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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1999
REGISTRATION NO. 333-69721
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PRI AUTOMATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MASSACHUSETTS 04-2495703
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
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805 MIDDLESEX TURNPIKE, BILLERICA, MASSACHUSETTS 01821-3986
(978) 670-4270
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MITCHELL G. TYSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRI AUTOMATION, INC.
805 MIDDLESEX TURNPIKE
BILLERICA, MASSACHUSETTS 01821-3986
(978) 670-4270
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
ROBERT L. BIRNBAUM, ESQUIRE
WILLIAM R. KOLB, ESQUIRE
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 832-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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The registrant hereby withdraws from registration 1,087,012 shares of its
common stock, $.01 par value, registered pursuant to this Registration Statement
on Form S-3. The registrant has filed the Prospectus solely to reflect the
reduced number of shares of common stock offered hereby and to update the
current market price of the common stock shown on the cover page. The registrant
has also filed this Post-Effective Amendment to include Exhibit 4.8 as a
separate exhibit. Substantially all of Exhibit 4.8 was previously filed as
Exhibit 2.1, as filed with the Securities and Exchange Commission on December
24, 1998.
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PROSPECTUS
PRI AUTOMATION, INC.
1,403,504 SHARES OF COMMON STOCK
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We are offering shares of common stock to the holders of exchangeable shares
of Promis Systems Corporation Ltd. Holders of exchangeable shares may exchange
their exchangeable shares for shares of our common stock at any time by
requiring Promis to redeem each exchangeable share tendered to Promis for one
share of our common stock. Alternatively, holders of exchangeable shares may
exchange their exchangeable shares for shares of our common stock by requiring
our Ontario subsidiary to purchase each exchangeable share tendered to our
Ontario subsidiary for one share of our common stock. This latter mechanism
provides a simpler and quicker way for a holder of exchangeable shares to obtain
shares of our common stock in exchange for the holder's exchangeable shares.
Promis will automatically redeem all of the outstanding exchangeable shares for
shares of our common stock on the seventh anniversary of our combination with
Promis, or earlier in some cases. This automatic redemption will pre-empt the
rights of holders of exchangeable shares to exchange those shares. We describe
the process by which exchangeable shares may be exchanged for common stock
beginning on page 24 of this prospectus under the heading "Plan of
Distribution."
In addition, LSI Logic Corporation is offering for resale up to 13,530
shares that it has the right to acquire upon exercise of a warrant. We will not
receive any of the proceeds from sales of shares by LSI Logic Corporation.
We are conducting this offer on a continuous basis pursuant to Rule 415
under the Securities Act of 1933 only during the period when the registration
statement relating to this prospectus is effective. We will bear the
registration costs incurred in connection with this offering.
Our common stock is traded on the Nasdaq National Market under the symbol
"PRIA." On March 3, 1999, the closing price of our common stock, as reported on
the Nasdaq National Market, was $27.38 per share.
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INVESTING IN THE SHARES INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 2.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is March 5, 1999.
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RISK FACTORS
Investing in shares of our common stock involves significant risks. Because
you could lose the entire value of your investment, you should carefully
consider the following risks before deciding to invest in our common stock. We
are uncertain about the future of our business and, in preparing this document,
have made certain assumptions and projections. We generally use words like
"expect," "believe" and "intend" to indicate these assumptions and projections.
See "Forward--Looking Statements." Our assumptions and projections could be
wrong for many reasons, including the reasons discussed in this section. We do
not promise to notify you if we learn that our assumptions or projections in
this prospectus are wrong.
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YOU MAY HAVE TO PAY TAXES If you exchange your exchangeable shares for shares of our
WHEN YOU ACQUIRE OUR COMMON common stock, you may be required to pay tax on any gain you
STOCK have under the laws of Canada and the US. WE STRONGLY URGE
YOU TO CONSULT WITH YOUR TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES OF THE EXCHANGE OF YOUR EXCHANGEABLE SHARES FOR
SHARES OF OUR COMMON STOCK. See "Income Tax Considerations."
Your tax consequences can vary depending on:
- where you are a resident for tax purposes,
- whether you exchange your exchangeable shares by way of
redemption or exchange,
- how long you have held your exchangeable shares, and
- the amount of outstanding exchangeable shares held by our
Ontario subsidiary immediately after the exchange.
- -- CANADIAN TAXES IMPOSED ON If your exchangeable shares are redeemed or retracted, and
CANADIANS WHO ACQUIRE OUR - you are a Canadian resident holding exchangeable shares as
COMMON STOCK capital property,
- you deal at arm's length with us, and
- you are not otherwise affiliated with us,
then you will generally be treated as if you received a
dividend equal to the amount paid to you on the redemption
or retraction, less the paid-up capital of your exchangeable
shares. If your net proceeds of disposition, less any deemed
dividend, exceed the adjusted cost base for the exchangeable
shares you exchange, you will also generally be treated as
if you realized a capital gain to the extent of that excess.
If your net proceeds of disposition, less any deemed
dividend, are less than your adjusted cost base for the
exchangeable shares that you exchange, you will generally be
treated as if you realized a capital loss to the extent of
that shortfall.
If you otherwise exchange your exchangeable shares for
shares of our common stock, you will generally be considered
to have realized a capital gain equal to the amount, if any,
by which the net proceeds of disposition exceed the adjusted
cost base for the exchangeable shares that you exchange. If
your net proceeds of disposition are less than your adjusted
cost base for the exchangeable shares that you exchange, you
will generally be treated as if you realized a capital loss
to the extent of that shortfall.
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- -- US TAXES IMPOSED ON US In most circumstances, if you are a "US person" for US
PERSONS WHO ACQUIRE OUR federal income tax purposes, you will generally recognize a
COMMON STOCK gain or loss when you exchange your exchangeable shares for
shares of our common stock. Your gain or loss will be equal
to the difference between the fair market value of the
shares of common stock you receive in the exchange and your
basis in the exchangeable shares that you exchange. The gain
or loss will generally be a capital gain or loss, except
that you may recognize ordinary income with respect to any
declared but unpaid dividends on the exchangeable shares. A
capital gain or loss will be a long-term capital gain or
loss under current law if your holding period for the
exchangeable shares is more than one year at the time of the
exchange.
CANADIAN TAXES IMPOSED ON If you are a Canadian resident for tax purposes, you must
CANADIANS WHO RECEIVE include in your income any dividends that you receive, or
DIVIDENDS are treated as having received, on shares of our common
stock. If you are an individual, the dividends will not be
subject to the gross-up and dividend tax credit rules that
normally apply to taxable dividends received from taxable
Canadian corporations. If you are a corporation, the
dividends will not be deductible in computing your taxable
income. In some circumstances, you may be entitled to a
foreign tax credit for any US withholding tax paid on the
dividends, subject to detailed rules under Canadian tax
laws. Your cost amount for shares of our common stock that
you receive on retraction, redemption or exchange of an
exchangeable share will in general be equal to the fair
market value of the shares of our common stock at that time.
US TAXES IMPOSED ON NON-US If you are not a US resident for tax purposes, dividends
RESIDENTS WHO RECEIVE that you receive on our common stock generally will be
DIVIDENDS subject to US withholding tax at a rate of 30%. This rate of
withholding tax may be reduced if you are eligible for the
benefits of an income tax treaty; this rate is generally 15%
on dividends paid to residents of Canada under the current
version of the tax treaty between Canada and the US.
CANADIAN TAXES IMPOSED ON If you are a Canadian resident for tax purposes, when you
CANADIANS WHO SELL OUR COMMON dispose of shares of our common stock that you hold as
STOCK capital property, you will generally recognize a capital
gain equal to the amount, if any, by which the net proceeds
of disposition exceed the adjusted cost base of your shares
of common stock. If your net proceeds of disposition are
less than your adjusted cost base of those shares of common
stock, you will generally recognize a capital loss equal to
the difference between such net proceeds and such adjusted
cost base.
US TAXES IMPOSED ON NON-US If you are not a US resident for tax purposes, you will
RESIDENTS WHO SELL OUR COMMON generally not be subject to US federal income tax on any
STOCK gain that you recognize when you sell or exchange shares of
our common stock, unless that gain is effectively connected
with your conduct of a US trade or business or, if you are
an individual, you are present in the US for 183 days or
more during the year of the sale or exchange or certain
other conditions are satisfied.
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OUR COMMON STOCK MAY CEASE TO If our common stock is delisted from Nasdaq and not listed
BE A "QUALIFIED INVESTMENT" on certain other stock exchanges, it will cease to be a
FOR CANADIAN RRSPS, RRIFS AND "qualified investment" under the Income Tax Act (Canada) for
DPSPS trusts governed by registered retirement savings plans,
registered retirement income funds and deferred profit
sharing plans. If our common stock ceases to be such a
qualified investment, such trusts and the annuitants of such
trusts may be liable to pay penalty taxes.
OUR COMMON STOCK IS "FOREIGN Our common stock will always be "foreign property" under the
PROPERTY" UNDER THE CANADIAN Canadian Tax Act for trusts governed by a registered
TAX ACT FOR RRSPS, RRIFS, retirement savings plan, a registered retirement income fund
DPSPS, REGISTERED PENSION or a deferred profit sharing plan, and for registered
PLANS, REGISTERED INVESTMENTS pension plans, registered investments and certain other tax
AND CERTAIN OTHER TAX EXEMPT exempt entities. This treatment may be different from the
ENTITIES, AND MAY SUBJECT treatment of your exchangeable shares, which will not be
THEM TO ADDITIONAL TAXES, "foreign property" under the Canadian Tax Act as long as
FEES AND EXPENSES they are listed on a prescribed stock exchange in Canada.
Accordingly, if you are such a holder, you should consult
your own tax advisors before you exchange exchangeable
shares for shares of our common stock. Investing in our
common stock may not be an acceptable investment for such
entities or may subject such entities to additional taxes,
fees or expenses.
OUR COMMON STOCK MAY TRADE AT The market price for our common stock may not be the same
DIFFERENT PRICES THAN THE as, or even similar to, the market price for the
EXCHANGEABLE SHARES exchangeable shares. The exchangeable shares are listed only
on the Toronto Stock Exchange, and our common stock is
traded only on the Nasdaq National Market. We do not intend
to list either the exchangeable shares or our common stock
on any other stock exchange or market in the US or Canada.
Accordingly, the trading price of the exchangeable shares
will be based only upon the market for that stock on the
Toronto Stock Exchange, and the trading price for our common
stock will be based only upon the market for that stock on
the Nasdaq National Market.
OVERSUPPLY IN THE Our business depends heavily upon capital expenditures by
SEMICONDUCTOR MARKET CAUSES semiconductor manufacturers, particularly manufacturers that
REDUCED DEMAND FOR CAPITAL are opening or expanding semiconductor fabrication
EQUIPMENT, INCLUDING FOR OUR facilities. These manufacturers frequently postpone or
SYSTEMS abandon their plans to make capital expenditures when demand
for their products and products containing semiconductors is
low. The semiconductor industry has been highly cyclical,
and periods of oversupply in the market for semiconductors
has caused significantly reduced demand for capital
equipment, including systems such as ours. We believe that
this cyclicality will continue and that the recent high rate
of technical innovation and resulting improvements in the
performance and price of semiconductor devices, which have
driven much of the demand for our products, could slow or
encounter limits.
THE SEMICONDUCTOR INDUSTRY In the last year, the semiconductor industry has experienced
HAS EXPERIENCED A DOWNTURN a significant downturn, which has seriously harmed our
THAT ability to sell our systems. Several of our customers have
HAS ADVERSELY AFFECTED OUR announced reductions in their planned capital expenditures,
OPERATING RESULTS including expenditures for the construction or expansion of
semiconductor fabrication facilities.
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The recent downturn in the Asian markets has also affected
demand for semiconductor manufacturing equipment, including
our systems. These and other factors have significantly
reduced our revenues and profitability in fiscal 1998. Our
total revenues for fiscal 1998 were $178.2 million, compared
with total revenues of $213.6 million in fiscal 1997. In
fiscal 1998, we incurred a net loss of $23.9 million,
compared with net income of $26.6 million in fiscal 1997.
CONTINUATION OF THE Any lengthy extension of the reduced demand for
SEMICONDUCTOR INDUSTRY semiconductor automation equipment would seriously harm
DOWNTURN COULD JEOPARDIZE OUR sales of our systems. If we take additional cost-cutting
PLANS measures in response to the downturn in the semiconductor
industry, we may be unable to continue to invest in
marketing, research, development and engineering at the
levels we think necessary to maintain our competitive
position.
OUR RESTRUCTURING PLAN In July 1998, we announced a restructuring and cost
ADVERSELY AFFECTED OUR reduction plan and reduced our workforce by approximately
FINANCIAL POSITION 15%, principally in the manufacturing and installation
groups. In fiscal 1998, we recorded a pre-tax restructuring
charge against earnings of $5.6 million, including severance
costs, costs related to reduction in facilities and other
restructuring costs. In fiscal 1998, we also recorded a
pre-tax charge against earnings of $14.0 million for the
write-down of inventories to their net realizable value and
increases in the provision for warranty.
OUR LENGTHY SALES CYCLE MAKES Our systems often have a lengthy sales cycle. As a result,
IT DIFFICULT TO ANTICIPATE we have difficulty anticipating the timing and amount of
SALES specific sales. We may also spend significant amounts of
money and effort with no assurance that we will make a sale.
Before buying one of our systems, a prospective customer
must generally decide to upgrade or expand existing
facilities or to construct new facilities. These
undertakings are major decisions for most prospective
customers and typically involve significant capital
commitments and lengthy evaluation and approval processes.
In addition, downturns in the semiconductor industry may
cause prospective customers to postpone decisions regarding
major capital expenditures, including purchases of our
systems.
OUR OPERATING RESULTS Many factors may cause our operating results to fluctuate
FLUCTUATE SIGNIFICANTLY significantly. Some of these factors are:
- the timing of significant orders
- the gain or loss of any significant customer
- new product announcements and releases by us or our
competitors
- order cancellations and shipment rescheduling or delays
- patterns of capital spending by our customers
- market acceptance of new and enhanced versions of our
products
- changes in the pricing and the mix of products we sell
- cyclicality in the semiconductor industry and the markets
served by our customers
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- the timing of any acquisitions and related costs
As a result of these factors and the factors that follow, we
believe that period-to- period comparisons of our revenues
and operating results are not necessarily meaningful. You
should not rely on these comparisons to predict our future
performance.
DELAY IN OUR SHIPMENT OF A We derive a substantial portion of our revenues from the
SINGLE SYSTEM COULD sale of a relatively small number of our systems. The
SUBSTANTIALLY DECREASE OUR purchase price of our systems generally ranges from
EXPECTED SALES FOR A PERIOD $3,000,000 to $15,000,000, and we usually take more than one
or two fiscal quarters to deliver our systems. As a result,
any delay in the recognition of revenue for a single system
could harm our results for a given accounting period. If we
delay a shipment near the end of a fiscal period because,
for example, the customer reschedules or cancels its order
or because we encounter unexpected manufacturing
difficulties, our sales in that fiscal period could fall
significantly below our expectations. This could seriously
harm our business.
WE TYPICALLY CHARGE A FIXED Our operating results also fluctuate because our gross
PRICE FOR A SYSTEM, WHICH margins vary. Our gross margins vary for a number of
LEAVES US VULNERABLE TO COST reasons, including:
OVERRUNS
- the mix of products we sell
- the average selling prices of products we sell
- the costs to manufacture, market, service and support our
new products and enhancements
- the costs to customize our systems
- our efforts to enter new markets
We typically charge a fixed price for our systems. As a
result, if the costs we incur in performing a contract
exceed our expectations, we generally cannot pass those
costs on to our customer.
WE HAVE SIGNIFICANT FIXED We continue to invest in research and development, capital
COSTS WHICH ARE NOT EASILY equipment and extensive ongoing customer service and support
REDUCED DURING A DOWN TURN capability worldwide. These investments create significant
fixed costs that we may be unable to reduce rapidly if we do
not meet our sales goals. Moreover, if we lack a significant
backlog of orders for an extended period of time, we may
have difficulty planning our future production and inventory
levels, which could also cause fluctuations in our operating
results.
WE HAVE A LIMITED NUMBER OF Historically, we have derived a significant portion of our
CUSTOMERS revenues from a limited number of customers. We expect this
trend to continue for the foreseeable future. In fiscal
1996, 1997 and 1998, sales to our three largest customers
accounted for 40%, 47% and 41% of our total sales,
respectively. In those years, one customer, Intel
Corporation, accounted for 29%, 36% and 22% of our net
revenue, respectively. Our largest customers can change from
year to year, as customers complete large semiconductor
fabrication facilities and initiate new projects.
OUR FUTURE REVENUE SOURCES None of our customers has any long-term obligation to
ARE UNCERTAIN continue to purchase our products or services, and any
customer could reduce
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or cease ordering our products or services. We believe that
sales to some of our customers will decrease in the near
future as they complete their current purchases for new or
expanded semiconductor fabrication facilities. When a
customer cancels an order, our sales contract generally
allows us to recover our out-of-pocket expenses and a
portion of our anticipated profits from the sale. Because of
the long sales cycle for our products, we may have
difficulty in quickly replacing orders that our customers
cancel or reduce. Our failure to obtain large orders from
new or existing customers could seriously harm our business.
In the past, our customers have sometimes failed to place
orders we expected or have delayed or canceled delivery
schedules as a result of changes in their requirements.
Order deferrals or cancellations can seriously harm our
business.
THE DOWNTURN IN ASIA COULD The current economic downturn in certain Asian countries has
CONTINUE TO ADVERSELY AFFECT adversely affected, and could continue to adversely affect,
OUR BUSINESS the worldwide semiconductor industry and our business. In
fiscal 1996, 1997 and 1998, our export sales to Asia,
excluding sales by Equipe to US original equipment
manufacturers who may have resold to customers in Asia, were
approximately 10%, 14% and 9% of our total consolidated net
revenues. According to industry analysts, as a result of the
recession in Japan, as well as currency fluctuations and
other problems in other Asian countries, Asian consumers
have slowed purchases of personal computers, cellular phones
and other products that use semiconductors. The reduction in
demand for semiconductors has led and could continue to lead
semiconductor manufacturers, both in Asia and the US, to
build fewer new semiconductor fabrication facilities and
undertake fewer capital improvement projects in their
existing semiconductor fabrication facilities. As a result,
we have experienced, and could continue to experience,
delays or cancellations of orders from our customers. Such
delays or cancellations could seriously harm our business.
OUR PLANNED INVESTMENTS IN We believe that our continued presence in Asia will be
ASIA MAY NOT BE SUCCESSFUL important to our long-term future financial performance.
Accordingly, we expect to invest significant resources to
increase our presence in Asia. Many of our Japanese
competitors have longstanding collaborative relationships
with Japanese and other Asian semiconductor manufacturers.
Accordingly, we may be unable to increase sales in the Asian
semiconductor markets. These markets, which include Korea,
Taiwan, Singapore, China and, most significantly, Japan,
represent a substantial percentage of the worldwide
semiconductor manufacturing capacity.
WE HAVE INVESTED HEAVILY IN We have invested, and are continuing to invest, substantial
300MM WAFER TECHNOLOGY, WHICH resources to develop new systems and technologies to
IS BEING ADOPTED MORE SLOWLY automate the processing of 300mm wafers. In fiscal 1997 and
THAN WE EXPECTED 1998, we invested approximately $7 million and $5.2 million,
respectively, in the development of 300mm manufacturing
technology. However, the industry transition from the
current, widely used 200mm manufacturing technology to 300mm
manufacturing technology is occurring more slowly than we
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expected, partly as a result of the recent reduction in
demand for semiconductors. Although pilot projects are
underway, no new 300mm semiconductor fabrication facility is
yet under construction. Any significant delay in the
adoption of 300mm manufacturing technology, or the failure
of such adoption to occur, could significantly reduce our
operating results. Moreover, continued delay in the
transition to 300mm technology could permit our competitors
to introduce competing or superior 300mm products.
WE NEED EMPLOYEES WHO ARE We need to hire additional management level employees and
DIFFICULT TO HIRE AND RETAIN substantial numbers of employees with technical backgrounds
for both our hardware and software engineering and technical
support staffs. The market for these employees is becoming
increasingly competitive, and we have occasionally
experienced delays in hiring these personnel. Our failure or
inability to recruit, retain and train adequate numbers of
qualified personnel on a timely basis would adversely affect
our ability to develop, manufacture, install and support our
systems.
WE MAY HAVE DIFFICULTY If the semiconductor industry resumes its growth, we may
MANAGING GROWTH IN LIGHT OF have to design and manufacture our systems in larger volumes
FLUCTUATING DEMAND than we do now. If demand for our products increases
rapidly, we may have difficulty increasing our production
capacity while maintaining our standards of quality and
reliability, and delivery times for our systems may
increase. If we fail to meet a customer's delivery or
performance criteria, we could lose business from that
customer, cause long-term damage to our reputation and have
higher warranty and service costs. Any of these results
could seriously harm our business. Further, if we are unable
to expand our existing manufacturing capacity to meet
demand, a customer's placement of a large order for the
development and delivery of flexible factory automation
systems during a particular period might deter other
customers from placing similar orders with us for the same
period.
Our systems, procedures, controls and staffing may not be
adequate to support any rapid growth in our operations, if
any. Our failure to respond effectively to fluctuating
demand for our products and to manage our future growth, if
any, could seriously harm our business.
OUR RECENT ACQUISITIONS MAY We acquired Equipe and its European distributor, Chiptronix
DISRUPT OUR OPERATIONS Handling Systems, in the first half of 1998 and we have
recently acquired Promis Systems. We may be unable to
successfully integrate the substantial operations of these
companies with our own operations. We may also be unable to
successfully develop, market and sell their products. These
acquisitions and any future acquisitions also pose
additional risks, including:
- diversion of our management's attention
- loss of key employees of the acquired company
- interruptions in the sales efforts of the acquired company
- failure to integrate financial and accounting systems
successfully
- significant acquisition and integration expenses
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- assumption of legal and other liabilities and risks
- entry into markets in which we have little or no prior
experience
Any of these factors could seriously harm our business.
Moreover, these and future acquisitions may not produce the
revenues, earnings or business synergies that we
anticipated, and an acquired product, service or technology
might not perform as we expected. Any such poor performance
could cause customer dissatisfaction and damage our
reputation.
