<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TVX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 3669 84-1190375
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
14818 WEST 6TH AVENUE, SUITE 1A
GOLDEN, COLORADO 80401
(303) 277-9877
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBERT C. MULVERHILL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TVX, INC.
14818 WEST 6TH AVENUE, SUITE 1A
GOLDEN, COLORADO 80401
(303) 277-9877
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MARK J. SATHER, ESQ. WILLIAM B. GANNETT, ESQ.
IRELAND, STAPLETON, PRYOR & PASCOE, CAHILL GORDON & REINDEL
P.C. EIGHTY PINE STREET
1675 BROADWAY, 26TH FLOOR NEW YORK, NEW YORK 10005
DENVER, COLORADO 80202 (212) 701-3000
(303) 623-2700
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If 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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share......... 3,066,667 shares $16.00 $49,066,672 $14,869
</TABLE>
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(1) Includes 400,000 shares that the Underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457 of the Securities Act of 1933, as amended,
solely for the purpose of calculating the registration fee.
----------------
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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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1997
PROSPECTUS [TVX LOGO TO COME]
2,666,667 SHARES
TVX, INC.
COMMON STOCK
-----------
All of the shares of common stock, par value $0.01 per share (the "Common
Stock"), of TVX, Inc. (the "Company") offered hereby (the "Offering") are being
sold by the Company. Prior to the Offering, there has been no public market for
shares of the Common Stock. It is currently anticipated that the initial public
offering price of the Common Stock offered hereby will be between $14.00 and
$16.00 per share. See "Underwriting" for a discussion of the factors considered
in determining the initial public offering price. Concurrently with the
completion of the Offering, the Company will acquire Active Imaging plc
("Active Imaging"), a corporation headquartered in the United Kingdom.
Completion of the Offering is contingent upon the consummation of the
Acquisition (as defined). See "The Acquisition."
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "TVAI".
-----------
THE OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 13 OF THIS PROSPECTUS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share.................................. $ $ $
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Total (3).................................. $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
to be $800,000.
(3) The Company has granted the Underwriters a 30-day option (the "Over-
allotment Option") to purchase up to 400,000 additional shares of Common
Stock on the same terms and conditions as set forth above solely to cover
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
-----------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if issued to and
accepted by them, and subject to approval of certain legal matters by counsel
for the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is anticipated that delivery of the shares of Common Stock subject
to the Offering will be made at the offices of BT Securities Corporation, One
Bankers Trust Plaza, New York, New York, on or about , 1997.
-----------
BT SECURITIES CORPORATION GENESIS MERCHANT GROUP SECURITIES
The date of this Prospectus is , 1997.
<PAGE>
[DESCRIPTION OF PHOTOS AND CAPTIONS]
In this Prospectus, references to "Pounds Sterling" or "(Pounds)" are to
British Pounds Sterling, and references to "Dollars" or "$" are to U.S.
Dollars. Solely for convenience, and unless otherwise indicated, the
translation of Pounds Sterling into U.S. Dollars has been made at the noon
buying rate for cable transfers in Pounds Sterling as certified for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") at
September 30, 1996, of $1.5653 to (Pounds)1.00. No representation is made that
Pounds Sterling amounts have been, could have been or could be converted into
U.S. Dollars at the Noon Buying Rate or at any other rate. See "Exchange
Rates."
TVX(R), Apollo(TM), Conquest(TM), DTR ViewPoint(TM), MobileView(TM),
MvVision(TM) and InVision(TM) are trademarks of the Company. All other trade
names and trademarks appearing in this Prospectus are the property of their
respective holders.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and make available quarterly reports
for the first three quarters of each fiscal year containing interim unaudited
financial information.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Except where otherwise
indicated, the information contained in this Prospectus (i) assumes that the
Over-allotment Option is not exercised, (ii) reflects the effects of the
consummation of the acquisition of all of the shares of Active Imaging plc by
the Company on a pro forma basis as set forth herein, (iii) reflects the
conversion of all outstanding Series B Non-Voting Convertible Preferred Stock
of TVX into Common Stock and the redemption of stock issues as outlined in "Use
of Proceeds" and (iv) reflects a 0.9116 for 1 stock split of the Company's
Common Stock in January 1997. Unless the context otherwise requires, references
in this Prospectus to the "Company" mean TVX, Inc. ("TVX") after giving effect
to the acquisition of Active Imaging plc ("Active Imaging"). See "The
Acquisition." Prospective investors should carefully consider the information
set forth under the heading "Risk Factors."
