entitled to costs and reasonable
attorneys' fees, including any allocated costs of in-house counsel.
11.7 Attorneys' Fees. In the event of a lawsuit or arbitration proceeding,
the prevailing party is entitled to recover costs and reasonable attorneys' fees
(including any allocated costs of in-house counsel) incurred in connection with
the lawsuit or arbitration proceeding, as determined by the court or arbitrator
(and not by a jury). Such costs and attorneys' fees shall include, without
limitation, those incurred on any appeal, as determined by the appellate court,
and any anticipated costs and attorneys' fees to pursue or collect any
judgement.
11.8 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other
agreements required by this Agreement, this Agreement will prevail.
11.9 Exchange of Information. The Borrower agrees that the Bank may
exchange financial information about the Borrower with BankAmerica Corporation
affiliates and other related entities.
11.10 Notices. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses as
the Bank and the Borrower may specify from time to time in writing.
11.11 Headings. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
11.12 Counterparts. This Agreement may be executed in as many counterparts
as necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
11.3 Written Agreements. Under Oregon Law, most agreements, promises and
commitments made by the Bank after October 3, 1989, concerning loans and other
credit extensions which are not for personal, family or household purposes or
secured solely by the borrower's residence must be in writing, express
consideration and be signed by that Bank to be enforceable.
This Agreement is executed as of the date stated at the top of the first
page.
BANK OF AMERICA NT&SA ADVANCED MACHINE VISION CORPORATION
/s/ Ron Farmer /s/ William J. Young
x-------------------------------- x---------------------------------------
By: Ron Farmer By: William J. Young
Title: Vice President Title: Chairman, President and CEO
Address where notices to the Bank /s/ Alan R. Steel
are to be sent: x---------------------------------------
P. O. Box 768 By: Alan R. Steel
Eugene, OR 97440 Title: Vice President, Finance and CFO
Address where notices to the Borrower
are to be sent:
3709 Citation Way #102
Medford, OR 97504
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
March 31, 1999 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000795445
<NAME> ADVANCED MACHINE VISION CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,057
<SECURITIES> 0
<RECEIVABLES> 4,038
<ALLOWANCES> 0
<INVENTORY> 7,826
<CURRENT-ASSETS> 16,259
<PP&E> 7,981
<DEPRECIATION> 2,878
<TOTAL-ASSETS> 28,415
<CURRENT-LIABILITIES> 4,047
<BONDS> 6,324
0
2,579
<COMMON> 26,103
<OTHER-SE> (10,638)
<TOTAL-LIABILITY-AND-EQUITY> 28,415
<SALES> 5,158
<TOTAL-REVENUES> 5,158
<CGS> 2,504
<TOTAL-COSTS> 5,618
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> (600)
<INCOME-TAX> (24)
<INCOME-CONTINUING> (576)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (576)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
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