OUR INTERNATIONAL OPERATIONS In fiscal 1996, 1997 and 1998, international sales accounted
CREATE SPECIAL RISKS for 15%, 46% and 33% of our total revenues, respectively. We
anticipate that international sales will continue to account
for a significant portion of our net sales for the
foreseeable future. Our plans to expand internationally may
distract our attention from our domestic operations and may
absorb financial resources needed elsewhere. Our
international operations are subject to additional risks,
including:
- unexpected changes in trading policies, regulatory
requirements, exchange rates, tariffs and other barriers
- unstable political and economic environments
- greater difficulties in collecting accounts receivable
- difficulties in managing distributors or representatives
- restrictions on exporting and importing technology
- fewer protections for our intellectual property
- longer sales cycles than with domestic customers
- difficulties in staffing and managing foreign operations
- restrictions on the repatriation of earnings
- potentially adverse tax consequences
Although our international sales are primarily denominated
in US dollars, changes in currency exchange rates could make
it more difficult for us to compete with foreign
manufacturers on price. If our international sales increase
relative to our total revenues, these factors could have a
more pronounced effect on our operating results. In any
event, any of these factors could cause serious harm to our
business.
WE FACE SIGNIFICANT We compete intensely with one principal competitor, the
COMPETITION FROM OTHER clean automation division of Daifuku, a large Japanese
AUTOMATION COMPANIES, WHICH manufacturer of factory automation systems. We also compete
AMONG OTHER THINGS LIMITS THE with Shinko Electronics Company, Murata Machinery and other
PRICES WE CAN CHARGE FOR OUR manufacturers of equipment used to automate the process of
SYSTEMS AND MAY CAUSE US TO semiconductor manufacturing. Our Equipe division competes
LOSE SALES with a number of wafer-handling robotics companies,
including in-house organizations of process tool
manufacturers that develop their own automation, as well as
other smaller robotics companies. Our software division
competes with a number of suppliers of automated scheduling
and planning software. We believe that competition in our
industry is likely to intensify.
We believe that, once a semiconductor manufacturer selects a
particular vendor's equipment, the manufacturer will
generally rely
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upon that equipment for the specific production line
application and will frequently attempt to fulfill its other
capital equipment needs from the same vendor. Accordingly,
we expect to have difficulty selling to potential customers
that have selected a competitor's equipment, and we expect
that difficulty to last for a significant period of time. In
addition, the expected transition to 300mm technology may
cause new competitors to enter our markets and may diminish
our competitive advantage with customers for whom we are the
incumbent supplier of automation equipment. In the face of
increased competition, we may need to lower our prices,
which could seriously harm our business.
WE MUST CONTINUALLY IMPROVE Technology changes rapidly in the semiconductor
OUR TECHNOLOGY TO REMAIN manufacturing industry. Our ability to compete will depend,
COMPETITIVE in part, on our ability to develop and introduce more
advanced systems at competitive prices and on a
cost-effective basis so as to enable our customers to
integrate them into their operations either before or as
they begin volume product manufacturing. For example, as the
semiconductor industry transitions from 200mm manufacturing
technology to 300mm technology, we believe it is important
to our future success to develop and sell new products that
are compatible with 300mm manufacturing technology. If our
competitors introduce new technologies, our sales could
decline and our existing products could lose market
acceptance. Our success in developing, introducing, selling
and supporting more advanced systems depends upon many
factors, including:
- component selection
- timely and efficient completion of product design and
development
- timely and efficient implementation of manufacturing and
assembly processes
- software development
- product performance in the field
- effective sales, marketing, service and project management
Because we must commit resources to product development well
in advance of sales, our product development decisions must
anticipate technological advances by leading semiconductor
manufacturers. We may not be successful in that effort. Our
inability to select, develop, manufacture and market new
systems or enhance our existing systems could cause us to
lose our competitive position and could seriously harm our
business.
WE MAY CONTINUE TO EXPERIENCE Because our systems are complex and have a large number of
DELAYS IN PRODUCT DEVELOPMENT components, there can be a significant lag between the time
AND TECHNICAL DIFFICULTIES we introduce a system and the time we begin to produce that
system in volume. We have occasionally experienced delays in
introducing some of our systems and enhancements, as well as
certain technical and manufacturing difficulties with those
systems and enhancements. For example, as the level of
sophistication of technology in the semiconductor industry
increases, we have found it increasingly difficult to
coordinate complex manufacturing
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equipment and software in our systems and to train our
technical and manufacturing personnel in a timely manner. We
could experience similar delays and difficulties in the
future. In addition, we must customize some of our systems
to meet the customer's site or operating requirements. Our
inability to complete the development or meet the technical
specifications of any of our new systems or enhancements or
to manufacture and ship these systems or enhancements in
volume in a timely manner could impair our relationships
with our customers and seriously harm our business. In
addition, we may incur substantial unanticipated costs to
ensure that our new products function properly and reliably
early in their life cycle. These costs could be, for
example, greater than expected installation and support
costs or increased materials costs as a result of expedited
charges. We may not be able to pass these costs on to our
customers. Any of these events could seriously harm our
business.
WE DEPEND ON ONE OR A FEW For certain components or specialized processes that we use
SUPPLIERS FOR SOME MATTERS in our products, such as painting of system cabinets and
enclosures, we depend on or have available only one or a few
suppliers. We could experience disruption in obtaining
components we need for our products and may not be able to
develop alternatives in a timely manner. If we are unable to
obtain adequate deliveries of components for our products
for an extended period of time, we may have to pay more for
inventory, parts and other supplies, seek alternative
sources of supply or delay shipping products to our
customers. We could also damage our relationships with
customers. Any such increased costs, delays in shipping or
damage to customer relationships could seriously harm our
business.
WE MAY BE UNABLE TO PROTECT Our success depends to a significant degree upon our patent
OUR PROPRIETARY TECHNOLOGY for certain key elements of our AeroTrak monorail system,
our other patents, our source code and our other proprietary
technology. The steps we have taken to protect our
technology may be inadequate. If so, we might not be able to
prevent others from using what we regard as our technology
to compete with us. For example, our patents could be
challenged, invalidated or circumvented, and the rights we
have under our patents could provide no competitive
advantages. Existing trade secret, copyright and trademark
laws offer only limited protection. In addition, the laws of
some foreign countries do not protect our proprietary
technology to the same extent as the laws of the US. Other
companies could independently develop similar or superior
technology without violating our proprietary rights. Any
misappropriation of our technology or the development of
competitive technology could seriously harm our business.
If we have to resort to legal proceedings to enforce our
intellectual property rights, the proceedings could be
burdensome and expensive and could involve a high degree of
risk.
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CLAIMS BY OTHERS THAT WE Third parties could claim that our products or technology
INFRINGE THEIR PROPRIETARY infringe their patents or other proprietary rights. While we
TECHNOLOGY COULD HARM OUR conduct patent searches to determine whether the technology
BUSINESS used in our products infringes patents held by third
parties, these searches are not comprehensive and may not
reveal potential third party claimants. Any claim of
infringement by a third party could cause us to incur
substantial costs defending against the claim, even if the
claim is invalid, and could distract our management from our
business. Furthermore, a party making such a claim could
secure a judgment that requires us to pay substantial
damages. A judgment could also include an injunction or
other court order that could prevent us from selling our
products. Any of these events could seriously harm our
business.
If anyone asserts a claim against us relating to proprietary
technology or information, we might seek to license their
intellectual property or to develop non-infringing
technology. We might not be able to obtain a license on
commercially reasonable terms or on any terms.
Alternatively, our efforts to develop non-infringing
technology could be unsuccessful. Our failure to obtain the
necessary licenses or other rights or to develop
non-infringing technology could prevent us from selling our
products and could therefore seriously harm our business.
WE DEPEND ON MORDECHAI Our future success depends significantly on the skills,
WIESLER AND MITCHELL G. TYSON experience and efforts of our founder, Chairman of the Board
and Treasurer, Mordechai Wiesler, and our President and
Chief Executive Officer, Mitchell G. Tyson. We also depend
on other executive officers and key personnel. Many of these
individuals would be difficult to replace. The loss of Mr.
Wiesler, Mr. Tyson or any other key person could seriously
harm our business.
"YEAR 2000" PROBLEMS MAY Many existing computer systems and software products do not
DISRUPT OUR OPERATIONS properly recognize dates after December 31, 1999. This "Year
2000" problem could result in miscalculations, data
corruption, system failures or disruptions of operations.
The inability of our products, or of products, services and
systems on which we rely, to process dates after December
31, 1999 could seriously harm our business.
Our Year 2000 project to identify and correct any Year 2000
problems is in various stages of completion with respect to
our products, our internal information technology, or IT,
systems, our internal non-IT systems, and third-party
business services and products on which we rely. We
currently expect to complete all testing for Year 2000
compliance in mid-1999. We could fail to complete our Year
2000 assessment and remediation program in a timely manner
and the costs of that program may be greater than we expect.
Our Year 2000 program may be inadequate to identify in a
timely manner all Year 2000 problems that could adversely
affect our business. If we identify any significant Year
2000 problems late in our testing schedule, we may not have
sufficient time, resources or ability to remedy the problem.
We do not currently have a Year 2000 contingency plan.
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Any unexpected Year 2000 problem could require us to spend
significant amounts of money to try to correct the problem.
If any of our products have Year 2000 problems that we
cannot quickly correct, we could lose customer goodwill and
face customer lawsuits. If any of our internal systems or
any third-party services or products on which we rely have
Year 2000 problems, our operations could be disrupted, which
could in turn cause delays in meeting production and
shipping goals and could divert significant management
resources. Any of these outcomes could seriously harm our
business.
THE MARKET PRICE OF OUR The market price of our common stock has fluctuated widely
COMMON STOCK IS VOLATILE and may continue to do so. For example, during fiscal 1998
the price of our stock ranged from a high of $55.81 per
share to a low of $10.44 per share. Many factors could cause
the market price of our common stock to rise and fall. Some
of these factors are:
- variations in our quarterly operating results
- announcements of technological innovations
- introduction of new products or new pricing policies by us
or our competitors
- trends in the semiconductor manufacturing industry
- acquisitions or strategic alliances by us or others in our
industry
- the hiring or departure of key personnel
- changes in accounting principles
- changes in estimates of our performance or recommendations
by financial analysts
- market conditions in the industry and the economy as a
whole
In addition, the stock market has recently experienced
extreme price and volume fluctuations. These fluctuations
have particularly affected the market prices of the
securities of many high technology companies. These broad
market fluctuations could adversely affect the market price
of our common stock. When the market price of a stock has
been volatile, holders of that stock have often instituted
securities class action litigation against the company that
issued the stock. If any of our stockholders brought such a
lawsuit against us, we could incur substantial costs
defending the lawsuit. The lawsuit could also divert the
time and attention of our management. Any of these events
could seriously harm our business.
FUTURE SALES BY EXISTING When we acquired Equipe, Chiptronix and two related
STOCKHOLDERS COULD DEPRESS companies, we issued 4,469,016 shares of our common stock to
THE MARKET PRICE OF OUR the former stockholders of those companies. Immediately
COMMON STOCK after they were issued, these shares were "restricted
securities" for purposes of Rule 144 under the Securities
Act, and will be eligible for sale in the public market
pursuant to Rule 144 commencing in January 1999. We have
already registered approximately 31% of these shares for
sale in the public market. We may be required to register
the remaining shares for sale in the public market. The sale
of substantial amounts of these shares in the public market
could adversely affect the market price of our common stock.
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CERTAIN PROVISIONS OF OUR Our basic corporate documents, our stockholder rights plan
CHARTER AND BY-LAWS AND and Massachusetts law contain provisions that might enable
MASSACHUSETTS LAW MAKE A our management to resist an attempt to take over our
TAKEOVER OF OUR COMPANY MORE company. For example, our board of directors can issue
DIFFICULT shares of common stock and preferred stock without
stockholder approval, and the board could issue stock to
dilute and adversely affect various rights of a potential
acquiror. The board could use other provisions to
discourage, delay or prevent a change in the control of our
company or a change in our management. These provisions
might also discourage, delay or prevent an acquisition of
our company at a price that you may find attractive. These
provisions could also make it more difficult for you and our
other stockholders to elect directors and take other
corporate actions. These provisions could limit the price
that investors might be willing to pay for shares of our
common stock.
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ABOUT PRI
We are a leading supplier of factory automation systems for semiconductor
manufacturers and OEM equipment suppliers. We combine advanced robotics
technology with material handling systems and a broad array of integrated
software to automate the manufacturing of integrated circuits. Our mission is to
provide integrated solutions of hardware, software and services that optimize
the flow of silicon wafers throughout the semiconductor fabrication facility, or
fab, improving the productivity of semiconductor manufacturing. Our products
consist of overhead monorail wafer transportation systems; work-in-process wafer
stockers and reticle stockers; tool automation systems; material control
software and scheduling and planning software; and factory simulation and other
services, including project management and on-site support. Our automated
material handling solutions increase process tool utilization and throughput by
optimizing the flow of wafers to and from process tools throughout the fab.
In North America, we sell our products through a direct sales force
operating out of our headquarters in Billerica, Massachusetts and our regional
offices in California, Texas and Oregon. Outside North America, we sell and
support our products through our direct sales and technical support organization
with offices in the United Kingdom, France, the Netherlands, Germany, Ireland,
Israel, Italy, Switzerland, Taiwan, South Korea, Singapore, and Japan.
Our principal executive offices are located at 805 Middlesex Turnpike,
Billerica, Massachusetts 01821-3986, and our telephone number is (978) 670-4270.
Our company was incorporated in Massachusetts in 1972 under another name and we
began our present business in 1982.
OUR ACQUISITION OF PROMIS
We recently acquired Promis in a transaction that we accounted for as a
pooling of interests. Promis develops, markets and maintains software products
used by large-scale manufacturers, such as semiconductor and precision
electronics manufacturers, to optimize their manufacturing processes and ensure
compliance with mandatory specifications. Promis' software is "mission critical"
in that large-scale manufacturers would be unable to effectively operate their
facilities without its use or the use of similar software.
Promis' software offerings operate in real-time and are designed for use by
manufacturers whose raw materials or components are processed in distinct units,
permitting work-in-progress and finished goods to be tracked by lots. Promis'
software products are designed to assist in the planning, execution and control
of manufacturing operations and thereby enhance the competitiveness of such
manufacturing users, by allowing them to achieve higher product quality, faster
output and lower productions costs.
USE OF PROCEEDS
Because we will issue most of the shares of common stock offered hereby upon
exchange or redemption of the exchangeable shares, we will receive no cash
proceeds upon the issuance of such shares. We will not receive any proceeds from
the sale of shares of common stock by LSI Logic Corporation.
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SELLING STOCKHOLDER
The following table sets forth certain information with respect to the
beneficial ownership of our common stock by the selling stockholder as of
February 24, 1999 and as adjusted to reflect the sale of the shares of common
stock offered by this prospectus.
<TABLE>
<CAPTION>
SHARES TO BE
BENEFICIALLY
OWNED AFTER OFFERING
SHARES BENEFICIALLY
OWNED PRIOR TO IF ALL SHARES SOLD(1)
OFFERING(1) NUMBER OF
------------------------ SHARES BEING ----------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------------- ----------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
LSI Logic Corporation..................................... 13,530(2) * 13,530(2) -- --
</TABLE>
- ------------------------
* Percentage of shares beneficially owned is less than 1.0%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. The selling stockholder
possesses sole voting and investment power with respect to all of the shares
of common stock beneficially owned by it. Percentage of beneficial ownership
is based on 20,115,962 shares of common stock outstanding as of February 19,
1999.
(2) Represents shares issuable upon exercise of a warrant.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock
and 400,000 shares of preferred stock. We have designated 250,000 shares of
preferred stock as series A participating cumulative preferred stock and one
share of preferred stock as special voting preferred stock.
OUR COMMON STOCK
As of February 19, 1999, there were 20,115,962 shares of our common stock
outstanding. Holders of our common stock have one vote for each share held of
record on all matters upon which our stockholders vote. Subject to any
preferences that holders of our preferred stock might have, the holders of our
common stock will receive any lawful dividends that our board of directors might
declare. If we liquidate, dissolve or wind up our affairs, the holders of our
common stock will receive pro rata all of our remaining assets that are
available for distribution to our stockholders subject to any preferences that
holders of our preferred stock might have.
OUR PREFERRED STOCK
As of February 19, 1999, there were no shares of our preferred stock
outstanding other than the share of special voting preferred stock issued in
connection with our acquisition of Promis. Subject to limitations prescribed by
Massachusetts law, we have authorized our board of directors to take the
following actions without the need for any further action or vote by our
stockholders:
- issue preferred stock in one or more series
- establish the number of shares to be included in each such series
- fix or alter the rights, preferences and privileges of the shares of each
wholly unissued series and any restrictions that may apply to these shares
- increase or decrease the number of shares of any such series, so long as
the amount is not below the number of shares of such series then
outstanding
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- attempt to discourage an unsolicited acquisition proposal by issuing
preferred stock or rights to purchase preferred stock
OUR STOCKHOLDER RIGHTS PLAN
On December 7, 1998, our board of directors declared a distribution of one
new right for each outstanding share of our common stock. We issued these rights
to our stockholders of record on December 9, 1998. Thereafter, we will issue
rights with respect to shares of common stock issued before we distribute the
rights and, in certain circumstances, with respect to shares of common stock
issued after we distribute the rights. Each right, when it becomes exercisable
as described below, will entitle the holder to purchase from us one
one-hundredth (1/100) of a share of series A preferred stock for $140. The
description and terms of the rights are set forth in a rights agreement between
us and State Street Bank and Trust Company, which is acting as the rights agent.
We will issue the rights to our stockholders upon the earliest of the
following dates:
- the date on which we first publicly announce that a person or group has
acquired, or has obtained the right to acquire, beneficial ownership of
20% or more of our outstanding common stock, including common stock that
we will issue upon the exchange or redemption of exchangeable shares
- the date on which we first publicly announce that an affiliate or
associate of such person or group has acquired, or has obtained the right
to acquire, beneficial ownership of 20% or more of our outstanding common
stock, including common stock that we will issue upon the exchange or
redemption of exchangeable shares
- the date, if any, that our board of directors may designate following the
commencement of, or first public disclosure of an intent to commence, a
tender or exchange offer which could result in the potential buyer
becoming the beneficial owner of 20% or more of our outstanding common
stock, including common stock that we will issue upon the exchange or
redemption of exchangeable shares
Until we issue and distribute the rights to our stockholders, certificates
for common stock alone will evidence the rights. Accordingly, until we
distribute the rights, they will be transferred with and only with the common
stock. As soon as practicable following the date that we distribute the rights,
we will mail separate certificates evidencing the rights to stockholders of
record as of the close of business on that date. Thereafter, the separate right
certificates will evidence the rights. The rights are not exercisable until we
distribute them. The rights will expire on December 9, 2008, unless we redeem
them on an earlier date.
If our common stock or series A preferred stock changes in any way, then our
board of directors may adjust any of the following in order to preserve the
actual or potential economic value of the rights:
- the number of shares of series A preferred stock or other securities
issuable upon exercise of a right
- the purchase price of series A preferred stock
- the redemption price of series A preferred stock
- the number of rights associated with each share of common stock
We may issue shares of series A preferred stock in fractions which are an
integral multiple of one one-hundredth (1/100) of a share of series A preferred
stock. Though not required to do so, we may issue fractions of shares upon the
exercise of rights. In lieu of fractional shares, we may issue certificates or
utilize a depository arrangement as provided by the terms of the series A
preferred stock. In
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the case of fractions other than one one-hundredth (1/100) of a share of series
A preferred stock or integral multiples thereof, we may make a cash payment
based on the market price of such shares.
After we distribute the rights, the rights will entitle each holder to
purchase, for $140, that number of one one-hundredths (1/100) of a share of our
series A preferred stock equivalent to the number of shares of our common stock
which at the time of the transaction would have a market value of $280.
If we enter into one of the following transactions with an entity that is a
publicly traded corporation, then each right will entitle its holder to
purchase, for $140, that number of common shares of such corporation which at
the time of the transaction would have a market value of $280:
- our acquisition by the other entity
- our merger with the other entity
- our sale, lease, exchange or transfer of 50% or more of our assets to the
other entity
- our sale, lease, exchange or transfer of assets representing 50% or more
of our earning power to the other entity
If we enter into one of the above transactions with an entity that is not a
publicly traded corporation, then each right will entitle its holder to
purchase, for $140, one of the following at the holder's option:
- the number of shares of such entity that at the time of the transaction
would have a book value of $280
- the number of shares of the surviving company in an acquisition, which
could be us, that at the time of the transaction would have a book value
of $280
- in the case where the entity has an affiliate which has publicly traded
common shares, the number of common shares of the affiliate that at the
time of the transaction would have a book value of $280
If a person or group acquires or proposes to acquire enough common stock to
trigger distribution of the rights, then any rights that at any time such person
or group owns will be null and void and nontransferable. Likewise, if any
affiliate or associate of such person or group acquires or proposes to acquire
enough common stock to trigger distribution of the rights, then any rights that
at any time such affiliate or associate owns will be null and void and
nontransferable. Any holder, purported transferee or subsequent holder of such
rights will lack any right to exercise or transfer the rights.
At any time after distribution of the rights, our board of directors may
exchange all or part of the then-outstanding rights, other than those rights
that are null and void and nontransferable as described above. The consideration
per right for such exchange will consist of one-half of the securities that
otherwise would have been issuable to the holder of each right upon exercise of
the right. In substitution for shares of series A preferred stock, we may also
issue shares of common stock having an equivalent market value to the shares of
series A preferred stock if at such time either of the following conditions
applies:
- we have a sufficient number of shares of common stock issued but not
outstanding
- we have a sufficient number of shares of common stock authorized but
unissued
Our board may redeem all, but not less than all, of the rights at a price of
$.001 per right at any time prior to the earlier of the following dates:
- the date on which the rights expire
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- the date on which we first publicly announce that a group has acquired, or
has proposed to acquire, enough common stock to trigger the distribution
of rights
Our board may pay the redemption price either in cash, in shares of our
common stock, or in any of our securities that our board deems to be at least
equivalent in value.