THE COMPANY
The Company develops and distributes digital image management systems for the
security and surveillance industry, the transportation management industry and
Internet video applications. It also is a value-added reseller, with systems
engineering capabilities, of imaging hardware and software. The Company's
systems enable video and still images to be captured, digitized and compressed
for storage or immediate transmission over wired or wireless networks for
evaluation by end users. The Company's systems, many of which are covered by
patents or patents pending, generally consist of proprietary software and
integrated hardware platforms that are sold globally through multiple
distribution channels. The Company believes it differentiates itself by
utilizing its technology to offer high quality integrated solutions that allow
for interactive communication and automated processing of information. The
Company believes that there is significant demand in existing and developing
markets for systems utilizing its technology.
The Company's principal stockholders are CommNet Cellular Inc. ("CommNet"),
one of the largest providers of wireless telephone services for rural areas in
the United States, and ADT Limited ("ADT"), the largest provider of security
alarm systems and monitoring services in the United States and United Kingdom.
ADT's ownership in TVX is held through Automated Security (Holdings) plc
("ASH"), which it acquired in September 1996. Both CommNet and ADT are publicly
traded companies listed on Nasdaq under the symbol CELS and the New York Stock
Exchange under the symbol ADT, respectively. TVX was founded in early 1992 by
several individuals and ASH to capitalize on security industry applications of
TVX's visual surveillance technology. CommNet recognized the synergy between
TVX's technology and CommNet's wireless technology and began investing in TVX
in the fall of 1992. As a leading provider of security systems, ADT is actively
evaluating the market applications of several of the Company's systems.
Concurrently with the Offering, TVX is acquiring Active Imaging, a publicly-
traded United Kingdom-based company. Active Imaging develops and markets
proprietary and jointly owned imaging products. It also operates as a value-
added reseller, systems integrator and supplier of third party imaging
products, with customers including SmithKline Beecham, Philips Medical Systems,
Unilever and the Defence Research Authority. See "The Acquisition."
MARKET OPPORTUNITIES
Advances in computer software and microprocessor technology have enabled the
development of digital image management systems which the Company believes have
applications in numerous industries. Initially, the Company has targeted the
security and surveillance industry, transportation management industry and
Internet video market, where the Company believes there is significant demand
for its systems and technologies.
3
<PAGE>
SECURITY AND SURVEILLANCE. Within the security and surveillance industry, the
Company has focused on the market segments of alarm verification, automated
transaction recording and mobile applications.
Alarm Verification. In 1995, the economic loss from residential and
commercial burglaries in the United States was $4.3 billion. Businesses and
homeowners are increasingly concerned with protecting their property, employees
and families, leading to a growing number of alarm system installations.
Between 1989 and 1995, the installed base of security alarm systems in the
United States increased from approximately 11 million to approximately 17
million, representing a compound annual growth rate of 7.5%. While the
installed base of security alarms continues to grow, the incidence of false
alarms presents a serious challenge for the future growth of the industry.
According to United States and United Kingdom police department studies,
approximately 95% of the alarms that are triggered are false alarms, causing
inefficient utilization of scarce law enforcement resources. In response to
this expanding problem, municipalities are increasingly establishing strict
alarm response policies, including downgrading the priority response time for
alarms, imposing fines of up to hundreds of dollars for each false alarm, and
refusing to respond to an alarm after a certain number of false alarms,
threatening to erode the value of the existing installed base of alarm systems.
In response to increasing demand for visual verification of alarms, the
Company completed beta testing and began shipping its Apollo system in the
United States in September 1996. The Apollo system is a relatively low cost,
fully interactive verification and observation system that can be integrated
with most major alarm systems on the market today. Upon activation of the
alarm, the Apollo system automatically sends digital images from the alarm site
to a central monitoring station for immediate evaluation, electronic
enhancement, or transmission to others, such as law enforcement agencies. The
Apollo system is fully interactive, so as to enable the central monitoring
system to activate any camera on the system to capture and transmit additional
images. Although the Apollo system has only recently been introduced in the
market, the Company believes that, based upon initial demand and recent efforts
to heighten customer awareness, sales of the Apollo system should increase
significantly.
Automated Transaction Recording. As of September 30, 1996, there were over
300,000 automated teller machines ("ATMs") within the United States and Europe,
operated primarily by banks and retailers. The number of ATMs has increased at
a compound annual growth rate of 10% over the three year period from 1992 to
1995. ATM and electronic point-of-sale ("POS") system usage has also increased
significantly over the past three years, both in terms of the dollar amount of
transactions and per capita use, as banks and retailers have focused on
reducing overhead, decreasing transaction costs and improving customer service.
Industry estimates indicate that, as of the end of 1995, approximately 10.2
million retailers world-wide used some form of electronic POS system for
registering customer transactions.