If our board elects to redeem the rights, then we will announce the
redemption. Once we announce the redemption, the right to exercise the rights
will terminate and the holders of the rights will be entitled to receive the
redemption price. Until a right is exercised, holders will have no additional
rights as stockholders. Such additional rights include, without limitation,
additional rights to vote or to receive dividends.
We may supplement or amend the rights agreement in any way and at any time
prior to the distribution of the rights, except that we may not do so in order
to reduce the redemption price or provide for an earlier expiration of the
rights. Our authority to supplement or amend the rights agreement includes the
provisions concerning the date on which we will distribute the rights, the time
during which holders may redeem the rights, and the terms of the series A
preferred stock. We may supplement or amend the rights agreement without the
approval of any holder of the rights.
The rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire us without
conditioning the offer on substantially all the rights being acquired. However,
the rights will not interfere with any merger or other business combination with
a third party for which our board of directors grants its approval. This is so
because the board may redeem the then-outstanding rights at the redemption price
before we first publicly announce that a person or a group has acquired, or has
proposed to acquire, enough common stock to trigger distribution of the rights.
OUR SERIES A PREFERRED STOCK
As of February 19, 1999, there were no shares of our series A preferred
stock outstanding.
If we declare dividends on shares of our common stock, then at the same time
we will also pay cash and in-kind dividends to record holders of our series A
preferred stock. The payment per share of series A preferred stock will be equal
to 100 times the per share amount of all cash dividends that we are then paying
on each share of common stock. This amount is subject to adjustment to reflect
stock dividends, subdivisions or combinations of our outstanding common stock.
The holders of series A preferred stock are also entitled to receive quarterly
cumulative dividends payable in cash in an amount equal to $1.00 per whole
share. However, we will reduce these payments of quarterly cumulative dividends
by whatever amount that we might have paid the holders of series A preferred
stock in cash and in-kind dividends as described above.
Holders of our series A preferred stock may vote on each matter on which
holders of our common stock may vote. Series A preferred stock holders will have
100 votes for each whole share of series A preferred stock that they hold. This
amount is also subject to adjustment as described above. Holders of any fraction
of a share of series A preferred stock that is not smaller than one
one-hundredth (1/100) of a share will be entitled to vote such fraction. If the
equivalent of six quarterly dividends are in default, then series A preferred
stock holders will have certain special voting rights in the election of
directors.
Whenever quarterly dividends or distributions on outstanding shares of our
series A preferred stock are in arrears, our right to benefit holders of shares
of stock ranking junior to or on a parity with the series A preferred stock will
be subject to certain restrictions. These benefits may include our declaration
or payment of dividends or other distributions on the stock, and our redemption
or purchase of the shares of the stock.
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If we voluntarily or involuntarily liquidate, dissolve or wind up our
affairs, then the series A preferred stock holders will receive an amount equal
to the accrued dividends thereon plus the greater of the following amounts:
- $1.00 per share
- an amount per share equal to 100 times the amount per share that we
distribute to holders of common stock, subject to adjustment as described
above
We will distribute this amount to the holders of series A preferred stock
before we make any distribution to the holders of stock ranking on a parity with
the series A preferred stock, other than a ratable distribution, and also before
we make any distribution to holders of stock ranking junior to the series A
preferred stock.
Holders of shares of series A preferred stock may not redeem these shares.
However, we may purchase shares of series A preferred stock in the open market
or pursuant to an offer to any holder.
If we engage in a consolidation, merger or other transaction in which the
shares of common stock are exchanged for or converted into other securities,
cash or any other property, the shares of series A preferred stock will be
similarly exchanged or converted.
We may issue shares of series A preferred stock in whole shares or in any
fraction of a share that is not smaller than one one-hundredth (1/100) of a
share or any integral multiple of such fraction, subject to certain adjustments.
In lieu of issuing fractional shares, we may issue certificates or depositary
receipts evidencing such authorized fractions of shares. In the case of
fractions other than one one-hundredth (1/100) of a share and integral multiples
thereof, we may pay registered holders cash equal to the same fraction of the
current market value of any outstanding shares of series A preferred stock or
the equivalent number of shares of common stock.
OUR VOTING SHARE
Pursuant to the voting and exchange trust agreement with Promis, our Ontario
subsidiary and Montreal Trust Company of Canada, as trustee, we issued one
voting share to the trustee who is holding the voting share in trust for the
benefit of the holders of exchangeable shares. The voting share entitles the
trustee to vote at meetings of the holders of our common stock. For each
exchangeable share that is not held by us or our subsidiaries, the trustee has
the number of votes to which a holder of one share of our common stock is
entitled with respect to any vote. Unless our charter or applicable law requires
otherwise, the trustee and the holders of our common stock will vote together as
a single class in the election of directors and in all matters which are
submitted to a vote of our stockholders.
The voting share does not entitle the trustee to receive dividends. If we
dissolve, liquidate or wind up our affairs, the trustee will receive $1.00 out
of our net assets available for distribution to our stockholders before any
distribution is made to the holders of any of our stock which, in accordance
with our charter, is not entitled to receive a distribution prior to the voting
share. This amount will be adjusted to reflect the effect of any stock split,
stock dividend, combination or similar change on the voting share. When there
are no longer any outstanding exchangeable shares other than exchangeable shares
that are held by us or our subsidiaries, the voting share will not have any
votes. In such event, we will redeem the voting share for $1.00 and it will
automatically return to being an authorized but unissued share of our preferred
stock.
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MASSACHUSETTS LAW AND CERTAIN PROVISIONS OF OUR CHARTER AND BY-LAWS
WE ARE SUBJECT TO THE MASSACHUSETTS LAW ON ANTI-TAKEOVERS. We are subject
to Chapter 110F of the Massachusetts General Laws, an anti-takeover law. In
general, Chapter 110F prohibits us from engaging in a business combination with
an interested stockholder for a period of three years after the date on which
the person became an interested stockholder, unless one of the following
conditions applies:
- before the person became an interested stockholder, our board of directors
approved either the business combination or the transaction that resulted
in the person becoming an interested stockholder
- upon consummation of the transaction that resulted in the person becoming
an interested stockholder, the interested stockholder owned at least 90%
of our voting stock that was outstanding when the transaction commenced,
excluding shares that our directors, officers and certain other affiliates
held at that time
- after the person becomes an interested stockholder, our board of directors
approved the business combination and two-thirds of the outstanding voting
stock that is not owned by the interested stockholder affirmatively voted
to authorize the business combination in a shareholder meeting
In general, the term "business combination" includes any merger,
consolidation, or disposition of a specified percentage of our assets involving
us or one of our majority-owned subsidiaries. It also includes certain
transactions resulting in a financial benefit to the interested stockholder. In
general, the term "interested stockholder" includes any person who beneficially
owns 5% or more of our voting stock either individually or with or through any
of his or her affiliates or associates. It also covers any one of our affiliates
or associates who beneficially owned 5% or more of our voting stock at any time
within the previous three years, including the affiliates or associates of that
person. If the person is eligible to file Schedule 13G under the rules of the
SEC with respect to our securities, the applicable percentage is 15%. Although
the statute allows us to do so, we have not elected to opt out of the coverage
of Chapter 110F.
WE MAY BECOME SUBJECT TO THE MASSACHUSETTS LAW ON REGULATION OF CONTROL
SHARE ACQUISITIONS. Our board of directors may amend our by-laws at any time to
subject us prospectively to Chapter 110D of the Massachusetts General Laws,
entitled "Regulation of Control Share Acquisitions." In general, this statute
provides that any stockholder of a corporation who acquires beneficial ownership
of 20% or more of the corporation's outstanding voting stock may not vote that
stock unless the corporation's stockholders so authorize.
WE MAY BECOME SUBJECT TO THE MASSACHUSETTS LAW ON CLASSIFICATION OF THE
BOARD OF DIRECTORS. Our board of directors may adopt a vote at any time to
elect to be subject to the coverage of Section 50A of the Massachusetts business
corporation law. In general, this statute requires that a publicly held
Massachusetts corporation classify its board of directors into three classes as
nearly equal in size as possible based on their term of office. Directors who
are classified under this statute may be removed only for cause by the
affirmative vote of a majority of the shares outstanding and entitled to vote in
the election of directors.
REMOVING MEMBERS OF OUR BOARD OF DIRECTORS. Our by-laws provide for the
ways in which a member of our board of directors may be removed from office. The
holders of a majority of the outstanding shares entitled to vote in the election
of directors may vote to remove any of our directors from office with or without
cause. These stockholders must make such a vote at a stockholder meeting called
for the purpose of removing the member of the board of directors from office. A
majority of the directors then in office may also vote to remove any of our
directors for cause at a meeting of our board of
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directors. In such a case, the board must first give reasonable notice and an
opportunity to be heard to the director who is subject to removal.
FILLING VACANCIES ON OUR BOARD OF DIRECTORS. Our by-laws also provide for
the ways to fill any vacancy in our board of directors. Our board of directors
may fill any board vacancy by a vote of the majority of the directors then in
office. In the absence of such election by the directors, our stockholders may
fill any board vacancy at a meeting called for that purpose. If the board
vacancy is the result of an action taken by our stockholders, then the
stockholders may fill that vacancy at the same meeting at which the action was
taken that led to the vacancy by complying with the provisions of our by-laws
regarding nominations of directors. Once a stockholder proposes a nominee for
the board, we may require the nominee to provide additional information if we
reasonably need this information to determine the nominee's eligibility.
CALLING A STOCKHOLDER MEETING. Our by-laws require that a stockholder
seeking to conduct business at a meeting of stockholders, including nominating
someone to the board of directors, must comply with certain notice procedures.
Generally, the stockholder must give us written notice at least 60 days before
the scheduled meeting. If we give less than 70 days' notice of the date of the
meeting, however, a stockholder will have 10 days within which to give us
notice. A stockholder's notice must include information about the proposed
business, the stockholder making the proposal, any beneficial owner on whose
behalf the proposal is made and any other stockholder known to support the
proposal.
The Massachusetts business corporation law provides that our president or
board of directors may call a special meeting of our stockholders. Our by-laws
require our clerk to call a special meeting of our stockholders upon the written
application of the holders of 40% or more of our capital stock entitled to vote
at a special meeting.
CHANGES TO OUR ARTICLES OF INCORPORATION AND BY-LAWS. Our articles of
organization authorize our stockholders to make, alter, amend and repeal our
by-laws. Our articles of organization also authorize our board of directors to
make, alter, amend and repeal our by-laws, except for any provision which by
law, our articles of organization, or our by-laws requires action by the
stockholders. Our articles of organization also require the affirmative vote of
holders of at least 80% of our shares entitled to vote in the election of
directors in order to amend or repeal certain provisions of our articles of
organization or our by-laws relating generally to the following actions:
- meetings of stockholders
- meetings and elections of directors
- resignations
- removals and vacancies of directors and officers
- amendments to our by-laws
INDEMNIFYING AND LIMITING THE PERSONAL LIABILITY OF OUR DIRECTORS. Our
articles of organization limit our directors' personal liability to us and to
our shareholders for monetary damages for breach of fiduciary duty as a director
to the maximum extent that Massachusetts law permits. Our articles of
organization generally provide that we will indemnify any person involved in or
threatened to be involved in any proceeding because he or she is or was our
director or officer, or because he or she served at our request as a director,
officer, employee or agent of another organization. We will indemnify such
person to the fullest extent authorized by Massachusetts law against all
expense, liability and loss that the person reasonably incurs or suffers in
connection with such proceeding. Our board may grant rights to indemnification
and advancement of expenses to any of our employees or agents to the fullest
extent that our articles of organization permit.
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AUTHORIZING SIGNIFICANT CORPORATE EVENTS. Our articles of organization
provide that we may authorize the following actions by a vote of a majority of
the shares of each class of stock outstanding and entitled to vote thereon if
approved by a majority of our board:
- the sale, lease or exchange of all or substantially all of our property
and assets upon such terms and conditions as we deem expedient
- our merger or consolidation with or into any other corporation
IMPORTANT EFFECTS OF OUR ARTICLES OF ORGANIZATION AND BY-LAWS ON OUR
SHAREHOLDERS. Some of the provisions in our articles of organization and
by-laws discussed above would hinder or discourage a proxy contest or a
substantial shareholder's assumption of control. These provisions could also
discourage a third party from making a tender offer or otherwise attempting to
obtain control over our company, even though such an attempt might benefit us or
our stockholders. In addition, our articles of organization and by-laws are
designed to discourage accumulations of large blocks of our stock by purchasers
whose objective is to have us repurchase this stock at a premium. These
provisions could reduce the temporary fluctuations in the market price of our
stock that such accumulations might otherwise cause. Accordingly, this could
deprive our stockholders of opportunities to sell their stock at temporarily
higher market prices.
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OUR TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is State Street Bank
and Trust Company.
PLAN OF DISTRIBUTION
You should consult your own tax advisors with respect to the United States,
Canadian and other tax consequences of exchanging your exchangeable shares for
shares of our common stock as described below. For more information, see "Income
Tax Considerations."
We have filed with the SEC a registration statement on Form S-3 with respect
to our common stock being offered under this prospectus. This prospectus forms a
part of the registration statement. We have agreed to use our reasonable best
efforts to keep the registration statement effective until there are no
exchangeable shares outstanding. We have not engaged a broker, dealer or
underwriter in connection with the offering of our common stock described in
this prospectus.
EXCHANGING YOUR EXCHANGEABLE SHARES FOR OUR COMMON STOCK
You may obtain our common stock in exchange for your exchangeable shares in
the following ways:
- you may require Promis or our Ontario subsidiary to redeem or exchange
your exchangeable shares for an equivalent number of shares of our common
stock. For more information, see "--How You May Exchange or Redeem Your
Exchangeable Shares."
- Promis will automatically redeem your exchangeable shares for shares of
our common stock upon the occurrence of certain events. For more
information, see "--Automatic Redemption of Your Exchangeable Shares."
- upon our liquidation or the liquidation of Promis, you may be required to,
or may choose to, exchange your exchangeable shares for shares of our
common stock. For more information, see "--Exchange of Your Exchangeable
Shares Upon Our Liquidation or the Liquidation of Promis."
We will bear all of the expenses of this distribution. We estimate that
these expenses will total approximately $125,000.
HOW YOU MAY EXCHANGE OR REDEEM YOUR EXCHANGEABLE SHARES
BY EXERCISING YOUR EXCHANGE PUT RIGHT. You may exercise your exchange put
right to require our Ontario subsidiary to purchase all or any of your
exchangeable shares in exchange for an equivalent number of shares of our common
stock, plus any dividends due to you upon the exchangeable shares that you elect
to exchange. To exercise your exchange put right you must give written notice to
the trustee at its principal transfer office in Toronto, Ontario or at such
other office of the trustee as the trustee may specify from time to time. You
may give this notice by completing and delivering to the trustee the exchange
put right request contained in the letter of transmittal which was distributed
by Promis to holders of Promis common shares or by delivering to the trustee
another form of notice satisfactory to the trustee. In addition to the notice,
you must also deliver the certificates for the exchangeable shares you wish to
exchange and any other documents that may be required to transfer your
exchangeable shares by the Canada Business Corporations Act, Promis' by-laws and
the trustee. The exchange will be completed no later than the close of business
on the third business day after the trustee receives your notice, your
exchangeable share certificates and any other required documents.
BY EXERCISING YOUR RETRACTION RIGHT. You may exercise your retraction right
to require Promis to redeem (or retract) all or any of your exchangeable shares
in exchange for an equivalent number of shares of our common stock, plus any
dividends due on the exchangeable shares that you elect to
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redeem. This retraction right will be subject to the exercise by our Ontario
subsidiary of its overriding right in such circumstances to purchase the
exchangeable shares you wish to exchange. For more information, see "The
Overriding Call Rights of Our Ontario Subsidiary--Retraction Call Right." To
exercise your retraction right, you must complete the retraction request on the
reverse side of the certificates of the exchangeable shares you wish to redeem
or provide such other form of notice acceptable to Promis and deliver the
exchangeable share certificates to Promis or the trustee. In the request or
notice, you will be required to specify the amount of exchangeable shares you
wish Promis to redeem and the date upon which you wish to receive the shares of
our common stock, plus any dividends due to you in exchange for your
exchangeable shares. The date you request for delivery must be a business day
not less than five nor more than ten business days after the date on which
Promis receives your retraction request and any other documents that may be
required to effect the redemption by the Canada Business Corporations Act,
Promis' by-laws and the trustee.
Upon receiving the completed retraction request or notice, exchangeable
share certificates and any other required documents, Promis will immediately
notify us and our Ontario subsidiary of your request. Our Ontario subsidiary
will thereafter have two business days in which to exercise its overriding right
in such circumstances to purchase the exchangeable shares you wish to redeem. If
it determines not to exercise this right and you do not revoke your request for
Promis to redeem your exchangeable shares in accordance with the terms of your
exchangeable shares, Promis will deliver to you not later than your requested
delivery date the number of shares of our common stock equal to the number of
exchangeable shares you have delivered for redemption, plus any dividends due on
the exchangeable shares.
AUTOMATIC REDEMPTION OF YOUR EXCHANGEABLE SHARES
Subject to compliance with applicable law, Promis will automatically redeem
your exchangeable shares in exchange for an equivalent number of shares of our
common stock, plus any dividends due on your exchangeable shares, on the
following dates:
- the seventh anniversary of the closing of our combination with Promis;
- an earlier date determined by the Promis board of directors in two
circumstances. The Promis board may accelerate the date of redemption if
there are outstanding less than 15% of the exchangeable shares issued by
Promis on the closing of our combination with Promis (other than shares
held by us and our subsidiaries). The Promis board may adjust this
threshold as it deems appropriate in order to give effect to:
- any subdivision or consolidation of or stock dividend on the
exchangeable shares;
- any issuance or distribution of rights to acquire exchangeable shares
or securities exchangeable for or convertible into or carrying rights
to acquire exchangeable shares;
- any issuance or distribution of other securities or rights or evidences
of indebtedness or assets; or
- any other capital reorganization or other transaction involving or
affecting the exchangeable shares.
The Promis board may also elect to accelerate the date for redemption if:
- we are involved in a proposed merger, amalgamation, tender offer,
material sale or capital distribution of shares or assets or rights or
interests in such assets or rights or any similar transaction; or
- we, our Ontario subsidiary or any of our other affiliates are selling a
majority of the outstanding shares of Promis to an arm's-length third
party,
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and the Promis board determines, in good faith and in its sole discretion,
that it is not reasonably practicable to substantially replicate the terms
and conditions of the exchangeable shares in connection with such
transaction and that the redemption of all exchangeable shares is
necessary to enable the completion of such transaction;
- the business day following the day on which the holders of exchangeable
shares fail to approve, or disapprove, any change in the rights of the
exchangeable shares which will maintain the economic and legal equivalence
of our common stock and the exchangeable shares; or
- the business day prior to the record date for any meeting or vote of
Promis' shareholders in which holders of exchangeable shares would be
entitled to vote as Promis shareholders other than any meeting or vote to
approve or disapprove any change in the rights of the exchangeable shares
to maintain the economic and legal equivalence of our common stock and the
exchangeable shares.
Promis will notify you in writing of the proposed automatic redemption of
your exchangeable shares at least 45 days before the date of automatic
redemption, in the case of an automatic redemption on the seventh anniversary of
the closing of our combination with Promis or an automatic redemption if there
are outstanding less than 15% of the exchangeable shares issued by Promis on the
closing of our combination with Promis (other than shares held by us and our
subsidiaries), or such number of days before the date of automatic redemption
that the Promis board determines to be reasonably practicable under the
circumstances, in the case of other automatic redemptions. The automatic
redemption by Promis of your exchangeable shares will be subject to the
overriding right of our Ontario subsidiary to purchase your exchangeable shares
on the occurrence of the circumstances triggering automatic redemption. For more
information, see "The Overriding Call Rights of Our Ontario
Subsidiary--Redemption Call Right."
EXCHANGE OF YOUR EXCHANGEABLE SHARES UPON OUR LIQUIDATION OR THE LIQUIDATION OF
PROMIS
YOUR RIGHT TO REDEEM YOUR EXCHANGEABLE SHARES UPON THE LIQUIDATION OF
PROMIS. Subject to any restrictions imposed by applicable law, if Promis
dissolves, liquidates or otherwise distributes its assets among its shareholders
to wind up its affairs, the holders of exchangeable shares will have the right
to receive from Promis, prior to any distribution to any other Promis
shareholders, one share of our common stock for each exchangeable share held,
plus any dividends due on the exchangeable shares. This right will be subject to
the overriding right of our Ontario subsidiary in these circumstances to
purchase all of your exchangeable shares. For more information, see "The
Overriding Call Rights of Our Ontario Subsidiary--Liquidation Call Right."
In addition, you will be entitled to require our Ontario subsidiary to
purchase all or any of your exchangeable shares if:
- Promis institutes any proceeding to be adjudicated a bankrupt or insolvent
or to be dissolved or wound-up;
- Promis consents to the institution of bankruptcy, insolvency, dissolution
or winding-up proceedings against it, or the filing of a petition or
proceedings seeking its dissolution or winding-up under any bankruptcy,
insolvency or similar laws;
- Promis fails to contest in good faith any proceedings seeking its
dissolution or winding-up under any bankruptcy, insolvency or similar laws
within 30 days of becoming aware of such proceedings;
- Promis consents to the appointment of a receiver;
- Promis makes a general assignment for the benefit of its creditors; or
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- Promis admits in writing its inability to pay its debts generally as they
become due.
Promis and our Ontario subsidiary will notify the trustee in writing as soon
as practicable if any of these events occurs. The trustee will then notify you
of such event and will advise you of your right to require our Ontario
subsidiary to purchase all or any of your exchangeable shares in such
circumstances. Should you choose to exercise this right, you will receive in
consideration for your exchangeable shares an equivalent number of shares of our
common stock, plus any dividends due on the exchangeable shares exchanged.
If as a result of liquidity or solvency requirements of applicable law
Promis is unable to redeem all of your exchangeable shares which you have
delivered to Promis for redemption, you will be deemed to have exercised your
right to require our Ontario subsidiary to purchase the exchangeable shares not
redeemed by Promis.
YOUR RIGHT TO REDEEM YOUR EXCHANGEABLE SHARES UPON OUR LIQUIDATION. In
order for you to participate on a pro rata basis with the holders of our common
stock, immediately prior to our liquidation, we will automatically exchange your
exchangeable shares for an equivalent number of shares of our common stock, plus
any dividends due to you on your exchangeable shares. We will be deemed to have
liquidated when either of the following occur:
- our board of directors decides to institute proceedings to liquidate or
dissolve us or to effect any other distribution of our assets among our
stockholders for the purpose of winding up our affairs; or
- we receive notice of or otherwise become aware of any threatened or
instituted claim, suit, petition or other proceedings with respect to our
involuntary liquidation, dissolution or winding-up or to effect any other
distribution of our assets among our stockholders for the purposes of
winding up our affairs, and we fail to contest in good faith any such
proceeding within 30 days.
In order to exchange your exchangeable shares, you must deliver to us your
exchangeable share certificates, duly endorsed in blank, and any instruments of
transfer that we may reasonably require. Upon receipt of your exchangeable share
certificates and required transfer documentation, we or our Ontario subsidiary
will deliver to you certificates representing an equivalent number of shares of
our common stock, plus any dividends due on your exchangeable shares.
THE OVERRIDING CALL RIGHTS OF OUR ONTARIO SUBSIDIARY
In the circumstances described below, our Ontario subsidiary will have
certain overriding rights to acquire your exchangeable shares by delivering to
you in exchange for your exchangeable shares an equivalent number of shares of
our common stock, plus any dividends due on the exchangeable shares. Our Ontario
subsidiary may exercise these rights even though you have requested Promis to
exchange or redeem your exchangeable shares.
RETRACTION CALL RIGHT. If you request Promis to redeem your exchangeable
shares, you will be deemed to offer such shares to our Ontario subsidiary. Our
Ontario subsidiary will have an overriding right in these circumstances to
acquire all of the exchangeable shares which you wish Promis to redeem. If our
subsidiary elects to exercise this right, you will be required to transfer these
exchangeable shares to our subsidiary.
LIQUIDATION CALL RIGHT. Our Ontario subsidiary will have an overriding
right to acquire all of your exchangeable shares upon the liquidation,
dissolution or winding-up of Promis or any other distribution of the assets of
Promis among its shareholders for the purpose of winding up its affairs. If our
Ontario subsidiary elects to exercise this right, you will be required to
transfer your exchangeable shares to our
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subsidiary. The transfer of your exchangeable shares will occur on the effective
date of the liquidation, dissolution or winding-up of Promis.
REDEMPTION CALL RIGHT. Our Ontario subsidiary will have the overriding
right to acquire all of your exchangeable shares on the proposed date for their
automatic redemption. If our Ontario subsidiary elects to exercise this right,
you will be required to transfer your exchangeable shares to our Ontario
subsidiary.
EFFECT OF CALL RIGHT EXERCISE. If our Ontario subsidiary exercises one or
more of its call rights described above and acquires exchangeable shares, it
will not be entitled to exercise any voting rights attaching to those
exchangeable shares. We anticipate that our Ontario subsidiary will exercise its
call rights when they are available, and we currently foresee no circumstances
under which our Ontario subsidiary would not exercise these rights. In addition,
we do not anticipate any restriction or limitation on the number of exchangeable
shares our Ontario subsidiary would acquire upon exercise of these rights.
LSI WARRANT
On May 1, 1996, Promis granted a warrant to LSI Logic Corporation to
purchase up to 100,000 Promis common shares. The warrant will expire on April
30, 2000. We have assumed Promis' obligations under the warrant and the warrant
has been converted into a warrant to purchase shares of our common stock. The
shares offered by this prospectus include shares that LSI may resell publicly
after it acquires them upon exercise of its warrant.
The shares offered by this prospectus by LSI Logic Corporation may be sold
from time to time by selling stockholders, which consist of LSI and its
pledgees, donees, transferees or other successors in interest. The selling
stockholders may sell the shares on the Nasdaq National Market or otherwise, at
market prices or at negotiated prices. They may sell shares by one or a
combination of the following:
- a block trade in which a broker or dealer so engaged will attempt to sell
the shares as agent, but may position and resell a portion of the block as
principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by the broker or
dealer for its account pursuant to this prospectus; and
- ordinary brokerage transactions and transactions in which a broker
solicits purchasers.
In effecting sales, brokers or dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from selling stockholders in amounts to be
negotiated prior to the sale. The selling stockholders and any brokers or
dealers that participate in the distribution may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, and any proceeds or
commissions received by them, and any profits on the resale of shares sold by
brokers or dealers, may be deemed to be underwriting discounts and commissions.
In addition, any securities covered by this prospectus that qualify for sale
under Rule 144 under the Securities Act may be sold under that rule rather than
pursuant to this prospectus.
If any selling stockholder notifies us that a material arrangement has been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering or secondary distribution or a purchase by a broker or dealer,
we will file a prospectus supplement, if required pursuant to Rule 424(c) under
the Securities Act, setting forth:
- the name of each selling stockholder and participating broker-dealers;
- the number of shares involved;
- the price at which the shares were sold;
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- the commissions paid or discounts or concessions allowed to the
broker-dealers, where applicable;
- a statement to the effect that the broker-dealers did not conduct any
investigation to verify the information set out or incorporated by
reference in this prospectus; and
- any other facts material to the transaction.
We are paying the expenses incurred in connection with preparing and filing this
prospectus and the registration statement to which it relates (other than
selling commissions).
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INCOME TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
You should consider the following discussion of Canadian federal income
taxes before you acquire exchangeable shares or exchange exchangeable shares for
common stock. In the opinion of Blake, Cassels & Graydon, the following
accurately summarizes the principal Canadian federal income tax considerations
that generally apply to you if, under Canadian federal income tax law, you are
considered to
- hold as capital property
- your exchangeable shares,
- the voting rights attached to those shares,
- the right to require PRI's Ontario subsidiary to purchase those shares
and deliver shares of common stock and additional amounts, and
- the other ancillary rights attached to those shares;
- deal at arm's length with PRI, Promis, and PRI's Ontario subsidiary; and
- not be affiliated with PRI, Promis, or PRI's Ontario subsidiary.
If PRI is or will be a foreign affiliate of you under the Canadian federal
income tax laws, this summary will not apply to you. This summary assumes that
at all times the exchangeable shares will be listed on the TSE or another
prescribed stock exchange. This summary does not address the tax consequences of
the transactions, including the arrangement, in which you acquire the
exchangeable shares, or the exercise of the warrant, or the sale of the shares
obtainable upon exercise of the warrant.
Under Canadian federal income tax laws, your exchangeable shares will
generally be considered to be capital property to you unless you are considered
to hold your exchangeable shares
- in the course of carrying on a business,
- in an adventure in the nature of trade, or
- as "mark-to-market property."
If you are resident in Canada but your shares might not otherwise qualify as
capital property, you may be entitled to make an irrevocable election to qualify
those shares as capital property. If you do not hold your exchangeable shares as
capital property, you should consult your own advisers regarding your particular
circumstances. If you are a "financial institution" under the Canadian federal
income tax laws applicable to securities held by financial institutions, the
summary does not apply to you; instead, you should consult your own advisers
regarding the application to you of the "mark-to-market" rules.
The current provisions of the Income Tax Act (Canada) and regulations, the
current provisions of the income tax treaty between Canada and the United States
and counsel's understanding of the current administrative practices of Revenue
Canada form the basis of this summary. This summary takes into account the
proposed amendments to the Income Tax Act (Canada) and regulations that the
Minister of Finance has publicly announced prior to the date of this prospectus
and assumes that those proposed amendments will be enacted in their present
form. Counsel can give no assurances, however, that the proposed amendments will
be enacted in the form proposed, or at all.
Except for the proposed amendments, this summary does not take into account
or anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein. We
have neither sought nor obtained
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an advance tax ruling from Revenue Canada to confirm the tax consequences of any
of the transactions we describe.
WHILE THIS SUMMARY ADDRESSES THE MATERIAL CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO YOU, IT IS NOT INTENDED TO BE, NOR SHOULD
IT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO YOU. FURTHERMORE, AS
REQUIRED BY THE "PLAIN ENGLISH" REQUIREMENTS OF THE SEC, THIS SUMMARY MAKES
MINIMAL USE OF DEFINED TERMS. YOU SHOULD KNOW THAT MANY OF THE WORDS AND PHRASES
USED IN THIS SUMMARY HAVE VERY SPECIFIC MEANINGS UNDER CANADIAN INCOME TAX LAW.
THEREFORE, YOU SHOULD CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES APPLICABLE TO YOU IN YOUR PARTICULAR CIRCUMSTANCES.
For Canadian tax purposes, you must express all amounts, including
dividends, adjusted cost base and proceeds of disposition, in Canadian dollars,
and you must convert amounts denominated in United States dollars into Canadian
dollars based on the United States dollar exchange rate generally prevailing
when those amounts arise.
SHAREHOLDERS RESIDENT IN CANADA
If you are resident or deemed to be resident in Canada under Canadian
federal income tax laws, the following portion of the summary applies to you.
DIVIDENDS
EXCHANGEABLE SHARES. If you are an individual, the dividends that you
receive or are deemed to receive on your exchangeable shares will be included in
computing your income. Generally, they will be subject to the gross-up and
dividend tax credit rules that normally apply to taxable dividends received from
taxable Canadian corporations. If you are a corporation, the dividends that you
receive or are deemed to receive on your exchangeable shares will be included in
computing your income.
Subject to the discussion set out below, if you are a corporation, other
than a "specified financial institution," you must include dividends that you
receive or are deemed to receive on the exchangeable shares in your income and
these dividends will normally be deductible in computing your taxable income.
If you are a specified financial institution, you will only be able to
deduct from your taxable income a dividend that is otherwise deductible if
either:
- you did not acquire your exchangeable shares in the ordinary course of
your business; or
- at the time you receive the dividend, the exchangeable shares are listed
on a prescribed stock exchange in Canada (which currently includes the
TSE) and you, either alone or together with persons not dealing at arm's
length with you for purposes of the Income Tax Act (Canada), do not
receive (and are not deemed to receive) dividends in respect of more than
10 percent of the issued and outstanding exchangeable shares.
If you are a private corporation or any other corporation resident in Canada
controlled or deemed to be controlled by or for the benefit of an individual
(other than a trust) or a related group of individuals (other than trusts), you
may be liable to pay a refundable tax of 33 1/3 percent on dividends that you
receive or are deemed to receive on the exchangeable shares that are deductible
in computing your taxable income. If you are a "Canadian-controlled private
corporation," you may be liable to pay an additional refundable tax of 6 2/3
percent on dividends you receive or are deemed to receive that are not
deductible in computing your taxable income.
Under Canadian federal income tax laws, the exchangeable shares will be
taxable preferred shares and short-term preferred shares and, subject to the
discussion above, term preferred shares. Accordingly, Promis will be subject to
a 66 2/3 percent tax on dividends (other than excluded dividends) that it
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pays or is deemed to pay on the exchangeable shares. In certain circumstances,
Promis may be entitled to deductions that will substantially offset the impact
of this tax. If you are a corporation, dividends that you receive or are deemed
to receive on the exchangeable shares will not be subject to the 10 percent tax
under Part IV.1 of the Income Tax Act (Canada).
If PRI or any person with whom PRI does not deal at arm's length for
purposes of the Income Tax Act (Canada) is a "specified financial institution"
at the time a dividend is paid on an exchangeable share and you are a
corporation, then, subject to the exemption described below, the dividends that
you receive or are deemed to receive will not be deductible in computing your
taxable income. However, as discussed above, those dividends will be fully
includible in computing your income. Generally, we will be a specified financial
institution for these purposes if
- PRI is, or is related to, an entity or corporation that is a bank, a trust
company, a credit union, or an insurance corporation, or
- PRI's principal business, or the principal business of an entity or
corporation to which PRI is related, is (a) the lending of money to
persons with whom PRI deals at arm's length, (b) the purchasing of debt
obligations issued by persons with whom PRI deals at arm's length, or (c)
a combination of both (a) and (b).
The same rules will apply to determine whether a person with whom PRI does not
deal at arm's length is a specified financial institution for these purposes.
Nonetheless, if you are a corporation, you will not be denied the dividend
deduction if at the time you receive a dividend or are deemed to receive a
dividend
- the exchangeable shares are listed on a prescribed stock exchange (which
currently includes the TSE),
- PRI controls Promis, and
- you (together with any person with whom you do not deal at arm's length,
with any partnership of which you or that person is a member, and with any
trust of which you or that person is a beneficiary) do not receive
dividends on more than 10 percent of the issued and outstanding
exchangeable shares.
REDEMPTION OR EXCHANGE OF EXCHANGEABLE SHARES
If Promis redeems (or you retract) your exchangeable shares, you will
generally be deemed to have received a dividend equal to the amount, if any, by
which
(a) the fair market value of the consideration you receive as part of the
redemption or retraction
exceeds
(b) the aggregate of
- the paid-up capital (as determined under Canadian federal income tax
laws) at the time Promis redeems or you retract your exchangeable
shares and
- any amount allocated to the cancellation of
- the voting rights attached to those shares,
- the right to require PRI's Ontario subsidiary to purchase those
shares and deliver shares of common stock and certain additional
amounts, and
- the other ancillary rights attached to those shares.
32
<PAGE>
The amount of any deemed dividend will generally be subject to the tax treatment
described above under "Dividends-Exchangeable Shares." On the redemption of your
exchangeable shares, you will also be considered to have disposed of your
exchangeable shares for proceeds of disposition equal to (a) the redemption
proceeds less (b) the amount of the deemed dividend. You will also be considered
to have disposed of the rights attached to your exchangeable shares in exchange
for the amount allocated to the cancellation of the rights attached to those
shares. PRI is of the view that the fair market value of those rights is
nominal. Counsel, however, can provide no opinion on this factual matter. In
general, you will realize a capital gain (or a capital loss) equal to the amount
by which (a) the proceeds of disposition of the exchangeable shares (net of
reasonable costs of disposition) exceed (b) the adjusted cost base of such
shares (see "--Taxation of Capital Gain or Capital Loss" below). If you are a
corporation, in some circumstances, the amount of any dividend you are deemed to
have received may be treated as proceeds of disposition and not as a dividend.
If you exchange exchangeable shares (including any related rights) with
PRI's Ontario subsidiary for shares of common stock, other than on the
redemption or retraction of exchangeable shares, in general, you will realize a
capital gain (or a capital loss) to the extent (a) the proceeds of disposition
of the exchangeable shares, net of any reasonable costs of disposition, exceed
(or are less than) (b) the adjusted cost base of such shares to you. For these
purposes, the proceeds of disposition will be the aggregate fair market value,
at the time of the exchange, of the consideration you receive (less any amount
allocated to the cancellation of the rights attached to the exchangeable shares)
(see "--Taxation of Capital Gain or Capital Loss" below).
Because of the rights attached to the exchangeable shares, you cannot
control whether you will receive shares of common stock upon Promis' redemption
of your exchangeable shares or upon PRI's Ontario subsidiary's purchase of your
exchangeable shares, unless you exercise your right to require PRI's Ontario
subsidiary to purchase your exchangeable shares. As described above, the tax
consequences to you of a redemption differ from those of an exchange.
TAXATION OF CAPITAL GAIN OR CAPITAL LOSS
You must include in your income for the year of disposition the taxable
portion of any capital gain you realize. The taxable portion of any capital gain
you realize (the "taxable capital gain") will be three-quarters of that amount.
You must deduct against such taxable capital gains for the year of disposition
three-quarters of any capital loss you realize in that year. If three-quarters
of any capital loss you realize in a taxation year exceeds your taxable capital
gains in that year, you may carry back the excess up to three taxation years or
forward indefinitely and deduct those excess amounts against net taxable capital
gains in those other years, subject to certain limitations and in certain
circumstances.
If you are an individual or trust, other than certain trusts, capital gains
that you realize may give rise to alternative minimum tax. If you are a
Canadian- controlled private corporation, you may be liable to pay an additional
refundable tax of 6 2/3 percent on taxable capital gains.
If you are a corporation, subject to certain limitations and under certain
circumstances, you may be required to reduce the amount of any capital loss
arising when you dispose or are deemed to dispose of any exchangeable shares by
the amount of dividends you received or are deemed to have received on those
shares. Similar rules may apply to you if you are:
- a corporation that is a member of a partnership that owns exchangeable
shares;
- a corporation that is a beneficiary of a trust that owns exchangeable
shares;
- a member of a partnership that is a member of another partnership that
owns exchangeable shares;
- a member of a partnership that is a beneficiary of a trust that owns
exchangeable shares;
33
<PAGE>
- a beneficiary of a trust that is a member of a partnership that owns
exchangeable shares; or
- a beneficiary of a trust that is the beneficiary of another trust that
owns exchangeable shares.
TAXATION OF PRI'S COMMON STOCK
ACQUISITION AND DISPOSITION OF SHARES OF PRI'S COMMON STOCK. The cost
amount of shares of common stock that you receive on the retraction, redemption
or exchange of exchangeable shares will in general be equal to the fair market
value of those shares at that time.
If you dispose or are deemed to have disposed of shares of common stock,
generally, you will have a capital gain (or capital loss) to the extent that (a)
the proceeds of disposition, net of any reasonable costs of disposition, exceed
(or are less than) (b) the adjusted cost base to you of such shares immediately
before the disposition. In computing the adjusted cost base of a share of our
common stock, you must average the cost of the share with the adjusted cost base
of any other shares of our common stock that you hold as capital property at
that time.
DIVIDENDS ON SHARES OF COMMON STOCK. In computing your income, you must
include dividends that you receive or are deemed to receive on shares of common
stock. If you are an individual, these dividends will not be subject to the
gross-up and the dividend tax credit rules that normally apply to taxable
dividends received from taxable Canadian corporations. If you are a corporation,
these dividends will not be deductible in computing your taxable income. In
certain circumstances, you may be entitled to a foreign tax credit in respect of
any U.S. withholding tax payable in connection with these dividends.
FOREIGN PROPERTY INFORMATION REPORTING. If you are a "specified Canadian
entity" for a taxation year or a fiscal period and your total cost amounts of
"specified foreign property," including the shares of common stock, at any time
in the year or fiscal period exceed Cdn. $100,000, you must file an information
return for the year or period disclosing prescribed information, including
- your cost amount,
- any dividends you received in the year, and
- any gains or losses you realized in the year,
in respect of that property.
With some exceptions, generally, if you are a taxpayer resident in Canada in the
year, you will be a specified Canadian entity. You should consult your own
advisors about whether you must comply with these rules.
ELIGIBILITY FOR INVESTMENT IN CANADA
QUALIFIED INVESTMENTS. In the opinion of counsel, the exchangeable shares,
if issued on the date of this prospectus, and the shares of common stock, if
issued on the date of this prospectus and if listed on a prescribed stock
exchange (which currently includes the TSE and the Nasdaq), would be qualified
investments for trusts governed by registered retirement savings plans,
registered retirement income funds and deferred profit sharing plans. The rights
attached to the exchangeable shares will generally not be qualified investments.
However, as indicated above, PRI is of the view that the fair market value of
these rights is nominal. However, counsel can express no opinion on matters of
factual determination such as this.
FOREIGN PROPERTY. If you hold exchangeable shares through a trust governed
by a registered pension plan, a registered retirement savings plan, a registered
retirement income fund or a deferred profit sharing plan or one of certain other
tax-exempt persons in the opinion of counsel, based in part on a
34
<PAGE>
certificate of an officer of Promis, the exchangeable shares, if issued on the
date of this prospectus and listed on a prescribed stock exchange in Canada
(which currently includes the TSE) would not be foreign property for you. If you
hold exchangeable shares in such a manner, you may be subject to a penalty tax
if the cost amount of your investment in the foreign property exceeds the
statutory limit. The shares of common stock and the rights attached to the
exchangeable shares will be foreign property.
SHAREHOLDERS NOT RESIDENT IN CANADA
If
- you have not been and will not be resident or deemed to be resident in
Canada at any time while you held Promis common shares or will hold
exchangeable shares or shares of common stock, and those shares are not
"taxable Canadian property" to you, and
- if you carry on an insurance business in Canada and elsewhere, and the
shares are not effectively connected with your Canadian insurance business
and are not designated insurance property,
then the following portion of this summary applies to you.
The exchangeable shares will generally not be taxable Canadian property to
you provided that
- those shares are listed on a prescribed stock exchange (which currently
includes the TSE and Nasdaq);
- you do not use or hold, and are not deemed to use or hold, the
exchangeable shares, in carrying on a business in Canada;
- you, persons with whom you do not deal at arm's length, or you and persons
with whom you do not deal at arm's length under the Canadian federal
income tax law, have not owned (or had rights to acquire) 25 percent or
more of the issued shares of any class or series of the capital stock of
Promis at any time within the five years preceding the date you dispose of
the exchangeable shares; and
- you did not acquire the exchangeable shares in a transaction where the
exchangeable shares were deemed to be taxable Canadian property, such as
where you disposed of taxable Canadian property and deferred the resulting
gain.
Even if an exchangeable share is considered to be taxable Canadian property,
you may be entitled to relief under an applicable tax convention. You should
consult your own tax advisors to determine the tax consequences in your own
situation.
In general, you will not be subject to any tax on a capital gain you realize
or are deemed to have realized when you dispose of an exchangeable share.
When you exchange an exchangeable share for common stock, you may be deemed
to have received a dividend subject to withholding tax (discussed below) and
realized a capital gain or loss (generally tax-free as discussed above).
You will be subject to non-resident withholding tax at the rate of 25
percent on the gross amount of any dividends paid to you on the exchangeable
shares. An applicable income tax treaty, however, may reduce that rate. For
example, if you are a resident of the United States for purposes of the
Canada-United States tax treaty, the rate is generally reduced to 15 percent.
If you redeem your exchangeable shares (either under Promis' redemption
right or pursuant to your retraction rights), you will be deemed to receive a
dividend as and to the extent described above
35
<PAGE>
under the heading "Shareholders Resident in Canada." That deemed dividend will
be subject to withholding tax as described in the preceding paragraph.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
You should consider the following discussion of United States federal income
taxes before you acquire exchangeable shares or exchange exchangeable shares for
common stock. The following discussion accurately summarizes the opinion that
Foley, Hoag & Eliot LLP has rendered to us describing the material United States
federal income tax considerations that generally apply to holders of
exchangeable shares. This discussion does not address all the federal income tax
considerations that may be relevant to you. In addition, this discussion does
not address the tax consequences of transactions in which you acquire your
exchangeable shares, including the arrangement, or the exercise of the warrant.