With greater deployment of and easier access to ATMs throughout the U.S. and
Europe, ATM providers are increasingly concerned with fraud detection, dispute
resolution and security surveillance. Most ATM systems record ATM users with
video cameras, which are very expensive to maintain, do not provide complete
transaction information, cannot be accessed remotely, and require a time-
consuming process to locate and retrieve information. The Company has developed
a more efficient and less expensive product, the DTR ViewPoint system, to
replace videotape with digitally compressed images of the ATM user and his or
her transaction information, which can be easily retrieved and evaluated. These
images can be stored electronically, transmitted via modem and, if desired,
immediately viewed and downloaded from a remote site. The DTR ViewPoint system
has been sold to Bancorp Hawaii, Inc., for secondary testing, and to EDS
Systems Corp., Compass Bank, Keycorp, Peninsula Bank and Kerns School Federal
Credit Union for beta testing and evaluation. In addition, the Company is
currently negotiating with Wells Fargo Armored Services ("Wells Fargo"), the
largest ATM servicing group in the United States, for Wells Fargo to market,
install and service the DTR ViewPoint system throughout the U.S. in conjunction
with its cash and ATM distribution functions. The Company believes there are
numerous additional applications for the DTR ViewPoint system including car
rentals, check cashing, returning purchased goods and inventory management.
4
<PAGE>
Mobile Applications. Many of the 5,000 metropolitan area transit authorities
in the United States are increasingly concerned about improving security and
reducing vandalism and accident-related liability claims on their mass transit
systems. Numerous mass transit systems have reported significant problems with
assaults and even homicides, as well as with obtaining accurate information
regarding on-board incidents and traffic accidents. In response to these
concerns, the Company introduced the MobileView system, which it believes to be
the most effective product available today for surveillance and security on
mass transit systems. The MobileView system captures digital images that are
stored on a ruggedized, removable hard drive or transmitted over a wireless
network to a central receiving station for remote monitoring. The wireless
transmission of images can be initiated automatically by sensors in the case of
vehicle impact, by the driver in panic situations, or by the central station
operator for further observation and additional information in a crisis
situation. Since the images stored and/or transmitted are digital, the images
can be enhanced, printed, and/or faxed quickly and efficiently. With no VCR to
service or tapes to maintain or replace, the MobileView system provides a cost-
effective, long-term operational solution with greater durability for mass
transit and commercial applications.
The Los Angeles County Metro Transit Authority ("LACMTA") has tested the
system and recently ordered 250 units for delivery beginning in June 1997 to be
installed on a portion of its fleet of 2,400 buses. In addition, the MobileView
system is being tested or considered by transit authorities in various
metropolitan areas, including San Francisco, Oakland, Dallas, Seattle, Denver
and Broward County, Florida. The Company also believes that the MobileView
system provides manufacturers and shipping companies with a highly effective
method for detecting fraud, theft and other problems related to the shipping of
goods.
TRANSPORTATION MANAGEMENT. Traffic jams, and their associated social and
environmental costs, are problems for most developed countries. The Company
believes that both federal governments and local jurisdictions desire cost-
effective mechanisms to monitor, analyze and ultimately control and improve
road traffic. For example, Congress passed the Intermodal Surface
Transportation Efficiency Act of 1991, authorizing expenditures by the U.S.
government on the application of interactive technology to roads.
The Company developed the InVision camera system to assist municipalities in
managing vehicular traffic by collecting digital images and data, then relaying
that information to a central traffic control station for analysis. The
InVision system has two distinct applications, freeway management and
intersection traffic management. As a freeway management application, the
InVision system assists municipalities in managing vehicular traffic by
collecting digital images and data regarding vehicle speed and type, traffic
density and general road conditions. The Texas Department of Transportation is
currently testing the system as a freeway management system in Houston. As an
intersection traffic management tool, the InVision system is being tested to
cost-effectively replace and improve upon the underground sensors (often
referred to as an induction loop system), currently used by many jurisdictions
in the United States and United Kingdom. The city of New Orleans and a Dallas
suburb have substantially completed their testing of the InVision system as an
intersection traffic management system and have indicated their intention to
install such systems upon receipt of funding.
INTERNET VIDEO APPLICATIONS. As of January 1996, there were approximately 30
million users in over 170 countries connected to the Internet, a global network
of computer networks which allows computers to communicate using Internet
protocols. Based upon its belief that there will be a convergence of broadcast
media into the Internet in order to provide real time access to information and
events, the Company has developed the MvNet camera which can be directly linked
to the Internet to provide constant and immediate video images to a personal
computer. The MvVision camera series, which currently includes the MvNet camera
and the Mv2000, is an intelligent camera system permitting a user to program it
for specific applications. For example, it might store all image data, but only
transmit images that meet specifically pre-defined criteria such as the
appearance
5
<PAGE>
of an object within the field of vision. The Company's MvNet camera is a "plug-
and-play" camera system which combines a video camera, computer, network and
communication device and Web server which, when accessed via the Internet or
intranet (a type of internal computer communications network), provides data
and live images at the request of remote authorized viewers using industry
standard Internet viewing software packages such as Netscape Navigator(R). The
Company currently has an installed base of approximately 200 MvNet systems used
by companies such as Apple Computer, American Airlines, Los Alamos National
Laboratories and Cyberia Internet Cafes for applications including Webcasts of
music concerts, monitoring cargo plane hangars, monitoring nuclear materials
and video communications between cafe locations. Another product in the
MvVision camera series, the Mv2000 is designed for security, surveillance and
monitoring. Other potential applications could include industrial inspection
applications, including identifying defects during the production process.