Furthermore, this discussion does not address any foreign, state, or local tax
considerations.
WE STRONGLY URGE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING THE SPECIFIC
TAX CONSIDERATIONS THAT APPLY TO YOU.
The laws, regulations, court decisions, and IRS rulings and regulations
effective on the date of this prospectus form the basis of this discussion. No
law, court decision, or ruling or regulation directly addresses certain of the
tax consequences of the ownership of instruments and rights comparable to the
exchangeable shares and the rights attached to those shares.
Consequently, some aspects of the tax treatment of the arrangement,
including the exchange of exchangeable shares for shares of common stock, are
uncertain. We have neither sought nor obtained any advance income tax ruling
regarding the tax consequences of any of the transactions we describe.
TAX CONSIDERATIONS THAT APPLY TO U.S. HOLDERS
If you are
- an individual citizen or resident of the United States,
- a corporation or partnership created in the United States or under the
laws of the United States or of any state, or
- a United States estate or trust,
and you hold your exchangeable shares as capital assets, the following tax
considerations will generally apply to you.
EXCHANGE OF EXCHANGEABLE SHARES. Except as we describe below, when you
exchange your exchangeable shares for shares of common stock, you will generally
recognize gain or loss. Your gain or loss will equal the difference between (a)
the fair market value of the shares of common stock at the time you exchange
your exchangeable shares and (b) your tax basis in the exchangeable shares you
exchange. Your gain or loss will generally be a capital gain or loss. You may,
however, recognize ordinary income with respect to any declared but unpaid
dividends on the exchangeable shares. A capital gain or loss will be long-term
capital gain or loss if your holding period for the exchangeable shares is more
than one year. Your tax basis in the shares of common stock will be their fair
market value at the time of the exchange. Your holding period for the shares of
common stock that you receive will begin on the day after the exchange.
In view of the likelihood that you will recognize gain or loss when you
exchange the exchangeable shares for shares of common stock, you may wish to
consider delaying the exchange until either
- you intend to dispose of the shares of common stock that you receive in
exchange for your exchangeable shares, or
36
<PAGE>
- the exchange may be characterized as tax-free.
Your exchange of exchangeable shares for shares of common stock may be
characterized as a tax-free exchange if either:
- at the time of the exchange,
- our Ontario subsidiary holds at least 80 percent of the then
outstanding exchangeable shares; and
- in the exchange, our Ontario subsidiary, rather than Promis, acquires
the exchangeable shares in exchange for shares of common stock; or
- you receive shares of common stock from our Ontario subsidiary when it
automatically redeems the exchangeable shares or exercises its rights to
acquire the exchangeable shares on the proposed liquidation, dissolution
or winding-up of Promis.
In either case, the exchange will be tax-free only if certain other requirements
are satisfied. Because satisfaction of these other requirements will depend upon
the facts and circumstances that exist at the time of your exchange, we do not
know at this time whether those requirements will be satisfied.
If your exchange did qualify as tax-free, you would recognize no gain or
loss on your exchange of exchangeable shares for common stock. Your tax basis in
your shares of common stock would equal your tax basis in the exchangeable
shares that you exchange. Your holding period for the shares of common stock
that you receive would include your holding period for your exchangeable shares,
if you held the exchangeable shares as a capital asset immediately prior to the
exchange.
The gain you realize when you exchange your exchangeable shares for shares of
common stock generally will be treated as United States source gain. Under the
terms of the United States-Canada income tax treaty, however, your gain may be
treated as sourced in Canada. Subject to certain limitations, you may be
entitled to credit your United States taxes for any Canadian tax imposed on the
exchange. If you are ineligible for a credit for any Canadian tax that you pay,
you may be entitled to deduct that tax in computing your United States taxable
income.
DISTRIBUTIONS ON THE EXCHANGEABLE SHARES. If any distributions are paid to
you as a holder of exchangeable shares, we and Promis intend to treat those
distributions as distributions from Promis, rather than from us. We and Promis
can not assure you, however, that the IRS or a court would agree that our
intended treatment is correct. Assuming that treatment is proper, these
distributions will be treated as dividends and will be taxable to you as
ordinary income if Promis has earnings and profits. Those dividends generally
will be treated as foreign source passive income for foreign tax credit
limitation purposes. Subject to certain limitations, you should generally be
entitled to either credit your United States income tax liability with, or
deduct in computing your United States taxable income, any Canadian income taxes
withheld from these distributions.
TAX CONSIDERATIONS THAT APPLY TO NON-U.S. HOLDERS
If you are not
- an individual citizen or resident of the United States,
- a corporation or partnership created in the United States or under the
laws of the United States or of any state, or
- a United States estate or trust,
the following summary applies to you.
37
<PAGE>
EXCHANGE OF EXCHANGEABLE SHARES. Generally, you will not be subject to
United States federal income tax when you exchange your exchangeable shares for
shares of our common stock, unless your exchangeable shares were an asset of
your United States trade or business.
DISTRIBUTIONS ON THE EXCHANGEABLE SHARES. You should not be subject to tax
on dividends that you receive on the exchangeable shares. Therefore, we and
Promis do not intend to withhold any taxes from those dividends. The IRS,
however, may assert that dividends paid to you on the exchangeable shares are
subject to tax. As a result, you could be subject to tax at a rate of 30
percent. An applicable treaty in effect between the United States and your
country of residence may reduce the rate. If you are a resident of Canada, a
maximum rate of 15 percent applies to dividends paid to you.
DISTRIBUTIONS ON SHARES OF COMMON STOCK. Dividends that you receive on the
common stock generally will be subject to tax at a rate of 30 percent. An
applicable income tax treaty may reduce that rate. If you are a resident of
Canada, a maximum rate of 15 percent applies to dividends paid to you.
GAIN ON SALE OR EXCHANGE OF COMMON STOCK. Generally, you will not be
subject to tax when you sell or exchange your shares of common stock unless
either
- your common stock was an asset of your United States trade or business; or
- you are an individual, you are present in the United States for 183 days
or more, or you satisfy certain other conditions.
If at any time we are a United States real property holding corporation, you
may be subject to certain additional rules. These rules would require
withholding of tax on the gross proceeds of your sale of shares of common stock.
We believe that we are not a United States real property holding corporation.
Although we consider it unlikely that we will become a United States real
property holding corporation, we can provide no assurance as to this issue.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Foley, Hoag & Eliot LLP, Boston, Massachusetts. A member of that
firm beneficially owns 8,500 shares of common stock.
EXPERTS
Our consolidated balance sheets as of September 30, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1998,
incorporated by reference herein, except as they relate to Equipe Technologies,
Inc., E-Machine, Inc., and Equipe Japan Corporation (the "Equipe Combined
Companies") for the year ended December 31, 1996, have been incorporated herein
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing, and insofar as such financial statements relate to the Equipe Combined
Companies for the year ended December 31, 1996, have been incorporated herein in
reliance on the report of Ernst & Young LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
We have included in this prospectus the consolidated balance sheets of
Promis as at December 31, 1997 and 1996 and the related consolidated statements
of income, retained earnings and changes in financial position for each of the
three years in the period ended December 31, 1997, in reliance on the report of
Ernst & Young LLP, independent accountants, given on the authority of that firm
as experts in accounting and auditing.
38
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly reports, current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any of our SEC filings at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for
further information about the Public Reference Room. Our SEC filings are also
available to the public on the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" information from certain of
our other SEC filings. This means that we can disclose information to you by
referring you to those other filings, and the information incorporated by
reference is considered to be part of this prospectus. In addition, certain
information that we file with the SEC after the date of this prospectus will
automatically update, and in some cases supersede, the information contained or
otherwise incorporated by reference in this prospectus. We are incorporating by
reference the information contained in the following SEC filings:
- our Annual Report on Form 10-K for the fiscal year ended September 30,
1998 (as filed on December 22, 1998), as amended by Amendment No. 1 on
Form 10-K/A (as filed on February 26, 1999);
- our Quarterly Report on Form 10-Q for the quarterly period ended December
27, 1998 (as filed on February 10, 1999);
- our Current Reports on Form 8-K (as filed on November 25, 1998, December
10, 1998, January 14, 1999 and January 29, 1999);
- our definitive Proxy Statement used in connection with our 1999 Annual
Meeting of Stockholders (as filed on January 27, 1999);
- the description of our common stock contained in the Registration
Statement on Form 8-A (as filed on October 12, 1994), including any
amendment or report filed for the purpose of updating such description;
and
- any filings that we make with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 subsequent to the date of
this prospectus and prior to the date of termination of this offering.
Information in these filings will be incorporated as of the filing date.
You may request copies of the filings, at no cost, by writing to or
telephoning our Chief Financial Officer as follows:
PRI Automation, Inc.
805 Middlesex Turnpike
Billerica, Massachusetts 01821-3986
Telephone: (978) 670-4270
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC under the Securities Act of 1933. This prospectus does not
contain all of the information contained in the registration statement. For
further information about us and our common stock, you should read the
registration statement and the exhibits filed with the registration statement.
39
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus and in the documents that we
incorporate by reference into this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "expect," "anticipate,"
"plan," "believe," "seek," "estimate," "internal," "backlog" and similar words.
Statements that we make in this prospectus and in the documents that we
incorporate by reference into this prospectus that are not statements of
historical fact may also be forward-looking statements. In particular,
statements that we make in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" relating to our shipment level and
profitability, and the sufficiency of capital to meet working capital and
capital expenditures requirements, may be forward-looking statements.
Forward-looking statements are not guarantees of our future performance, and
involve risks, uncertainties and assumptions that may cause our actual results
to differ materially from the expectations we describe in our forward-looking
statements. There may be events in the future that we are not accurately able to
predict, or over which we have no control. You should not place undue reliance
on forward-looking statements. We do not promise to notify you if we learn that
our assumptions or projections are wrong for any reason. Before you invest in
our common stock, you should be aware that the factors we discuss in "Risk
Factors" and elsewhere in this prospectus could cause our actual results to
differ from any forward-looking statements.
40
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Third Quarter Consolidated Financial Statements of Promis Systems
Corporation Ltd.
Consolidated Balance Sheets as at September 30, 1998 and 1997........................ F-1
Consolidated Statements of Income for the three and nine months ended September 30,
1998 and 1997...................................................................... F-2
Consolidated Statements of Changes in Financial Position for the three and nine
months ended September 30, 1998 and 1997........................................... F-3
Notes to Consolidated Financial Statements........................................... F-4
1997 Consolidated Financial Statements of Promis Systems Corporation Ltd.
Auditors' Report..................................................................... F-8
Consolidated Balance Sheets as at December 31, 1997 and 1996......................... F-9
Consolidated Statements of Income (Loss) and Retained Earnings (Deficit) for the
years ended december 31, 1997, 1996 and 1995....................................... F-10
Consolidated Statements of Changes in Financial Position for the years ended December
31, 1997, 1996 and 1995............................................................ F-11
Notes to Consolidated Financial Statements........................................... F-12
Unaudited Pro Forma Combined Consolidated Financial Statements of PRI Automation,
Inc. and Promis Systems Corporation Ltd.
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 1998........ F-28
Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended
September 30, 1998................................................................. F-29
Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended
September 30, 1997................................................................. F-30
Notes to Unaudited Pro Forma Condensed Combined Financial Statements................. F-31
</TABLE>
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30
[U.S. DOLLARS, IN THOUSANDS]
<TABLE>
<CAPTION>
1998 1997
$ $
--------- ---------
<S> <C> <C>
[UNAUDITED]
ASSETS
Current
Cash and short term deposits................................................................... 8,839 7,318
Accounts receivable............................................................................ 5,777 5,501
Unbilled receivables........................................................................... 3,879 4,119
Income taxes recoverable....................................................................... 58 52
Prepaid expenses............................................................................... 280 404
--------- ---------
Total current assets........................................................................... 18,833 17,394
--------- ---------
Other
Capital assets, net............................................................................ 3,184 2,542
Deferred income taxes.......................................................................... 1,481 1,481
Intellectual property, net..................................................................... 892 --
Goodwill, net.................................................................................. 2,060 2,263
--------- ---------
Total other assets............................................................................. 7,617 6,286
--------- ---------
26,450 23,680
--------- ---------
--------- ---------
LIABILITIES & SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities....................................................... 1,884 1,275
Unearned revenue............................................................................... 2,855 2,673
Current portion of capital lease............................................................... 688 397
--------- ---------
Total current liabilities...................................................................... 5,427 4,345
--------- ---------
Long term
Capital lease obligation....................................................................... 659 517
Deferred tenant inducement..................................................................... 965 919
--------- ---------
Total long term liabilities.................................................................... 1,624 1,436
--------- ---------
Total liabilities.............................................................................. 7,051 5,781
--------- ---------
Shareholders' equity
Share capital.................................................................................. 14,794 15,458
Contributed surplus............................................................................ 362 476
Retained earnings.............................................................................. 4,243 1,965
--------- ---------
Total shareholders' equity..................................................................... 19,399 17,899
--------- ---------
26,450 23,680
--------- ---------
--------- ---------
</TABLE>
F-1
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIOD ENDED SEPTEMBER 30
[U.S. DOLLARS, IN THOUSANDS EXCEPT PER SHARE AMOUNTS]
<TABLE>
<CAPTION>
QUARTER YEAR TO DATE
-------------------- --------------------
1998 1997 1998 1997
$ $ $ $
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue..................................................... 6,022 6,051 19,383 17,045
Cost of sales............................................... 341 244 1,101 447
--------- --------- --------- ---------
Gross profit................................................ 5,681 5,807 18,282 16,598
--------- --------- --------- ---------
Expenses
Research and development.................................... 1,606 1,612 5,576 5,188
less: related investment tax credits...................... (100) -- (300) --
Selling and marketing....................................... 2,263 2,213 6,968 6,270
Customer integration services............................... 411 616 1,379 1,637
General and administrative.................................. 896 761 2,506 2,369
--------- --------- --------- ---------
5,076 5,202 16,129 15,464
--------- --------- --------- ---------
Income before income taxes.................................. 605 605 2,153 1,134
Provision for (recovery of) income taxes.................... 100 -- 300 (60)
--------- --------- --------- ---------
Net income for the period................................... 505 605 1,853 1,194
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share (US$)
Basic....................................................... 0.05 0.06 0.18 0.13
Fully diluted............................................... 0.04 0.05 0.16 0.11
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of share (000's)
Basic....................................................... 10,237 10,077 10,218 8,925
Fully diluted............................................... 12,151 11,788 12,132 10,636
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-2
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE PERIOD ENDED SEPTEMBER 30
[U.S. DOLLARS, IN THOUSANDS]
<TABLE>
<CAPTION>
QUARTER YEAR TO DATE
-------------------- --------------------
1998 1997 1998 1997
$ $ $ $
--------- --------- --------- ---------
[UNAUDITED]
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income for the period..................................... 505 605 1,853 1,194
Add (deduct) items not requiring a current outlay of cash
Amortization of capital assets.............................. 368 236 1,114 805
Amortization of deferred tenant inducement.................. (34) -- (88) (120)
Net change in non-cash working capital balances related to
operations.................................................. 523 (2,907) 632 (3,719)
--------- --------- --------- ---------
Cash provided by (used in) operating activities............... 1,362 (2,066) 3,511 (1,840)
--------- --------- --------- ---------
INVESTING ACTIVITIES
Purchase of capital assets.................................... (326) (176) (1,150) (616)
--------- --------- --------- ---------
Cash used in investing activities............................. (326) (176) (1,150) (616)
--------- --------- --------- ---------
FINANCING ACTIVITIES
Obligation under capital lease................................ (15) (117) 246 (67)
Deferred tenant inducement.................................... 67 -- 129 736
Issuance of share capital, net................................ 9 (29) 36 5,911
Reduction of share capital.................................... -- -- (1,301) --
Contributed surplus........................................... -- -- -- 114
--------- --------- --------- ---------
Cash provided by (used in) financing activities............... 61 (146) (890) 6,694
--------- --------- --------- ---------
Net increase (decrease) in cash during the period............. 1,097 (2,388) 1,471 4,238
Cash position, beginning of period............................ 7,742 9,706 7,368 3,080
--------- --------- --------- ---------
Cash position, end of period.................................. 8,839 7,318 8,839 7,318
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-3
<PAGE>
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
RECONCILIATION OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND IN THE
UNITED STATES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP") which, in
the case of the Company, conform in all material respects with those in the
United States ("US GAAP"), except as follows:
a) The Company's revenue recognition policy under Canadian GAAP has been
substantially in accordance with AICPA Statement of Position ("SOP") 91-1,
"Software Revenue Recognition". Under US GAAP, for years ended after
December 15, 1997, SOP 97-2, "Software Revenue Recognition", further
codifies revenue recognition for software sales. Under SOP 97-2, a contract
signed by both parties is the only acceptable evidence of an arrangement
while Canadian GAAP and SOP 91-1 permitted other persuasive evidence of an
arrangement. As a result, sales of $2,558 and expenses of $263 have not been
recognized under US GAAP.
b) Under US GAAP basic earnings per share are based on the weighted
average number of common shares excluding contingent shares issued and
shares issued pursuant to share purchase loans. Diluted earnings per share
are calculated in accordance with the treasury stock method and are based on
the weighted average number of common shares and dilutive common share
equivalents outstanding.
c) For reconciliation purposes to US GAAP, the Company has applied the
provisions of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109) effective August 31, 1993. Under
SFAS 109, the liability method is used in accounting for income taxes. SFAS
109 requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
reporting and tax bases of assets and liabilities using enacted tax rates
that will be in effect for the year in which the differences are expected to
reverse. In addition this method provides for a valuation allowance against
deferred tax assets where it is more likely than not that some portion or
all of a deferred tax asset will not be realized.
Under US GAAP, Research and Development investment tax credits would be
credited to the income tax provision rather than as a net to research and
development expenses. $300 was credited to research and development for the
period ended September 30, 1998 under Canadian GAAP.
The significant components of the Company's deferred tax assets, under
US GAAP, are as follows:
<TABLE>
<CAPTION>
1998 1997
NINE MONTHS ENDED SEPTEMBER 30, $ $
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
R&D and Capital assets--tax base in excess of book value................. 9,572 8,425
Losses carried forward................................................... 639 --
Investment tax credits................................................... 2,600 2,233
Other.................................................................... 857 701
Less Valuation Allowance................................................. (13,668) (11,359)
--------- ---------
Future Income Tax Assets................................................. 0 0
--------- ---------
</TABLE>
d) Under Canadian GAAP, unrealized foreign exchange gains and losses
relating to non-current monetary items are deferred and amortized to income
over the remaining life of the underlying non-current monetary item. Under
US GAAP these unrealized foreign exchange gains
F-4
<PAGE>
and losses are recognized in income immediately. The amounts recognized each
year for Canadian GAAP purposes, approximates the amounts which would have
been recognized for US GAAP.
e) Under US GAAP, gains and losses related to hedges of anticipated
transactions may not be deferred unless a firm commitment exists while under
Canadian GAAP, it is only necessary to have reasonable assurance that the
anticipated transactions will occur. The liability at September 30, 1998,
measured at the current exchange rate, relating to future purchase contracts
outstanding which are not hedges of firm commitments is approximately $300.
f) Under Canadian GAAP, for purposes of the statements of cash flows,
cash position includes all short-term investments less bank indebtedness.
Under US GAAP, cash position includes highly liquid investments with
original maturities of less than three months. Bank indebtedness is
presented as a financing activity for purposes of US GAAP.
g) Under Canadian GAAP, the forgiveness of a share purchase loan in 1997
was recognized as an increase of $454 to the Company's deficit. Under US
GAAP, the share purchase loans are viewed as part of a variable compensation
arrangement with changes in the value of the underlying shares recorded as
adjustments to income in the year in which they occurred in periods prior to
1995. The resulting share purchase loan balance of $321 was charged to
expense when the Company's Board of Directors approved the forgiveness in
1995.
h) Under Canadian GAAP, a reduction of the stated capital of outstanding
common shares is allowed with a corresponding offset to deficit. This
reclassification, which the Company made in 1997 to eliminate the deficit
which existed at December 31, 1995, is not permitted by US GAAP and would
result in an increase to share capital and corresponding decrease in
retained earnings of $17,797.
i) Under Canadian GAAP, stock options are accounted for at the date of
exercise when the purchase is recorded as an increase to capital stock. For
reconciliation purposes to US GAAP, the Company has chosen to follow APB 25
in accounting for stock options granted to directors, officers and
employees. Since the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of the grant no
compensation expense has been recognized.
j) The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 130 "Comprehensive Income" ("SFAS 130").
SFAS 130 requires companies to report comprehensive income which includes
all changes in stockholders' equity during a period except those resulting
from investments by owners and distributions to owners. For purposes of
reconciliation to US GAAP, the Company's comprehensive income would equal
its net income for the periods presented.
The following table reconciles the net income as reported on the
consolidated statements of earnings (loss) to that which would have been
reported had the financial statements been prepared in accordance with US GAAP
and the requirements of the SEC.
<TABLE>
<CAPTION>
1998 1997
NINE MONTHS ENDED SEPTEMBER 30, $ $
- ---------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Net earnings under Canadian GAAP............................................ 1,853 1,194
Adjustments:
Revenue recognition under SOP 97-2.......................................... (2,295) --
Unrealized loss on currency hedge of anticipated transactions............... (300) --
--------- ---------
Net earning (loss) under US GAAP............................................ (742) 1,194
--------- ---------
--------- ---------
</TABLE>
F-5
<PAGE>
The following table sets forth the computation of basic and diluted earnings
per share under US GAAP
<TABLE>
<CAPTION>
1998 1997
NINE MONTHS ENDED SEPTEMBER 30, $ $
- ------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Numerator:
Net income (loss)................................................ (742) 1,194
------------ ----------
Numerator for basic earnings per share........................... (742) 1,194
Income effect of dilutive securities:............................ -- --
------------ ----------
Numerator for diluted earnings per share......................... (742) 1,194
------------ ----------
Denominator:
Weighted average number of common shares......................... 10,218,685 8,924,547
Effect of dilutive securities:
Stock options.................................................... -- 669,927
Warrants......................................................... -- 48,947
------------ ----------
Adjusted weighted average number of common shares and assumed
conversions.................................................... 10,218,685 9,643,421
------------ ----------
Basic earnings per share........................................... ($ 0.07) $ 0.13
Diluted earnings per share......................................... ($ 0.07) $ 0.12
</TABLE>
2,046,575 stock options and warrants were outstanding in 1998 but were not
included in the computation of diluted earnings per share as the effects of
these items would be antidilutive.
Cashflow information presented in conformity with US GAAP, is as follows:
<TABLE>
<CAPTION>
1998 1997
NINE MONTHS ENDED SEPTEMBER 30, $ $
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Operating activities, Canadian GAAP........................................ 3,511 (1,840)
Exchange rate effect on foreign currency balances.......................... 53 --
--------- ---------
Operating activities, US GAAP.............................................. 3,564 (1,840)
--------- ---------
Investing activities, Canadian GAAP........................................ (1,150) (616)
--------- ---------
Investing activities, US GAAP.............................................. (1,150) (616)
--------- ---------
Financing activities, Canadian GAAP........................................ (890) 6,694
Decrease in bank indebtedness.............................................. -- (802)
--------- ---------
Financing activities, US GAAP.............................................. (890) 5,892
--------- ---------
Increase (decrease) in cash, US GAAP....................................... 1,524 3,436
Cash position, beginning of year, US GAAP.................................. 7,368 3,882
Exchange rate effect on foreign currency balances.......................... (53) --
--------- ---------
Cash position, end of period, US GAAP...................................... 8,839 7,318
--------- ---------
--------- ---------
Cash interest paid......................................................... 67 66
--------- ---------
Cash taxes paid............................................................ 231 143
--------- ---------
</TABLE>
F-6
<PAGE>
Balance sheet items in conformity with U.S. GAAP which differ from those
presented for Canadian GAAP are as follows:
<TABLE>
<CAPTION>
1998 1997
NINE MONTHS ENDED SEPTEMBER 30, $ $
- ------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Unbilled receivables--Canadian GAAP...................................... 3,879 4,119
Revenue recognition under SOP 97-2....................................... (2,558) --
--------- ---------
Unbilled receivables--US GAAP............................................ 1,321 4,119
--------- ---------
--------- ---------
Deferred income taxes--Canadian GAAP..................................... 1,481 1,481
Adjustment for income taxes under SFAS 109............................... (1,481) (1,481)
--------- ---------
Deferred income taxes--US GAAP........................................... nil nil
--------- ---------
--------- ---------
Accounts payable--Canadian GAAP.......................................... 1,884 1,275
Costs related to revenue recognition under SOP 97-2...................... (263) --
--------- ---------
Accounts payable--US GAAP................................................ 1,621 1,275
--------- ---------
--------- ---------
Unrealized loss on foreign currency hedge--US GAAP....................... 300 --
--------- ---------
--------- ---------
Share capital--Canadian GAAP............................................. 14,794 15,458
Forgiveness of share purchase loan....................................... -- 454
Deficit reduction........................................................ 17,797 17,797
--------- ---------
Share capital--US GAAP................................................... 32,591 33,709
--------- ---------
--------- ---------
Retained earnings--Canadian GAAP......................................... 4,243 1,965
Forgiveness of share purchase loan....................................... -- (454)
Unrealized loss on currency hedge of anticipated transactions............ (300) --
Revenue recognition under SOP 97-2, net.................................. (2,295) --
Deficit reduction........................................................ (17,797) (17,797)
Adjustment for income taxes under SFAS 109............................... (1,481) (1,481)
--------- ---------
Deficit--US GAAP......................................................... (17,630) (17,767)
--------- ---------
--------- ---------
</TABLE>
F-7
<PAGE>
AUDITORS' REPORT
To the Directors of
Promis Systems Corporation Ltd.
We have audited the consolidated balance sheets of Promis Systems
Corporation Ltd. as at December 31, 1997 and 1996 and the consolidated
statements of income (loss) and retained earnings (deficit) and changes in
financial position for each of the years in the three-year period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1997 and 1996 and the results of its operations and the changes in its financial
position for each of the years in the three-year period ended December 31, 1997
in accordance with generally accepted accounting principles in Canada.
Toronto, Canada, (Signed) Ernst & Young LLP
February 27, 1998. Chartered Accountants
F-8
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
CONSOLIDATED BALANCE SHEETS
[EXPRESSED IN THOUSANDS OF U.S. DOLLARS]
<TABLE>
<CAPTION>
1997 1996
AS AT DECEMBER 31 $ $
- ---------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
ASSETS
Current
Cash and short-term deposits.................................................................. 7,368 3,882
Accounts receivable........................................................................... 8,040 6,352
Unbilled receivables.......................................................................... 2,780 2,325
Income taxes recoverable...................................................................... 54 56
Prepaid expenses.............................................................................. 388 376
--------- ---------
Total current assets.......................................................................... 18,630 12,991
--------- ---------
Other
Capital assets, net [note 2].................................................................. 3,887 2,543
Deferred income taxes......................................................................... 1,481 1,481
Goodwill, net of accumulated amortization of $1,840 [1996--$1,638]............................ 2,212 2,414
--------- ---------
Total other assets............................................................................ 7,580 6,438
--------- ---------
26,210 19,429
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness [note 4].................................................................... -- 802
Accounts payable and accrued liabilities...................................................... 1,773 3,079
Unearned revenue.............................................................................. 3,601 3,584
Current portion of obligations under capital leases [note 5].................................. 482 324
--------- ---------
Total current liabilities..................................................................... 5,856 7,789
--------- ---------
Long-term
Obligations under capital leases [note 5]..................................................... 619 657
Deferred tenant inducement [note 6]........................................................... 924 303
--------- ---------
Total long-term liabilities................................................................... 1,543 960
--------- ---------
Total liabilities............................................................................. 7,399 8,749
--------- ---------
Shareholders' equity
Share capital [note 7]........................................................................ 16,059 27,344
Contributed surplus........................................................................... 362 362
Retained earnings (deficit)................................................................... 2,390 (17,026)
--------- ---------
Total shareholders' equity.................................................................... 18,811 10,680
--------- ---------
26,210 19,429
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
ON BEHALF OF THE BOARD:
<TABLE>
<S> <C>
/s/ IAN MCKINNON /s/ WANDA DOROSZ
- -------------------------------------------- --------------------------------------------
Director Director
</TABLE>
F-9
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND RETAINED EARNINGS (DEFICIT)
[EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE INFORMATION]
<TABLE>
<CAPTION>
1997 1996 1995
YEARS ENDED DECEMBER 31 $ $ $
- ---------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Revenue........................................................................... 23,967 19,703 16,073
Cost of sales..................................................................... 626 786 2,158
--------- --------- ---------
Gross profit...................................................................... 23,341 18,917 13,915
--------- --------- ---------
Expenses
Selling and marketing............................................................. 8,706 7,081 6,443
Research and development [note 8]................................................. 5,484 6,815 6,067
Customer integration services..................................................... 2,090 698 --
General and administrative........................................................ 3,428 3,640 4,026
Goodwill and intellectual property write-offs [note 9]............................ -- -- 7,025
Provision for restructuring charges [note 10]..................................... -- -- 1,750
--------- --------- ---------
19,708 18,234 25,311
--------- --------- ---------
Income (loss) before income taxes................................................. 3,633 683 (11,396)
Provision for (recovery of) income taxes [note 8]................................. 1,560 (88) 42
--------- --------- ---------
Net income (loss) for the year.................................................... 2,073 771 (11,438)
Deficit, beginning of year........................................................ (17,026) (17,797) (6,359)
Forgiveness of share purchase loan [note 7]....................................... (454) -- --
Reduction of stated share capital [note 7]........................................ 17,797 -- --
--------- --------- ---------
Retained earnings (deficit), end of year.......................................... 2,390 (17,026) (17,797)
--------- --------- ---------
--------- --------- ---------
Income (loss) per share........................................................... $0.22 $0.12 $(2.28)
--------- --------- ---------
--------- --------- ---------
Fully diluted income per share.................................................... $0.20 $0.10 NA
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes
F-10
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
CONSOLIDATED STATEMENTS OF CHANGES
IN FINANCIAL POSITION
[EXPRESSED IN THOUSANDS OF U.S. DOLLARS]
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the year....................................................... 2,073 771 (11,438)
Add (deduct) items not requiring a current outlay of cash
Amortization....................................................................... 1,145 796 1,169
Amortization of deferred development costs......................................... 37 51 50
Amortization of deferred tenant inducement......................................... (103) (120) (105)
Goodwill and intellectual property write-offs [note 9]............................. -- -- 7,025
Deferred income taxes.............................................................. -- (694) --
Loss on write-off of capital assets................................................ 125 3 152
Net change in non-cash working capital balances related to operations
[note 11]........................................................................ (3,309) 124 833
--------- --------- ---------
Cash provided by (used in) operating activities...................................... (32) 931 (2,314)
--------- --------- ---------
INVESTING ACTIVITIES
Purchase of capital assets........................................................... (1,049) (1,993) (91)
Acquisition of MASE Systems, Inc. [note 3]........................................... (1,533) -- --
--------- --------- ---------
Cash used in investing activities.................................................... (2,582) (1,993) (91)
--------- --------- ---------
FINANCING ACTIVITIES
Short-term loan...................................................................... -- (1,106) 1,106
Obligations under capital leases..................................................... 120 837 (107)
Deferred tenant inducement........................................................... 724 -- --
Issuance of share capital, net....................................................... 6,058 5,373 --
Redemption of share capital, net [note 7]............................................ -- (95) (149)
Contributed surplus.................................................................. -- 26 149
--------- --------- ---------
Cash provided by financing activities................................................ 6,902 5,035 999
--------- --------- ---------
Net increase (decrease) in each during the year...................................... 4,288 3,973 (1,406)
Cash position, beginning of year..................................................... 3,080 (893) 513
--------- --------- ---------
Cash position, end of year........................................................... 7,368 3,080 (893)
--------- --------- ---------
--------- --------- ---------
Represented by
Cash and short-term deposits......................................................... 7,368 3,882 1,251
Bank indebtedness.................................................................... -- (802) (2,144)
--------- --------- ---------
7,368 3,080 (893)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes
F-11
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
1. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in Canada. The more
significant accounting policies are as follows:
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of Promis
Systems Corporation Ltd. [the "Company'] and its wholly-owned subsidiaries:
Promis Systems Corporation, incorporated under the laws of Delaware, United
States of America; Promis Systems Corporation (U.K.) Limited, incorporated under
the laws of England and Wales; Promis Systems Corporation Limited, incorporated
under the laws of Hong Kong; MSISUB Inc., incorporated under the laws of
Delaware, United States of America; Promis Systems Corporation Singapore Pte
Ltd., incorporated under the laws of Singapore; and Promis Systems Corporation
GmbH, incorporated under the laws of the Federal Republic of Germany. These
consolidated financial statements are expressed in United States dollars, the
operating currency of the Company.
CAPITAL ASSETS
Capital assets are recorded at cost less accumulated amortization.
Amortization is provided using the following annual rates and bases which are
expected to amortize the cost of the capital assets over their estimated useful
lives:
<TABLE>
<S> <C>
Computers, software and communications 33 1/3% declining balance
equipment
Furniture and equipment 20% declining balance
Leasehold improvements straight-line over the lease term
</TABLE>
Intellectual property, which represents the value of software rights
purchased, is amortized to income on a straight-line basis over three years.
INVESTMENT TAX CREDITS
Investment tax credits are accrued when qualifying expenditures are made and
there is reasonable assurance that the credits will be realized. The Company
accounts for investment tax credits using the cost reduction method.
INCOME TAXES
The Company follows the deferral method of income tax allocation. Deferred
income taxes result from claiming deductions for income tax purposes in amounts
which differ from those charged in the accounts.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research costs are expensed in the year incurred. Development costs are
expensed in the year incurred unless a development project meets the criteria
under generally accepted accounting principles
F-12
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for deferral and amortization. One of the criteria of generally accepted
accounting principles requires that development costs should be deferred when
the product is considered to be technically feasible. The Company considers
technical feasibility to be established when the product reaches the "BETA
Release" stage in development. Capitalized development costs are amortized to
income on a straight-line basis over the estimated life of the product,
commencing with the market introduction of the related product. The average
period of amortization is three years. These expenditures are also reduced by
related investment tax credits.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is amortized to income on a straight-line basis over 20
years. Goodwill is written down to reflect any other than temporary impairment
in ongoing value which is believed to have occurred. The Company assesses
whether permanent impairment in value has occurred based on its estimate of the
fair value of the related business operations.
REVENUE RECOGNITION
Revenue from software sales is recognized on delivery of the software and an
irrevocable commitment to purchase made by the customer.
Revenue from software service agreements and other contracts is recognized
on a straight-line basis over the term of the contract.
Revenue from consulting and training services is recognized when the
services are performed.
Unearned revenue arises when billings are made in advance of revenue
recognition.
FINANCIAL INSTRUMENTS
The fair values of financial instruments approximate their carrying values
except as otherwise disclosed in these consolidated financial statements.
FOREIGN CURRENCY TRANSLATION
The Company's subsidiaries are considered to be integrated operations.
Accordingly, monetary assets and liabilities denominated in foreign currencies
are translated into United States dollars at the rate of exchange prevailing at
the year end while other consolidated balance sheet items are translated at
historic rates. Revenue and expenses are translated at the rate of exchange in
effect on the transaction dates. Realized and unrealized foreign exchange gains
and losses are included in income in the year in which they occur, except where
they arise from translation of non-current monetary items. Such gains and losses
are deferred and amortized to income on a straight-line basis over the remaining
life of the underlying non-current monetary items.
SHORT-TERM DEPOSITS
Short-term deposits include such items as short-term guaranteed investment
certificates are carried at cost which approximates market value and mature in
January 1998.
F-13
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITAL LEASES
A lease which transfers substantially all of the benefits and risks
incidental to the ownership of property is accounted for as if it were an
acquisition of an asset and the incurrence of an obligation at the inception of
the lease. Assets recorded under capital leases are amortized over the initial
non-cancellable term of the lease on a basis consistent with accounting for
capital assets.
2. CAPITAL ASSETS
Capital assets consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
$ $ $ $
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Computers, software and communications equipment....... 2,491 1,952 2,599 1,779
Assets under capital lease............................. 1,786 591 1,168 233
Furniture and equipment................................ 901 468 752 377
Leasehold improvements................................. 1,145 651 951 538
Intellectual property.................................. 1,337 111 -- --
--------- ----- --------- -----
7,660 3,773 5,470 2,927
Less accumulated amortization.......................... 3,773 2,927
--------- ---------
Net book value......................................... 3,887 2,543
--------- ---------
--------- ---------
</TABLE>
3. BUSINESS ACQUISITION
Effective October 2,1997, the Company purchased certain business assets and
assumed selected liabilities of MASE Systems, Inc. of San Jose, California for
$1.5 million in cash. The business acquisition has been accounted for by the
purchase method. The following net assets were acquired:
<TABLE>
<CAPTION>
$
---------
<S> <C>
Net non-cash working capital.............................................................................. 170
Capital assets............................................................................................ 26
Intellectual property..................................................................................... 1,337
---------
Total consideration....................................................................................... 1,533
---------
---------
</TABLE>
4. OPERATING LINE OF CREDIT
The Company has a demand operating line of credit of approximately $2.9
million [Cdn. $4.0 million] and a foreign exchange forward contact facility of
approximately $700 thousand [Cdn. $1.0 million], both of which are
collateralized by a general security agreement and a general assignment of book
debts of the Company. The Company must maintain various margin and covenant
requirements. Interest is payable on the operating line of credit at the bank's
prime rate plus 0.25% [1996--prime rate plus 1.5%]. As at December 31, 1997, the
effective rate was 6% [1996--6.25%].
F-14
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
5. OBLIGATIONS UNDER CAPITAL LEASES
Future minimum annual lease payments under capital leases expiring at
various dates to December 2000 are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
1998...................................................................................................... 544
1999...................................................................................................... 521
2000...................................................................................................... 130
---------
Total minimum lease payments.............................................................................. 1,195
Less amount representing interest at 9%................................................................... 94
---------
Balance of obligations.................................................................................... 1,101
Less current portion...................................................................................... 482
---------
619
---------
---------
</TABLE>
6. DEFERRED TENANT INDUCEMENT
The deferred tenant inducement relates to the 10-year lease of the Company's
Toronto office premises effective January 1, 1997. Generally accepted accounting
principles require that the total lease payments over the lease term be
aggregated and charged as rent expense evenly over the term of the lease. The
cumulative difference between the rent expense charged to income and the lease
payments made is recorded as a deferred tenant inducement on the consolidated
balance sheets.
7. SHARE CAPITAL
The Company's authorized share capital consists of the following:
- Unlimited common shares
- Unlimited preference shares, the designation, rights, privileges,
restrictions and conditions attaching thereto are to be determined by the
Board of Directors prior to issue
The Company's issued share capital is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
# $ # $ # $
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Common shares
Balance, beginning of year................ 8,156,019 27,798 5,220,186 22,596 5,220,186 22,596
Reduction of stated share capital......... -- (17,797) -- -- -- --
Shares issued during the year............. 2,048,950 6,058 2,963,654 5,297 -- --
Shares cancelled during the year.......... -- -- (27,821) (95) -- --
--------- --------- --------- --------- --------- ---------
Balance, end of year...................... 10,204,969 16,059 8,156,019 27,798 5,220,186 22,596
--------- --------- --------- --------- --------- ---------
Share purchase loan....................... -- -- (166,763) (454) (194,584) (530)
--------- --------- --------- --------- --------- ---------
16,059 27,344 22,066
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
F-15
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
7. SHARE CAPITAL (CONTINUED)
During 1997:
- On June 24, 1997 the shareholders approved a resolution to reduce the
stated capital of the shares of approximately $17.8 million to eliminate
the deficit as at December 31, 1995.
- Pursuant to an agency agreement dated February 26, 1996, the Company
issued and sold 2,000,000 special warrants priced at Cdn.$4.50 per special
warrant for aggregate gross proceeds of approximately $6.6 million
[Cdn.$9.0 million]. Each special warrant was convertible into one common
share. The associated costs of the special warrants offering were
approximately $594 thousand [Cdn.$813 thousand]. On June 16, 1997, the
2,000,000 special warrants were converted into 2,000,000 common shares.
- The Company issued 48,950 common shares upon the exercise of certain stock
options for cash consideration of approximately $67 thousand.
During 1996:
- On January 19, 1996, the Company issued to eligible holders of its common
shares of record, rights to subscribe for common shares. Each holder of
the common shares was issued one right for each common share held. Four
rights entitled the holder to purchase one common share at a price of
Cdn.$2 per common share and expired on February 9, 1996. All of the rights
were exercised for 1,305,046 common shares for gross proceeds of
approximately $1.9 million [Cdn.$2.6 million]. The associated costs of the
rights offering were approximately $190 thousand [Cdn.$260 thousand].
- Approximately $775 thousand [Cdn.$1.1 million] of a short-term loan
outstanding was satisfied by the issue of 525,500 common shares pursuant
to the Company's previously announced rights offering. The balance of the
loan outstanding, including interest to February 15, 1996, was repaid from
the proceeds of the rights offering. The portion of the loan proceeds
attributable to the right to convert to common shares was not material.
- Pursuant to an agency agreement dated August 21, 1996, the Company issued
and sold 1,625,324 special warrants priced at Cdn.$3.40 per special
warrant for aggregate gross proceeds of approximately $4.0 million
[Cdn.$5.5 million]. Each special warrant was convertible into one common
share. The associated costs of the special warrants offering were
approximately $467 thousand [Cdn.$636 thousand]. On November 20, 1997, the
1,625,324 special warrants were converted into 1,625,324 common shares.
- The Company issued 33,284 common shares upon the exercise of certain stock
options for cash consideration of approximately $34 thousand.
- The Company cancelled 27,821 common shares surrendered by shareholders in
repayment of loans payable of approximately $95 thousand. As a result of
the redemption and cancellation by the Company of its common shares,
contributed surplus increased by approximately $26 thousand.
- The Company issued 100,000 warrants for nil consideration.
During 1995:
F-16
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
7. SHARE CAPITAL (CONTINUED)
- Contributed surplus increased $149 thousand as 105,000 warrants expired on
November 1, 1996.
Options:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
OUTSTANDING EXERCISE PRICE
AT DECEMBER 31, 1997 (CDN.$) EXPIRY DATE
- ---------------------------- ---------------- ----------------------
<S> <C> <C>
200,000 $ 1.25 June 28, 2005
464,800 $ 1.50 to $3.50 August 11, 2005
161,000 $ 1.80 November 2, 2005
15,000 $ 2.80 March 15, 2006
296,200 $ 3.00 May 4, 2006
30,000 $ 3.95 June 25, 2006
33,500 $ 2.75 October 28, 2006
100,000 $ 4.10 December 17, 2006
22,000 $ 5.00 March 4, 2007
354,800 $ 4.10 April 18, 2007
13,950 $ 4.20 May 23, 2007
80,000 $ 4.75 October 3, 2007
17,500 $ 5.00 October 28, 2007
</TABLE>
The Company has reserved 2,150,000 common shares for future issue pursuant
to stock option plans as described above.
WARRANTS
<TABLE>
<CAPTION>
NUMBER OF WARRANTS
OUTSTANDING EXERCISE PRICE
AT DECEMBER 31, 1997 [CDN.$] EXPIRY DATE
- ----------------------------- --------------- ----------------
<C> <C> <S>
75,000 $ 2.40 April 30, 2000
25,000 $ 2.50 April 30, 2000
</TABLE>
FORGIVENESS OF SHARE PURCHASE LOAN
As at December 31, 1995, a share purchase loan of approximately $530
thousand [Cdn.$567 thousand] was outstanding. During 1996, approximately $76
thousand [Cdn.$131 thousand) of the loan was settled by surrender of 27,821
shares held. The share purchase loan has been presented as a reduction of share
capital.
The Board of Directors approved the forgiveness of the remaining balance of
the share purchase loan of $454 thousand effective January 1, 1997. The
forgiveness of the loan did not require the surrender of shares held and
accordingly, the amount of the loan has been charged to retained earnings.