INTEGRATED SOLUTIONS. The Company operates as a United Kingdom-based value-
added reseller of customized imaging hardware and software with systems
engineering capabilities for scientific and medical and industrial
applications. The application specific systems that the Company develops for
various customers include use of both the Company's own and jointly owned
proprietary products and those from some of the world's leading imaging
hardware and software companies. Customers include SmithKline Beecham, Philips
Medical Systems, Unilever and the Defence Research Authority. The Company's
system engineering projects, which are generally created pursuant to agreements
which permit the Company to retain title to the customized solution developed
for such customers, provide it with potential applications for productization
and identification of new applications for its technology.
COMPANY STRATEGY
The Company's primary objective is to be a leading provider of digital image
management solutions to markets in which immediate image capture and
transmission, storage and/or retrieval are critical. The Company has
historically focused its resources on the research and development of its
systems and is now emphasizing sales and marketing efforts to significantly and
profitably expand the markets for its systems. The principal elements of the
Company's strategy are described in more detail below.
INCREASE SALES AND MARKETING EFFORTS. The Company intends to expand its sales
and marketing efforts to increase sales in existing markets and to create new
applications of its existing technologies. The Company believes that the
increased product offerings and greater distribution strength which should
result from combining TVX and Active Imaging will permit the Company to become
a more competitive global provider of digital image management solutions. The
Company intends to expand its direct sales and marketing force by fifty percent
during the next twelve months and to initiate, with its distributor network,
joint direct marketing and telemarketing efforts, extensive product training
and advertising, and participation in global trade shows and product seminars.
The Company also intends to seek additional applications for its technologies
which it may either develop internally or license to other companies for
development in order to achieve greater market recognition and penetration.
MAINTAIN TECHNOLOGY LEADERSHIP. The Company believes it provides superior
systems to address specific market needs by incorporating advanced and
innovative technology consisting of integrated hardware and proprietary
software to provide complete solutions for the customer. The Company has
invested and intends to continue to invest significant resources in system
enhancement, particularly in the areas of software, application specific
integrated circuit ("ASIC") development and platform packaging and integration.
The Company believes its commitment to research and development is important to
maintain and enhance its technological leadership position and expects to focus
its efforts upon reducing the cost of its systems and improving their features
and functionality. The Company also intends to opportunistically develop
strategic relationships through licensing agreements, joint ventures,
acquisitions and other partnering agreements in an effort to maintain its
technology leadership in each of its market segments. For example, the
Company's
6
<PAGE>
MvNet camera is currently being used by Apple Computer and evaluated by
Microsoft and Netscape. There can be no assurance, however, that any of these
entities will decide to incorporate the Company's technology standards into
their systems, or that if incorporated, the Company will generate any sales
from such relationships. While the Company has no current plans or intentions
to acquire additional businesses, technologies or product lines, the Company
will continue to evaluate acquisitions of complementary businesses and
technologies in order to expand its technology leadership.
STRENGTHEN DISTRIBUTION CAPABILITY. The Company's distribution network
consists of its direct sales force, various international, national and
regional distributors and dealers and strategic marketing partners. In order to
increase sales to current markets and penetrate new markets, the Company
intends to strengthen its distribution capabilities by expanding its existing
sales channels and seeking new strategic marketing partners who have expertise
and presence in selected markets. The Company is currently exploring several
such relationships, including discussions with Wells Fargo for the distribution
of the Company's DTR ViewPoint system to ATM providers. The Company believes
that the use of strategic marketing partners can provide a more efficient and
cost-effective route to the marketplace for application specific products. In
many cases, these strategic relationships can provide immediate world-wide
access and distribution, decreasing the need for costly infrastructure
development and permitting the Company to focus on core technology development.
EMPHASIZE CUSTOMER SERVICE AND SUPPORT. Since its inception, the Company has
emphasized the importance of customer service and support. The Company believes
that its customer support organization, including support provided by
distributors and dealers, is a critical factor in facilitating additional sales
to existing customers as well as sales to new customers. Because the Company's
systems are technically sophisticated, the Company's internal sales staff is
supported by highly qualified and extensively trained systems specialists. The
Company also offers extensive training, maintenance and software support
programs to its customers through its support organization at five locations in
the United States and United Kingdom. The Company also intends to remain at the
forefront in the areas of quality and customer service through its continued
investments in management information technology. The Company intends to
enhance and expand its customer service and support capability in order to
address the needs of its existing and new markets.
ENHANCE OPERATING EFFICIENCIES. The Company intends to utilize a portion of
the proceeds from the Offering to acquire or construct its own manufacturing
facility which it believes will allow it to react more quickly to changes in
product specifications, to accommodate growth, and to improve cost control,
inventory supply and cash flow, thus improving its gross profit margin.
Additionally, by integrating substantially all of the operations and product
lines of TVX and Active Imaging, and by making additional investments in
management information technology, the Company believes that it will be able to
operate the combined companies on a more efficient and cost-effective basis.
THE ACQUISITION
Concurrently with the Offering, TVX is acquiring Active Imaging pursuant to
offers (the "Offers") being made to Active Imaging's shareholders. The Offers
are conditional upon, among other things, acceptances of the Offers being
received in respect of at least 90% of the outstanding shares of common stock
of Active Imaging (the "Acquisition") and the Offers being declared
unconditional in all respects, except for the closing of the Offering.
TVX is offering an aggregate of up to $10.0 million in cash to the holders of
Active Imaging common and preferred shares. The amount offered to the holders
of Active Imaging preferred stock is equal to the redemption amount of each
share together with accrued and unpaid dividends. Based on an exchange rate of
$1.611 for (Pounds)1.00 (the "Reference Exchange Rate"), this represents
aggregate cash consideration of approximately $2.1 million. TVX is offering the
holders of Active Imaging common stock the alternatives of cash or shares of
TVX Common
7
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Stock, in each case having a value of approximately $1.68 per share (the "Offer
Price"). If the initial public offering price of the Offering exceeds $15.00
per share, then the Offer Price will be proportionately increased. The maximum
cash available for the holders of Active Imaging common stock will be
approximately $7.9 million ($10.0 million less the cash consideration of $2.1
million to be paid to the holders of the Active Imaging preferred stock). See
"Use of Proceeds." To the extent that aggregate elections by holders of Active
Imaging common stock to receive cash exceed the maximum cash available for such
holders, such elections will be reduced pro rata and the balance will be
satisfied in shares of TVX Common Stock. Assuming an initial public offering
price of between $14.00 and $16.00 per share, the value of the total
consideration for the Acquisition will range from approximately $32.9 million
to $34.8 million.
The following table summarizes various possible results of the Offers to the
holders of Active Imaging common stock:
<TABLE>
<CAPTION>
IPO PRICE OFFER PRICE CASH ACCEPTED (1) TVX SHARES ISSUED (1)(2)
--------- ----------- ----------------- ------------------------
<S> <C> <C> <C> <C>
$14.00 $1.68 $7,900,000 1,634,094
14.00 1.68 -- 2,198,380
15.00 1.68 7,900,000 1,525,398
15.00 1.68 -- 2,052,065
16.00 1.79 7,900,000 1,656,350
16.00 1.79 -- 2,046,578
</TABLE>
- --------
(1) Assumes the Offers are accepted by the holders of all of the 18,289,348
shares of Active Imaging common stock currently outstanding and an exchange
rate equal to the Reference Exchange Rate.
(2) Does not include 319,147 shares of the Company's Common Stock issuable upon
exercise of Active Imaging options and warrants currently outstanding or
conditionally issuable.
TVX has received irrevocable undertakings to accept the Offers from the
holders of all of the outstanding Active Imaging preferred stock and from the
holders of approximately 77.5% of the outstanding Active Imaging common stock.
Upon the closing of the Acquisition and the Offering, one director of Active
Imaging will become an officer of the Company and one director of Active
Imaging will become a director of the Company. See "Management."
The Company believes the Acquisition will permit the combined entities to
improve their existing systems and to develop new technologies more efficiently
since both TVX and Active Imaging are in the business of developing and
distributing digital image management systems and thus will be able to share
their existing technologies, sales and marketing efforts and research and
development capabilities. Moreover, even though TVX and Active Imaging are in
the same business, Active Imaging has pursued the market for video applications
while TVX has pursued the market for still image applications and thus their
technologies are complementary. In addition, the Company believes the combined
entity will be able to be operated on a more efficient and cost-effective
basis.
8
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered ...................... 2,666,667 shares (1)
Common Stock outstanding after the 7,362,372 shares (1)(2)
Offering..................................