F-17
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
8. INCOME TAXES
The Company's effective income tax rate has been determined as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
$ % $ % $ %
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes.............................. 3,633 100.0 683 100.0 (11,396) 100.0
--------- --------- --- --------- --------- ---------
--------- --------- --- --------- --------- ---------
Combined basic Canadian federal and provincial income
tax rate.............................................. 1,620 44.6 305 44.6 (5,083) (44.6)
Increase (decrease) in income taxes resulting from
Foreign income tax rate differential.................. (67) (1.8) (84) (12.3) 21 0.2
Benefit of future timing differences not recorded in
accounts............................................ 527 14.5 -- -- 5,083 44.6
Unrecorded losses utilized during the year............ (543) (14.9) (187) (27.4) -- --
Ontario superallowance................................ (241) (6.6) (122) (17.8) -- --
Other................................................. 264 7.1 -- -- 21 0.2
--------- --------- --- --------- --------- ---------
1,560 42.9 (88) (12.9) 42 0.4
--------- --------- --- --------- --------- ---------
--------- --------- --- --------- --------- ---------
</TABLE>
The Company has scientific research deductions available for carryforward to
apply against taxable income in future years of approximately $11.9 million
federally and $12.3 million provincially.
As the Company is a public company for Canadian tax purposes, it is eligible
for investment tax credits of 20% on its qualifying current and capital research
and development expenditures incurred in each year. These credits are available
to reduce up to 100% of Canadian federal income taxes payable. The potential
income tax benefits of investment tax credits with respect to expenditures made
in 1997 have not been recorded in the accounts.
Research and development expenditures incurred in the year have been reduced
by $1.5 million of previously unrecognized investment tax credits that were
earned in previous years [1996--nil, 1995-- nil].
In addition, the Company has investment tax credits available of
approximately $2.0 million as at December 31, 1997 to reduce future years'
income taxes. The benefit of these investment tax credits has not been reflected
in the consolidated financial statements. These investment tax credits will
begin to expire in 2005.
9. GOODWILL AND INTELLECTUAL PROPERTY WRITE-OFFS
During 1995, the Company decided to restructure and focus on its strengths
and capabilities in the semi-conductor market. Accordingly, the Palette business
was discontinued. As a result, a permanent impairment of goodwill and
intellectual property occurred. The following amounts related to Pallette
goodwill and intellectual property were written off during 1995:
<TABLE>
<CAPTION>
$
---------
<S> <C>
Pallette goodwill......................................................................................... 6,424
Palette intellectual property............................................................................. 309
---------
---------
</TABLE>
F-18
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
9. GOODWILL AND INTELLECTUAL PROPERTY WRITE-OFFS (CONTINUED)
The Company also made a strategic decision to sell the MADEMA software
exclusively as a module integrated with the PROMIS software, in order to enhance
the marketability of the PROMIS product suite.
It is anticipated that the incremental development and maintenance costs to
integrate the MADEMA software to PROMIS will not be recovered through future
sales of MADEMA. Based upon this decision and the resulting estimated net
recoverable amount, the intellectual property value of MADEMA has been
permanently impaired. Accordingly, the intellectual property value of MADEMA in
the amount of $292 thousand was written off in 1995.
10. PROVISION FOR RESTRUCTURING CHARGES
During the third quarter of 1995, the Company implemented a formal
restructuring plan to focus on its strengths and capabilities in the
semiconductor market. As part of the plan, the Company reduced its work force
and closed certain offices. A provision for exit costs from these operations
including the Palette business [note 9] was accrued. The provision includes
special termination benefits of $1.0 million and costs of leased property no
longer of use to the Company of $280 thousand. Approximately $500 thousand of
the termination benefit has been collateralized by an assignment of book debts
of the Company, subordinate to the operating line of credit. As at December 31,
1997, $1.55 million [December 31, 1996, $1.1 million] of the exit costs accrued
have been paid. It is anticipated that the remaining balance of the accrual will
be paid in 1999.
11. CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
The net change in non-cash working capital balances related to operations
consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
Accounts receivable................................................................... (1,412) 289 (1,415)
Unbilled receivables.................................................................. (455) (1,891) 1,411
Income taxes recoverable.............................................................. 2 397 (453)
Prepaid expenses...................................................................... (49) (15) (102)
Investment tax credits recoverable.................................................... -- 591 219
Accounts payable and accrued liabilities.............................................. (1,412) (206) 1,013
Unearned revenue...................................................................... 17 959 160
--------- --------- ---------
(3,309) 124 833
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
12. LEASE COMMITMENTS
Future minimum annual lease payments under operating leases are
approximately as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
1998...................................................................................................... 1,046
1999...................................................................................................... 778
2000...................................................................................................... 604
2001...................................................................................................... 622
2002...................................................................................................... 632
Thereafter................................................................................................ 1,013
4,695
---------
---------
</TABLE>
13. GEOGRAPHIC SEGMENTED FINANCIAL INFORMATION
The Company operates in the computer software development business.
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
Revenue
North America....................................................................... 10,705 8,926 10,436
Asia--Pacific....................................................................... 10,317 7,635 3,826
Europe.............................................................................. 2,945 3,142 1,811
--------- --------- ---------
Consolidated revenue................................................................ 23,967 19,703 16,073
--------- --------- ---------
--------- --------- ---------
Operating income before research and development
North America....................................................................... 4,590 3,254 (5,944)
Asia--Pacific....................................................................... 3,510 2,626 711
Europe.............................................................................. 1,017 1,618 (96)
--------- --------- ---------
Consolidated operating income before research and development....................... 9,117 7,498 (5,329)
Research and development expenditures............................................... 5,484 6,815 6,067
--------- --------- ---------
Income before income taxes.......................................................... 3,633 683 (11,396)
Provision for (recovery of) income taxes............................................ 1,560 (88) 42
--------- --------- ---------
Consolidated net income............................................................. 2,073 771 (11,438)
--------- --------- ---------
--------- --------- ---------
Identifiable assets
North America....................................................................... 20,899 15,114 10,517
Asia--Pacific....................................................................... 249 134 113
Europe.............................................................................. 143 249 210
--------- --------- ---------
Consolidated identifiable assets.................................................... 21,291 15,497 10,840
Deferred income taxes............................................................... 1,481 1,481 787
Deferred development costs.......................................................... -- 37 88
Intellectual property............................................................... 1,226 -- --
Goodwill............................................................................ 2,212 2,414 2,617
--------- --------- ---------
Total consolidated assets........................................................... 26,210 19,429 14,332
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-20
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
14. CONTINGENT LIABILITY
In 1993, the Company purchased the business assets and assumed selected
liabilities of Palette Systems Inc. The purchase price of approximately $9.9
million consisted of approximately $5.5 million in cash and 442,638 common
shares of the Company, valued at $10 per common share. At that time the Company
agreed that on April 7, 1998 it would pay additional cash consideration to the
vendors of an amount equal to the amount by which approximately $4 million
exceeded market value of the common shares owned by the vendors on April 7,
1998.
On March 29, 1996, the Company made a formal claim against the vendors
pursuant to the dispute resolution provisions of the original purchase and sale
agreements and the vendors filed certain counterclaims against the Company.
In 1997, the Company and the vendors reached a settlement of the dispute.
The settlement provides that commencing on April 7, 1998 the Company would pay
additional cash to the vendors of an amount equal to the amount by which 442,638
common shares are less than the market value, on each of the payment dates
described hereunder, of $10 per common share. As part of the settlement, the
additional cash consideration, if any, will be payable as to 50% on April 7,
1998 and the balance as to 2.5% on a quarterly basis commencing on July 7, 1998,
up to and including April 7, 2003. Under the terms of the settlement agreement,
the vendors are restricted as to the number of shares which can be sold in any
given quarter to April 7, 2003.
Since the payment of additional consideration is dependent on the Company's
share price at various future dates, any additional consideration will be
recorded as a reduction in share capital of the Company as the amounts become
determinable.
The Company's contingent liability calculated based on the market value of
the common shares at February 27, 1998, is approximately $1.4 million.
15. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative consolidated financial statements have been reclassified
from statements previously presented to conform to the presentation of the 1997
consolidated financial statements.
16. RECONCILIATION OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND IN
THE UNITED STATES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ["Canadian GAAP"] which, in
the case of the Company, conform in all material respects with those in the
United States ["US GAAP"], except as follows:
[a] Under US GAAP basic earnings per share are based on the weighted average
number of common shares excluding contingent shares issued and shares
issued pursuant to share purchase loans. Diluted earnings per share are
calculated in accordance with the treasury stock method and are based on
the weighted average number of common shares and dilutive common share
equivalents outstanding.
[b] For reconciliation purposes to US GAAP, the Company has applied the
provisions of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" [SFAS 109] effective August 31, 1993. Under
SFAS 109, the liability method is used in accounting for
F-21
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
16. RECONCILIATION OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND IN
THE UNITED STATES (CONTINUED)
income taxes. SFAS 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been included in the financial statements or returns. Under this method,
deferred tax assets and liabilities are determined based on the
difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates that will be in effect for the year
in which the differences are expected to reverse. In addition this method
provides for a valuation allowance against deferred tax assets where it
is more likely than not that some portion or all of a deferred tax asset
will not be realized.
Under US GAAP, Research and Development investment tax credits would be
credited to the income tax provision rather than as a net to research and
development expenses. The amounts credited to research and development expenses
were $1,500 in 1997, nil in 1996 and nil in 1995.
The significant components of the Company's deferred tax assets, under US
GAAP, as at December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
R&D and capital assets--tax base in excess of book value...... 8,389 8,535 6,800
Losses carried forward........................................ 148
Investment tax credits........................................ 2,000 3,013 2,691
Other......................................................... 820 344 415
Less valuation allowance...................................... (11,209) (11,892) (10,054)
--------- --------- ---------
Future income tax assets...................................... -- -- --
--------- --------- ---------
--------- --------- ---------
</TABLE>
[c] Under Canadian GAAP, unrealized foreign exchange gains and losses
relating to non-current monetary items are deferred and amortized to
income over the remaining life of the underlying non-current monetary
item. Under US GAAP these unrealized foreign exchange gains and losses
are recognized in income immediately. The amounts recognized each year
for Canadian GAAP purposes approximates the amounts which would have been
recognized for US GAAP.
[d] Under Canadian GAAP, for purposes of the statements of cash flows, cash
position includes all short-term investments less bank indebtedness.
Under US GAAP, cash position includes highly liquid investments with
original maturities of less than three months. Bank indebtedness is
presented as a financing activity for purposes of US GAAP.
[e] Under Canadian GAAP, the forgiveness of a share purchase loan in 1997
was recognized as an increase of $454 to the Company's deficit. Under US
GAAP, the share purchase loans are viewed as part of a variable
compensation arrangement with changes in the value of the underlying
shares recorded as adjustments to income in the year in which they
occurred in periods prior to 1995. The resulting share purchase loan
balance of $321 was charged to expense when the Company's Board of
Directors approved the forgiveness in 1995.
[f] Under Canadian GAAP, a reduction of the stated capital of outstanding
common shares is allowed with a corresponding offset to deficit. This
reclassification, which the Company made
F-22
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
16. RECONCILIATION OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND IN
THE UNITED STATES (CONTINUED)
in 1997 to eliminate the deficit which existed at December 31, 1995, is
not permitted by US GAAP and would result in an increase to share capital
and corresponding decrease in the retained earnings of $17,797.
[g] Under Canadian GAAP, stock options are accounted for at the date of
exercise when the purchase is recorded as an increase to capital stock.
For reconciliation purposes to US GAAP, the Company has chosen to follow
APB 25 in accounting for stock options granted to directors, officers and
employees. Since the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of
the grant, no compensation expense has been recognized.
[h] The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 130 "Comprehensive Income" requires
companies to report comprehensive income which includes all changes in
stockholders' equity during a period except those resulting from
investments by owners and distributions to owners. For purposes of
reconciliation to US GAAP, the Company's comprehensive income would equal
its net income for the periods presented.
The following table reconciles the net income as reported on the
consolidated statements of earnings (loss) to that which would have been
reported had the financial statements been prepared in accordance with US GAAP
and the requirements of the SEC:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
Net earnings (loss) under Canadian GAAP............................ 2,073 771 (11,438)
Adjustments
Forgiveness of share purchase loan............................... -- -- (321)
Income taxes..................................................... -- (103)
--------- --- ---------
Net earnings (loss) under US GAAP.................................. 2,073 668 (11,759)
--------- --- ---------
--------- --- ---------
</TABLE>
F-23
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
16. RECONCILIATION OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND IN
THE UNITED STATES (CONTINUED)
The following table sets forth the computation of basic and diluted earnings
per share under US GAAP:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
Numerator
Net income (loss).................................... 2,073 668 (11,759)
---------- ---------- ----------
Numerator for basic earnings (loss) per share.......... 2,073 668 (11,759)
Income effect of dilutive securities................... -- -- --
---------- ---------- ----------
Numerator for diluted earnings (loss) per share........ 2,073 668 (11,759)
---------- ---------- ----------
Denominator
Weighted average number of common shares............... 9,246,063 6,502,826 5,025,602
Effect of dilutive securities
Stock options........................................ 690,200 319,637 --
Warrants............................................. 51,500 13,512 --
---------- ---------- ----------
Adjusted weighted average number of common shares and
assumed conversions.................................. 9,987,763 6,835,975 5,025,602
---------- ---------- ----------
Basic earnings (loss) per share........................ $0.22 $0.10 $(2.34)
Diluted earnings per share............................. $0.21 $0.10 $(2.34)
</TABLE>
An additional 39,500 stock options were outstanding in 1997, however, were
neither dilutive or anti-dilutive.
An additional 367,117 stock options were outstanding and 681,818 shares were
issuable on conversion of outstanding in debt in 1996 but were not included in
computation of diluted earnings as the effects of these items would have been
anti-dilutive.
1,547,400 stock options were outstanding and 681,818 shares were issuable on
conversion of outstanding debt in 1995 but were not included in the computation
of diluted earnings per share in light of the net loss for the year.
F-24
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
16. RECONCILIATION OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND IN
THE UNITED STATES (CONTINUED)
Cashflow information presented in conformity with US GAAP, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
Operating activities, Canadian GAAP............................... (32) 931 (2,314)
Exchange rate effect on foreign currency balances................. 45 (21) 32
--------- --------- ---------
Operating activities, US GAAP..................................... 13 910 (2,282)
--------- --------- ---------
Investing activities, Canadian GAAP............................... (2,582) (1,993) (91)
--------- --------- ---------
Investing activities, US GAAP..................................... (2,582) (1,993) (91)
--------- --------- ---------
Financing activities, Canadian GAAP............................... 6,902 5,035 999
Increase (decrease) in bank indebtedness.......................... (802) (1,342) 2,144
--------- --------- ---------
Financing activities, US GAAP..................................... 6,100 3,693 3,143
--------- --------- ---------
Increase in cash, US GAAP......................................... 3,531 2,610 770
Cash position, beginning of year, US GAAP......................... 3,882 1,251 513
Exchange rate effect on foreign currency balances................. (45) 21 (32)
--------- --------- ---------
Cash position, end of year, US GAAP............................... 7,368 3,882 1,251
--------- --------- ---------
--------- --------- ---------
Cash interest paid................................................ 89 184 130
--------- --------- ---------
--------- --------- ---------
Cash taxes paid................................................... 143 36 682
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1996, the repayment of $775 of a short term loan which was satisfied by
the issue of common shares, under Canadian GAAP, was included as cash used in
and cash provided by financing activities, respectively. Under US GAAP, these
amounts would be excluded from cash flows and separately disclosed. There is no
effect on total financing activities. See note 7.
F-25
<PAGE>
PROMIS SYSTEMS CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[U.S. DOLLARS, TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION]
16. RECONCILIATION OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND IN
THE UNITED STATES (CONTINUED)
Balance sheet items in conformity with US GAAP which differ from those
presented for Canadian GAAP are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
Investment tax credits recoverable--Canadian GAAP............. -- -- 591
Adjustment for income taxes under SFAS 109.................... -- -- (591)
--------- --------- ---------
Investment tax credits recoverable--US GAAP................... -- -- --
--------- --------- ---------
--------- --------- ---------
Deferred income taxes--Canadian GAAP.......................... 1,481 1,481 787
Adjustment for income taxes under SFAS 109.................... (1,481) (1,481) (787)
--------- --------- ---------
Deferred income taxes--US GAAP................................ -- -- --
--------- --------- ---------
--------- --------- ---------
Share capital--Canadian GAAP.................................. 16,059 27,344 22,066
Forgiveness of share purchase loan............................ -- 454 454
Deficit reduction............................................. 17,797 -- --
--------- --------- ---------
Share Capital--US GAAP........................................ 33,856 27,798 22,520
--------- --------- ---------
--------- --------- ---------
Retained earnings (deficit)--Canadian GAAP.................... 2,390 (17,026) (17,797)
Forgiveness of share purchase loan............................ -- (454) (454)
Deficit reduction............................................. (17,797) -- --
Adjustment for income taxes under SFAS 109.................... (1,481) (1,481) (1,378)
--------- --------- ---------
Retained deficit--US GAAP..................................... (16,888) (18,961) (19,629)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-26
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The unaudited pro forma condensed combined statements of operations combine
PRI's audited consolidated results of operations for each of the two years in
the period ended September 30, 1998 with Promis' unaudited consolidated results
of operations for the twelve-month period ended September 30, 1998 and audited
consolidated results of operations for the year ended December 31, 1997,
respectively, giving effect to the Transaction as if it had occurred at the
beginning of each period presented on a pooling-of-interests basis. The
unaudited pro forma condensed combined balance sheet data combines PRI's audited
consolidated balance sheet data as of September 30, 1998 with Promis' unaudited
consolidated balance sheet data as of that date, giving effect to the
Transaction as if it had occurred on September 30, 1998. The historical
financial information of PRI has been derived from its audited consolidated
financial statements for each of the two years in the period ended September 30,
1998, which have been incorporated by reference. The historical financial
information of Promis has been derived from its accounting records for the
twelve-month period ended September 30, 1998 and its audited consolidated
financial statements for the year ended December 31, 1997 on the basis of U.S.
GAAP and should be read in conjunction with the unaudited interim consolidated
financial statements for the nine-month period ended September 30, 1998 and the
audited financial statements for the year ended December 31, 1997 and the notes
thereto, which have been included herein. In the opinion of the management of
Promis, the above-mentioned unaudited interim financial data of Promis includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results for the unaudited twelve-month interim period
that combines the nine-month period ended September 30, 1998 and the three-month
period ended December 31, 1997. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the consolidated
results of operations or financial position that would have occurred had the
Transaction been consummated at the beginning of the periods presented, nor is
it necessarily indicative of future results of operations or financial position.
F-27
<PAGE>
PRI AUTOMATION, INC. AND PROMIS SYSTEMS CORPORATION LTD.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AT SEPTEMBER 30, 1998
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- ----------------------
PRI PROMIS ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 48,208 $ 8,839 $ 57,047
Contracts in progress............................. 9,017 -- 9,017
Accounts receivable, net.......................... 24,887 7,098 31,985
Inventories....................................... 27,494 -- 27,494
Deferred income taxes............................. 7,832 58 7,890
Other current assets.............................. 6,892 280 7,172
--------- --------- ----------- ---------
Total current assets.......................... 124,330 16,275 140,605
Goodwill, net of accumulated amortization........... -- 2,060 2,060
Property, equipment and improvements, net........... 17,122 4,076 21,198
Intellectual property, net of accumulated
amortization...................................... -- -- --
Other assets........................................ 2,566 -- 2,566
Deferred income taxes............................... 559 -- 559
--------- --------- ----------- ---------
Total assets.................................. $ 144,577 $ 22,411 $ $ 166,988
--------- --------- ----------- ---------
--------- --------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable/accrued liabilities.............. $ 25,160 $ 1,621 $ 5,500 $ 32,281
Unrealized loss on foreign currency hedge......... 300 300
Deferred revenue.................................. 9,214 2,855 12,069
Capital lease obligations, current portion........ 110 688 798
Line of credit.................................... 11 -- 11
--------- --------- ----------- ---------
Total current liabilities..................... 34,495 5,464 5,500 45,459
Obligations under capital lease..................... 75 659 734
Other long-term assets.............................. -- 965 965
--------- --------- ----------- ---------
Total liabilities............................. 34,570 7,088 5,500 47,158
Stockholders' equity:
Common stock........................................ 198 32,591 32,789
Additional paid-in capital.......................... 96,096 362 96,458
Retained earnings................................... 13,713 (17,630) (5,500) (9,417)
--------- --------- ----------- ---------
Total stockholders' equity.................... $ 110,007 $ 15,323 $ (5,500) $ 119,830
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Total liabilities and stockholders' equity.... $ 144,577 $ 22,411 $ -- $ 166,988
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements
F-28
<PAGE>
PRI AUTOMATION, INC. AND PROMIS SYSTEMS CORPORATION LTD.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL -----------------------
PRI PROMIS(1) ADJUSTMENTS COMBINED
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue..................................................... $ 178,193 $ 23,747 $ 1,704 $ 203,644
Cost of revenue................................................. 121,727 2,933 124,660
Operating expenses:
Research and development...................................... 37,137 7,372 44,509
Selling, general and administrative........................... 33,698 13,185 46,883
Merger costs and special charges.............................. 10,091 -- 10,091
Acquired in-process research and development.................. 8,417 -- 8,417
---------- ----------- ----------- ----------
Operating (loss) profit......................................... (32,877) 257 1,704 (30,916)
Other income, net............................................... 1,049 -- 1,049
(Loss) income before income taxes............................... (31,828) 257 1,704 (29,867)
(Benefit from)/Provision for income taxes....................... (7,886) 120 (7,766)
---------- ----------- ----------- ----------
Net (loss) income............................................... $ (23,942) $ 137 $ 1,704 $ (22,101)
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Per share information:
Diluted net (loss) income per common share.................... $ (1.22) $ 0.01 $ (1.04)
Shares used in per share computations(2)...................... 19,607 11,058 21,335
</TABLE>
- ------------------------
(1) The historical Promis statement of operations data have been calculated
using data for the twelve-month period ended September 30, 1998 and have
been prepared in accordance with US GAAP. Promis' sales and net income of
$6,922 and $879, respectively for the three-month period ended December 31,
1997 which is included in the historical twelve-month period ended September
30, 1998 are also included in the historical twelve-month period ended
December 31, 1997 on page F-30.