Use of Proceeds............................ Payment of the anticipated cash
portion of the Acquisition;
retirement of existing debt;
general corporate purposes,
including research and
development and marketing
expenses; building or obtaining
manufacturing capability;
transaction fees and expenses;
integration of the Company's
operations following the
Acquisition; and redemption of
the stock issues. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol..... TVAI
</TABLE>
- --------
(1) Excludes shares issuable upon exercise of the Over-allotment Option.
(2) After giving effect to (i) the acquisition of all the outstanding shares of
capital stock of Active Imaging, (ii) the receipt by the Company of the net
proceeds from the sale of 2,666,667 shares of Common Stock offered hereby
at an assumed initial offering price of $15.00 per share, (iii) the
application of a portion of the estimated net proceeds therefrom for the
repayment of all of the Company's long-term notes payable and redemption of
stock issues as outlined in "Use of Proceeds", and (iv) the conversion of
all outstanding TVX Series B Non-Voting Convertible Preferred Stock into
Common Stock (collectively, the "Transactions"). See "Pro Forma
Capitalization." Excludes (i) 938,036 shares of Common Stock reserved for
issuance pursuant to the exercise of outstanding stock options under the
Company's stock option plans at a weighted average price of approximately
$1.09 per share, (ii) 259,614 shares of Common Stock reserved for future
issuance pursuant to such stock option plans, (iii) 911,600 shares of
Common Stock reserved for issuance upon exercise of outstanding warrants at
a price of approximately $0.73 per share, and (iv) 319,147 shares of Common
Stock reserved for issuance upon exercise of Active Imaging options and
warrants currently outstanding or conditionally issuable.
9
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following tables summarize certain selected consolidated financial data
of TVX, Active Imaging and TVX Limited for the periods indicated. The summary
historical information has been derived from and should be read in conjunction
with the historical consolidated financial statements of TVX, Active Imaging
and TVX Limited, including the related notes thereto, which are included
elsewhere herein.
TVX, INC.
<TABLE>
<CAPTION>
JANUARY 13, 1992 YEAR ENDED SEPTEMBER 30,
(INCEPTION) THROUGH ------------------------------------------------ PRO
SEPTEMBER 30, 1992 1993 1994 1995 1996 FORMA (1)
------------------- ---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 321,282 $1,041,142 $1,812,293 $ 1,071,019 $ 1,033,920 $ 8,551,120
Cost of sales........... 230,200 686,655 1,203,019 754,915 786,660 6,454,719
--------- ---------- ---------- ----------- ----------- ------------
Gross profit........... 91,082 354,487 609,274 316,104 247,260 2,096,401
General, administrative
and other expenses..... 294,216 885,884 1,186,798 2,445,917 2,276,573 10,866,985
Research and development
expenses............... 1,800 39,800 90,100 652,000 541,950 3,102,031
--------- ---------- ---------- ----------- ----------- ------------
Loss from operations... (204,934) (571,197) (667,624) (2,781,813) (2,571,263) (11,872,615)
Other credits
(charges).............. 5,366 7,815 (58,773) (253,206) (430,485) (669,571)
--------- ---------- ---------- ----------- ----------- ------------
Net loss............... (199,568) (563,382) (726,397) (3,035,019) (3,001,748) (12,542,186)
Accrued preferred stock
dividends.............. -- (5,918) (129,904) (192,000) (248,000) (248,000)
--------- ---------- ---------- ----------- ----------- ------------
Net loss applicable to
common stockholders... $(199,568) $ (569,300) $ (856,301) $(3,227,019) $(3,249,748) $(12,790,186)
========= ========== ========== =========== =========== ============
Net loss per common
share.................. $ (0.12) $ (0.19) $ (0.27) $ (0.99) $ (0.93) $ (2.31)
========= ========== ========== =========== =========== ============
Common shares used in
computing net loss per
share.................. 1,613,379 3,033,582 3,130,986 3,268,049 3,476,865 5,528,930
========= ========== ========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(1)(2)
---------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $ 655,816 $28,450,594
Total assets......................... 3,734,810 57,290,451
Long term notes payable and other.... 6,369,000 133,052
Redeemable preferred stock........... 1,435,822 --
Redeemable common stock.............. 350,000 --
Stockholders' equity (deficiency).... (5,583,274) 53,168,222
</TABLE>
- --------
(1) See "Unaudited Pro Forma Combined Financial Statements" and related notes
thereto.
(2) Adjusted to reflect the Transactions.
10
<PAGE>
ACTIVE IMAGING PLC
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------
1992 1993 1994(1) 1995(1) 1996(1) 1996(2)
------------ ------------ ------------ ------------ ------------ -------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 $'000
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... 2,336 3,103 4,448 5,063 4,207 6,585
Cost of sales........... (1,447) (1,875) (2,840) (3,292) (3,036) (4,752)
------ ------ ------ ------ ------ ------
Gross profit........... 889 1,228 1,608 1,771 1,171 1,833
General, administrative
and other expenses..... (853) (1,069) (1,628) (1,883) (3,359) (5,258)
Research and development
expenses (net of
grants)................ -- (40) (52) (389) (1,440) (2,254)
------ ------ ------ ------ ------ ------
Operating (loss)/profit (36) 119 (72) (501) (3,628) (5,679)
Interest
receivable/(payable)
and similar
income/charges......... (7) (10) (17) (51) 22 34
------ ------ ------ ------ ------ ------
(Loss)/profit on
ordinary activities
before taxation........ (43) 109 (89) (552) (3,606) (5,645)
Tax (payable)/repayable
on loss on ordinary
activities............. (1) (32) -- 38 -- --
------ ------ ------ ------ ------ ------
(Loss)/profit for the
year................... (44) 77 (89) (514) (3,606) (5,645)
Dividends and
appropriations:
Preference share
appropriations....... -- -- -- (37) (44) (69)
------ ------ ------ ------ ------ ------
(Loss)/profit for the
year after
appropriations......... (44) 77 (89) (551) (3,650) (5,714)
====== ====== ====== ====== ====== ======
Loss per ordinary common
stock.................. 12.89p 79.78p 24.56p 38.44c
====== ====== ====== ====== ====== ======
Adjusted loss per
ordinary common stock.. 1.29p 7.98p 24.56p 38.44c
====== ====== ====== ====== ====== ======
<CAPTION>
1996(1) 1996(2)
------------ -------
(Pounds)'000 $'000
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................. 1,464 2,292
Total assets................................................................ 5,648 8,841
Shareholders' funds......................................................... 3,305 5,173
</TABLE>
- --------
(1) The results summarized above were prepared under accounting principles
generally accepted in the United Kingdom. If the above results would have
been prepared under accounting principles generally accepted in the United
States, the net loss presented for the years ended December 31, 1994, 1995
and 1996 would have been (Pounds)201,000, (Pounds)785,000 and
(Pounds)3,859,000, respectively. The shareholders' funds at December 31,
1996 would have been (Pounds)2,406,000 under United States generally
accepted accounting principles. See Notes to the Active Imaging Financial
Statements.
(2) The 1996 results and balance sheet data have been converted into US
dollars for convenience purpose only using the Noon Buying Rate at
September 30, 1996.
11
<PAGE>
TVX LIMITED
<TABLE>
<CAPTION>
PERIOD PERIOD
YEAR ENDED DECEMBER 1, 1995 THROUGH DECEMBER 1, 1995 THROUGH
NOVEMBER 30, 1995(1) SEPTEMBER 17, 1996(1) SEPTEMBER 17, 1996(1)(2)
-------------------- ------------------------ ------------------------
<S> <C> <C> <C>
(Pounds)'S (Pounds)'S $'S
STATEMENT OF OPERATIONS
DATA:
Net Sales............... 997,599 659,701 1,032,630
Cost of sales........... (962,118) (642,840) (1,006,237)
---------- ---------- ----------
Gross profit........... 35,481 16,861 26,393
Administrative ex-
penses................. (887,427) (573,742) (898,078)
Other................... (559,140) -- --
---------- ---------- ----------
Loss on ordinary activi-
ties before
taxation............... (1,411,086) (556,881) (871,685)
Taxation credit......... 275,920 -- --
---------- ---------- ----------
Loss on ordinary activi-
ties................... (1,135,166) (556,881) (871,685)
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1995(1) SEPTEMBER 17, 1996(1) SEPTEMBER 17, 1996(1)(2)
-------------------- --------------------- ------------------------
<S> <C> <C> <C>
(Pounds)'S (Pounds)'S $'S
BALANCE SHEET DATA:
Working capital......... (2,199,214) 372,748 583,462
Total assets............ 1,227,020 497,590 778,878
Shareholders' funds..... (2,159,793) 418,326 654,806
</TABLE>
- --------
(1) No significant differences exist between generally accepted accounting
principles from these in the United States versus those in the United
Kingdom as such accounting principles relate to TVX Limited. See Notes to
the TVX Limited financial statements.
(2) The 1996 results and balance sheet data have been converted into U.S.
Dollars for convenience purposes only using the Noon Buying Rate at
September 30, 1996.
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated in such forward-looking statements.
12
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the
Company's business before purchasing shares of Common Stock offered hereby.