(2) The number of shares used in the historical Promis per common share
computation was derived from Promis' dilutive outstanding shares and share
equivalents as of September 30, 1998. The number of shares used for the Pro
Forma combined diluted net loss per common share was derived from Promis'
basic outstanding shares as of September 30, 1998, multiplied by the assumed
exchange ratio of 0.1691, plus PRI's historical basic shares outstanding as
of September 30, 1998. Under US GAAP, the computation of diluted net (loss)
income per common share does not assume the issuance of common shares that
have an anti-dilutive effect.
See accompanying notes to unaudited pro forma
condensed combined financial statements
F-29
<PAGE>
PRI AUTOMATION, INC. AND PROMIS SYSTEMS CORPORATION LTD.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL -----------------------
PRI PROMIS(1) ADJUSTMENTS COMBINED
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue..................................................... $ 213,159 $ 23,967 $ (1,026) $ 236,100
Cost of revenue................................................. 118,263 2,716 (7) 120,972
Operating expenses:
Research and development...................................... 29,214 6,984 36,198
Selling, general and administrative........................... 31,332 12,134 (72) 43,394
Merger costs and special charges.............................. -- -- --
Acquired in-process research and development.................. -- -- --
---------- ----------- ----------- ----------
Operating profit................................................ 34,350 2,133 (947) 35,536
Other income, net............................................... 1,204 -- 1,204
---------- ----------- ----------- ----------
Income before income taxes...................................... 35,554 2,133 (947) 36,740
Provision for income taxes...................................... 8,982 60 9,042
---------- ----------- ----------- ----------
Net income.................................................... $ 26,572 $ 2,073 $ (947) $ 27,698
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Per share information:
Diluted net income per common share........................... $ 1.32 $ 0.21 $ 1.27
Shares used in per share computations(2)...................... 20,137 9,988 21,826
</TABLE>
- ------------------------
(1) The historical Promis statement of operations data have been calculated
using data for the twelve-month period ended December 31, 1997 and have been
prepared in accordance with US GAAP. Promis' sales and net income of $6,922
and $879, respectively for the three-month period ended December 31, 1997
which is included in the historical twelve-month period ended December 31,
1997 are also included in the historical twelve-month period ended September
30, 1998 on page F-29.
(2) The number of shares used for the Pro Forma Combined dilutive net income per
common share was derived from Promis' dilutive outstanding shares and share
equivalents as of December 31, 1997, multiplied by the assumed exchange
ratio of 0.1691, plus PRI's historical dilutive outstanding shares and share
equivalents as of September 30, 1997.
See accompanying notes to unaudited pro forma condensed combined financial
statements
F-30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
1. Certain financial statement balances of Promis have been reclassified to
conform with PRI financial statement presentation.
2. The adjustments to the unaudited pro forma condensed combined balance sheet
give effect to the issuance of 1,725,660 shares of PRI Common Stock based on
an assumed exchange ratio of 0.1691 as if the Transaction had been
consummated as of September 30, 1998 and an anticipated charge for
Transaction-related expenses totaling approximately $5.5 million, less
anticipated income tax benefits. Such expenses include investment advisory
fees, legal and accounting expenses and other transaction costs ($2.8
million), other direct costs associated with the Transaction ($0.8 million)
and incremental operating costs associated with anticipated employee
termination benefits and elimination of redundant facilities ($1.9 million).
The unaudited pro forma condensed combined statements of operations do not
reflect these non-recurring charges, which PRI anticipates will be recorded
during the twelve-month period following consummation of the Transaction.
3. The unaudited pro forma condensed combined financial statements do not
include all adjustments to conform the accounting policies of Promis to
those followed by PRI. The nature and extent of adjustments in addition to
those discussed herein, if any, will be based upon further study and
analysis and are not expected to be significant in relationship to the
consolidated financial statements of PRI. The unaudited pro forma condensed
combined statements of operations data include certain adjustments to
Promis' accounting policies to conform them with PRI's accounting policies
on revenue recognition. The unaudited pro forma condensed combined balance
sheet includes an adjustment for an anticipated charge for
Transaction-related expenses described in Note 2.
F-31
<PAGE>
We have not authorized any dealer, sales representative or other person to
give you any information or to make any representations other than the
statements in this prospectus. If anyone gives you any other information or
makes any other representation, you should not rely on it. After the date of
this prospectus, you should not assume that the information in this prospectus
continues to be accurate, even if this prospectus is delivered to you after that
date or if you acquire common stock after that date. This prospectus is neither
an offer to sell nor the solicitation of an offer to buy any securities other
than the common stock. This prospectus is neither an offer to sell nor the
solicitation of an offer to buy common stock if: (1) you are in a jurisdiction
that does not permit such offer or solicitation; (2) the person making the offer
or solicitation is not qualified to do so; or (3) it is unlawful to make such
offer or solicitation to you.
1,403,504 SHARES
PRI AUTOMATION, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses to be paid by the
Company in connection with the issuance and distribution of the securities being
registered. All amounts shown are estimates except for amounts of filing and
listing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 15,454
---------
Nasdaq National Market listing fee................................ 17,500
---------
Legal fees and expenses........................................... 50,000
---------
Accounting fees and expenses...................................... 25,000
---------
Printing, EDGAR formatting and mailing expenses................... 5,000
---------
Miscellaneous..................................................... 12,046
---------
Total..................................................... $ 125,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 6C of the Company's Restated Articles of Organization provides that
the Company (with certain exceptions) will indemnify and hold harmless to the
fullest extent authorized by the Massachusetts Business Corporation Law each
person who was or is made a party or is threatened to be made a party to or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative, investigative or otherwise (hereinafter a "Proceeding"), by
reason of the fact that he or she is or was (a) a director of the Company, (b)
an officer of the Company elected or appointed by the stockholders or the Board
of Directors, or (c) serving, at the request of the Company as evidenced by a
vote of the Board of Directors prior to the occurrence of the event to which the
indemnification relates, as a director, officer, employee or other agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan (such
persons described in (a), (b) and (c) are sometimes hereinafter referred to as
an "Indemnitee") against all expense, liability, and loss reasonably incurred by
any such Indemnitee in connection therewith. The Company may also, to the extent
authorized by the Board of Directors, grant rights to indemnification, and to an
advancement of expenses, to any employee or agent of the Company.
Notwithstanding the foregoing, if Massachusetts Business Corporation Law
requires, an advancement of expenses incurred by an Indemnitee will be made only
upon delivery to the Company of an undertaking, by or on behalf of such
Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is not further right to
appeal that such Indemnitee is not entitled to be indemnified for such expenses.
The rights under Article 6C may not be amended or terminated so as to
adversely affect an individual's rights with respect to the period prior to such
amendment without the consent of the person entitled to the indemnification
(unless otherwise required by the Massachusetts Business Corporation Law).
Section 67 of Chapter 156B of the Massachusetts Business Corporation Law
authorizes a corporation to indemnify its directors, officers, employees and
other agents unless such person shall have been adjudicated in any proceeding
not to have acted in good faith in the reasonable belief that his action was in
the best interests of the Corporation or to the extent that such matter relates
to service with respect to an employee benefit plan, in the best interests of
the participants of such employee benefit plan.
II-1
<PAGE>
The effect of these provisions would be to authorize such indemnification by
the Company for liabilities arising out of the Securities Act of 1933.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
2.1* Combination Agreement dated as of November 24, 1998 between PRI Automation, Inc.,
1325949 Ontario Inc. and Promis Systems Corporation Ltd.
4.1* Restated Articles of Organization (filed as Exhibit 3.5 to the Company's registration
statement on Form S-1, File No. 33-81836, and incorporated herein by reference).
4.2* Articles of Amendment to Restated Articles of Organization (filed as Exhibit 3.6 to
the Company's quarterly report on Form 10-Q, for the quarterly period ended March 30,
1997, File No. 000-24934, and incorporated herein by reference).
4.3* Articles of Amendment to Restated Articles of Organization (filed as Exhibit 3.7 to
the Company's quarterly report on Form 10-Q, for the quarterly period ended December
28, 1997, File No. 000-24934, and incorporated herein by reference).
4.4* Certificate of Designation of Series A Participating Cumulative Preferred Stock, as
amended.
4.5* Amended and Restated By-Laws of the Company (filed as Exhibit 3.4 to the Company's
registration statement on Form S-1, File No. 33-81836, and incorporated herein by
reference).
4.6* Rights Agreement dated as of December 9, 1998, between the Company and State Street
Bank and Trust Company, as Rights Agent (filed as Exhibit 4.1 to the Company's
current report on Form 8-K, dated December 7, 1998, File No. 000-24934, and
incorporated herein by reference).
4.7* Form of Rights Certificate (attached as Exhibit B to the Rights Agreement filed as
Exhibit 4.1 to the Company's current report on Form 8-K, dated December 7, 1998, File
No. 000-24934, and incorporated herein by reference).
4.8 Certificate of Vote of Directors Establishing a Class or Series of Stock with respect
to the Special Voting Preferred Stock.
5.1* Opinion of Foley, Hoag & Eliot LLP.
8.1* Opinion of Blake, Cassels & Graydon regarding tax matters.
8.2* Opinion of Foley, Hoag & Eliot LLP regarding tax matters.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP, independent auditors.
23.3 Consent of Ernst & Young LLP, independent auditors.
23.4* Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1).
23.5* Consent of Blake, Cassels & Graydon (included in Exhibit 8.1).
23.6* Consent of Foley, Hoag & Eliot LLP (included in Exhibit 8.2).
24.1* Power of Attorney (contained on the signature page).
99.1* Form of Plan of Arrangement under Section 192 of the Canada Business Corporations Act
of Promis Systems Corporation Ltd.
99.2* Form of Voting and Exchange Trust Agreement among the Company, 1325949 Ontario Inc.,
Promis Systems Corporation Ltd. and Montreal Trust Company of Canada, as trustee.
99.3* Form of Support Agreement among the Company, 1325949 Ontario Inc. and Promis Systems
Corporation Ltd.
</TABLE>
* Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in the volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of a prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration, by means of a post-effective amendment,
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Post-Effective
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Billerica, Massachusetts
on this 5th day of March, 1999.
<TABLE>
<S> <C> <C>
PRI AUTOMATION, INC.
By: /s/ STEPHEN D. ALLISON
-----------------------------------------
Stephen D. Allison
CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
* Chairman of the Board,
- ------------------------------ Treasurer and Director March 5, 1999
Mordechai Wiesler
President, Chief Executive
* Officer and Director
- ------------------------------ (Principal Executive March 5, 1999
Mitchell G. Tyson Officer)
/s/ STEPHEN D. ALLISON Chief Financial Officer
- ------------------------------ (Principal Financial and March 5, 1999
Stephen D. Allison Accounting Officer)
* Director
- ------------------------------ March 5, 1999
Alexander V. D'Arbeloff
* Director
- ------------------------------ March 5, 1999
Boruch B. Frusztajer
* Director
- ------------------------------ March 5, 1999
Amram Rasiel
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
* Director
- ------------------------------ March 5, 1999
Kenneth M. Thompson
*By: /s/ STEPHEN D.
ALLISON
- ------------------------------
Stephen D. Allison
(ATTORNEY-IN-FACT)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
4.8 Certificate of Vote of Directors Establishing a Class or Series of Stock with respect to the Special
Voting Preferred Stock.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP, independent auditors.
23.3 Consent of Ernst & Young LLP, independent auditors.
</TABLE>
<PAGE>
EXHIBIT 4.8
FEDERAL IDENTIFICATION
No. 04-2495703
-------------
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
CERTIFICATE OF VOTE OF DIRECTORS
ESTABLISHING A CLASS OR SERIES OF STOCK
(GENERAL LAWS, CHAPTER 156B, SECTION 26)
We, Mitchell G. Tyson, , *President/xxxxxxxxxxxxxxx,
---------------------------------------------------------------------------
and Robert L. Birnbaum , xxxxx/ *Assistant Clerk,
---------------------------------------------------------------------------
of PRI Automation, Inc.
---------------------------------------------------------------------------
(EXACT NAME OF CORPORATION)
located at: 805 Middlesex Turnpike, Billerica, Massachusetts 01821,
-------------------------------------------------------------------
(STREET ADDRESS OF CORPORATION IN MASSACHUSETTS)
do hereby certify that at a meeting of the directors of the corporation held on
November 24, 1998, the following vote establishing and designating a class or
series of stock and determining the relative rights and preferences thereof was
duly adopted:
See Continuation Sheet 2A
SECRETARY OF
THE COMMONWEALTH
99 MAR-2 AM 8:51
[TIME STAMP]
* DELETE THE INAPPLICABLE WORDS.
NOTE: VOTES FOR WHICH THE SPACE PROVIDED ABOVE IS NOT SUFFICIENT SHOULD BE
PROVIDED ON ONE SIDE OF SEPARATE 8 1/2 x 11 SHEETS OF WHITE PAPER, NUMBERED 2A,
2B, ETC. WITH A LEFT MARGIN OF AT LEAST 1 INCH.
<PAGE>
CONTINUATION SHEET 2A
---------------------
VOTED: That, pursuant to the authority vested in the Board of Directors of
the Corporation in accordance with the provisions of the Articles of
Organization of the Corporation, the Board of Directors hereby
designates and establishes one share of its authorized but unissued
Preferred Stock as its Special Voting Preferred Stock, par value $0.01
per share (the "Special Voting Preferred Stock"); that such Special
Voting Preferred Stock shall have the terms set forth in their entirety
in ANNEX A attached hereto; that such terms be, and they hereby are
approved; and that the President or any Vice President and the Clerk
or any Assistant Clerk of the Corporation be, and they hereby are,
authorized to execute a Certificate of Vote of Directors
Establishing a Class or Series of Stock (the "Certificate of Vote of
Directors") setting forth such terms in the name of the Corporation,
and to file the Certificate of Vote of Directors with the Secretary
of State of The Commonwealth of Massachusetts and such other
governmental authorities as may be required by law.
<PAGE>
ANNEX A
-------
TERMS OF SPECIAL VOTING PREFERRED STOCK
---------------------------------------
1. DESIGNATION; NUMBER OF SHARES. The class of Preferred Stock known as
"Special Voting Preferred Stock" shall consist of one (1) share.
2. VOTING. On all matters submitted to a vote of stockholders of the
Corporation, the holder of the share of Special Voting Preferred Stock
shall be entitled at any relevant date to the number of votes
determined in accordance with a certain Voting and Exchange Trust
Agreement, dated as of March 2, 1999, by and among the Corporation,
1325949 Ontario Inc., a corporation organized and existing under the
laws of the Province of Ontario and a wholly owned subsidiary of the
Corporation, Promis Systems Corporation Ltd., a corporation organized
and existing under the laws of Canada ("Promis"), and Montreal Trust
Company of Canada, a trust company incorporated under the laws of
Canada. Except as required by law or by the Articles of Organization of
the Corporation, the holder of the share of Special Voting Preferred
Stock and the holders of the Common Stock of the Corporation shall vote
together as a single class in the election of directors and on all
matters submitted to a vote of the stockholders of the Corporation. In
the event that the Special Voting Preferred Stock is required by law or
by the Articles of Organization of the Corporation to vote separately
as a class or series on a proposal, the holder of the share of Special
Voting Preferred Stock shall in addition to voting separately as a
class or series on such proposal, also be entitled to vote with the
holders of the Corporation's Common Stock together as a single class.
3. DIVIDENDS. The holder of the share of Special Voting Preferred Stock
shall not be entitled to receive any dividends.
4. LIQUIDATION. In the event of any dissolution, liquidation or winding up
of the affairs of the Corporation, whether voluntary or involuntary,
the holder of the share of Special Voting Preferred Stock shall be
entitled to be paid out of the net assets of the Corporation available
for distribution, before any distribution or payment is made upon any
stock of the Corporation ranking on liquidation junior to the Special
Voting Preferred Stock, an amount equal to $1.00, subject to equitable
adjustment in the event of stock splits, stock dividends, combinations
and the like involving the Special Voting Preferred Stock (the "Special
Voting Preferred Stock Liquidation Payment"). Upon any such
dissolution, liquidation or winding up of the affairs of the
Corporation, after the holder of the share of Special Voting Preferred
Stock shall have been paid the amount to which it shall be entitled,
the remaining net assets of the Corporation may be distributed to the
holders of stock ranking on liquidation junior to the Special Voting
Preferred Stock. Whenever the distribution provided for in this
paragraph shall be paid in property other than cash, the value of such
distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the Corporation.
Written notice of such dissolution, liquidation or winding up of the
affairs of the Corporation, stating a payment date, the amount of the
Special Voting Preferred Stock Liquidation Payment and the place where
said Special Voting Preferred Stock Liquidation Payment shall be
payable, shall be given by mail, postage prepaid, not less than 5 days
prior to the payment date stated therein, to the holder of record of
Special Voting Preferred Stock, such notice to be addressed to such
holder at its address as shown by the records of the Corporation. For
purposes hereof, the Common Stock shall rank on liquidation junior to
the
<PAGE>
Special Voting Preferred Stock. A merger or consolidation of the
Corporation with or into any other corporation or a sale or conveyance
of all or any part of the assets of the Corporation (which shall not in
fact result in the liquidation of the Corporation and the distribution
of assets to stockholders) shall not be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
within the meaning of this paragraph 4.
5. REDEMPTION. (a) The share of Special Voting Preferred Stock shall be
redeemed by the Corporation as described herein, at a price of $1.00,
subject to equitable adjustment in the event of stock splits, stock
dividends, combinations and the like involving the Special Voting
Preferred Stock (the "Redemption Price"). Such redemption shall occur
automatically and simultaneously, but only upon the issuance by the
Corporation of its Common Stock or delivery by 1325949 Ontario Inc. of
the Corporation's Common Stock for the last outstanding Exchangeable
Share of Promis ("Exchangeable Share") held by a person other than the
Corporation or any of its subsidiaries.
(b) Promptly after the issuance by the Corporation of its
Common Stock or delivery by 1325949 Ontario Inc. of the Corporation's
Common Stock for the last outstanding Exchangeable Share held by a
person other than the Corporation or any of its subsidiaries, the
Corporation shall give written notice (the "Redemption Notice") by
mail, postage prepaid, to the holder of record (at the close of
business on the business day next preceding the day on which the
Redemption Notice is given) of the share of Special Voting Preferred
Stock notifying such holder of the redemption and specifying the
Redemption Price, the date on which the last outstanding Exchangeable
Share held by a person other than the Corporation or any of its
subsidiaries was acquired by the Corporation or any of its subsidiaries
(the "Redemption Date") and the place and date (not to exceed 20 days
from the date such notice is given) where said Redemption Price shall
be payable. The Redemption Notice shall be addressed to such holder at
the address of the holder as shown by the records of the Corporation.
From and after the close of business on the Redemption Date, unless
there shall have been a default in the payment of the Redemption Price,
all rights of the holder of the share of Special Voting Preferred Stock
(including the right to vote as provided in paragraph 2 above) shall
cease with respect to such share (except the right to receive the
Redemption Price), and such share shall not thereafter be transferred
on the books of the Corporation or be deemed to be outstanding for any
purpose whatsoever. If the Corporation does not have funds legally
available for redemption of the share of Special Voting Preferred Stock
on the Redemption Date, the share of Special Voting Preferred Stock
shall remain outstanding and entitled to all rights and preferences
provided herein. At any time thereafter when the Corporation has
legally available funds for the redemption of such share of Special
Voting Preferred Stock, such funds will be used to redeem such share.
(c) The share of Special Voting Preferred Stock redeemed
pursuant to this paragraph 5 or otherwise acquired by the Corporation
in any manner whatsoever shall upon any such reacquisition by the
Corporation be automatically restored to the status of an authorized
but unissued share of Preferred Stock of the Corporation.
3
<PAGE>
SIGNED UNDER THE PENALTIES OF PURJURY, this 2nd day of March, 1999.
------ ---------- ------
Mitchell G. Tyson , *President/ xxxxxxxxxxxxx
- ------------------------------------------------------
Robert L. Birnbaum , xxxxx/ * Assistant Clerk
- ------------------------------------------------------
* DELETE THE INAPPLICABLE WORDS.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
CERTIFICATE OF VOTE OF DIRECTORS
ESTABLISHING A SERIES OF A CLASS OF STOCK
(GENERAL LAWS, CHAPTER 156B, SECTION 26)
------------------------------------------------------
------------------------------------------------------
I hereby approve the within Certificate of Vote of
Directors and, the filing fee in the amount of
$________ having been paid, said certificate is deemed
to have been filed with me this___________day
of____________, 19________.
EFFECTIVE DATE:
-------------------------------------
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Andrew J. Cordner, Esq.
-------------------------------------
Foley, Hoag & Eliot LLP
-------------------------------------
One Post Office Square
-------------------------------------
Boston, MA 02109
-------------------------------------
Telephone: (617) 832-1000
---------------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective
Amendment No. 1 to the registration statement on Form S-3 of PRI Automation,
Inc. (the "Company") to register 1,403,504 shares of Common Stock of our
report dated November 13, 1998, except for the information in the first
paragraph of Note K and Note T which is as of December 18, 1998 and
November 24, 1998, respectively, on our audits of the consolidated financial
statements of the Company as of September 30, 1998 and 1997, and for each of
the three years in the period ended September 30, 1998, which report is
included in the Company's 1998 Annual Report on Form 10-K. We also consent to
the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 4, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated November 19, 1997, with respect to the
combined financial statements of the Equipe Combined Companies incorporated
by reference in Post-Effective Amendment No. 1 to the Registration Statement
(Form S-3 No. 333-69721) and the related Prospectus of PRI Automation, Inc.
for the registration of 1,403,504 shares of its common stock.
/s/ Ernst & Young LLP
San Jose, California
March 4, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated February 27, 1998 on our audits of the
consolidated financial statements of Promis Systems Corporation Ltd. as of
December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997 in this Post-Effective Amendment No. 1 to the
Registration Statement on Form S-3 and related Prospectus of PRI Automation,
Inc. to register 1,403,504 shares of its Common Stock.
/s/ Ernst & Young LLP
Ernst & Young LLP
Toronto, Canada
March 4, 1999