NEW TECHNOLOGY AND DEVELOPING MARKETS
The markets for many of the applications of the Company's technology are
relatively new and still developing. If these markets fail to grow, or grow
more slowly than the Company anticipates, the Company's business, operating
results and financial condition would be materially and adversely affected. In
addition, the Company's success will be dependent in part upon the Company's
ability to develop new applications for its technology. Demand for the
Company's systems could be affected by numerous factors outside of the
Company's control, including, among others, demand for the products or systems
with which the Company's systems are used (such as security alarms, ATMs, mass
transit vehicles, road systems and the Internet), acceptance of the Company's
technology, restrictions on the use of the Company's systems arising from
privacy concerns, customers' willingness to incur the initial cost of
purchasing the Company's systems, changes in governmental regulations and the
introduction of new or superior competing technologies.
LIMITED SALES; HISTORY OF NET LOSSES; POTENTIAL FLUCTUATIONS IN OPERATING
RESULTS; LIQUIDITY
TVX was founded in 1992, and Active Imaging's predecessor company was
founded in 1988. Sales of TVX's current systems to date have been limited.
Historically, most of Active Imaging's net sales have been derived from sales
of solutions utilizing third-party products and not from sales of Active
Imaging's proprietary systems, which the Company believes will be its primary
source of future net sales. In the fiscal years ended September 30, 1994, 1995
and 1996 TVX incurred net losses applicable to common stockholders of
$856,301, $3,227,019 and $3,249,748, respectively. In the fiscal years ended
December 31, 1994, 1995, and 1996 Active Imaging incurred net losses, under
generally accepted accounting principles in the United States, of
(Pounds)201,000, (Pounds)785,000 and (Pounds)3,859,000, respectively. In
addition, TVX Limited incurred losses on ordinary activities of
(Pounds)1,135,166 and (Pounds)556,881 for the fiscal year ended November 30,
1995 and the period December 1, 1995 through September 17, 1996, respectively.
On a pro forma basis, the Company incurred a net loss applicable to common
stockholders of $12.8 million for the fiscal year ended September 30, 1996.
See "Unaudited Pro Forma Combined Financial Statements." There can be no
assurance that such losses will be reversed or that the Company will
experience significant growth in net sales or achieve profitability in the
future. Both TVX and Active Imaging historically have experienced significant
quarterly fluctuations in net sales, gross margins and operating results, and
the Company believes it will continue to experience such fluctuations in the
future. Because the Company generally does not have a large backlog of orders,
operating results in any quarter are highly dependent on orders booked and
shipped in that quarter. The Company's production volume and operating expense
levels are based largely upon the Company's internal forecasts of future
demand and not upon firm customer orders. Failure by the Company to achieve
those internal forecasts could result in expense levels which are inconsistent
with actual net sales, which in turn could have a material adverse effect on
the Company's business, operating results and financial condition. Failure to
achieve projected shipments could result in higher inventories and product
costs which could adversely affect the Company's gross profit margins. The
Company's quarterly results also may be affected by fluctuating demand for,
and declines in the average selling prices of, its systems and by increases in
the costs of critical components used in manufacturing its systems.
Prior to this Offering, each of TVX, Active Imaging and TVX Limited have
relied on investments from their major shareholders or sales of equity to
provide liquidity. While there can be no assurance that the Company will be
profitable in the future or that the net proceeds from the Offering, together
with any funds provided by operations and presently available capital, will be
sufficient to fund the ongoing operations of the Company, management believes
its current operating funds, along with the proceeds of the Offering after
amounts used to repay debt and redeem stock, and the synergies created by the
acquisition of Active Imaging will be sufficient to finance its cash
requirements for at least the next 12 months. If the Company has insufficient
funds, there can be no assurance that additional financing can be obtained on
acceptable terms, if at all. The absence of such financing could have a
material adverse effect on the Company's business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
TVX, Inc.--Liquidity and Capital Resources."
13
<PAGE>
NEED TO RESPOND TO RAPID TECHNOLOGICAL CHANGE
The markets for the Company's systems are characterized by rapidly changing
technology and evolving industry standards. The Company's success will depend
to a substantial degree on its ability to develop and introduce enhancements to
its existing systems and new systems that meet changing customer requirements
and evolving industry standards in a timely and cost-effective manner. If the
Company does not introduce and achieve market acceptance of new products in a
timely manner, its business, operating results and financial condition could be
materially and adversely affected. Moreover, there can be no assurance that the
Company's technology or systems will not become obsolete upon the introduction
of alternative technologies. Certain of the Company's systems are based on
specific operating systems, including Windows NT; failure of any of these
operating systems to achieve market acceptance over the next several years
could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, performance characteristics of
certain of the Company's systems are currently limited by the Windows NT
architecture, including the ability of such architecture to be deployed
throughout large networks. See "Business--Research and Development."
COMPETITION
The image management industry is intensely competitive and is characterized
by a large number of competitors in each of the Company's targeted markets and
by a variety of established and emerging technologies. This industry has
experienced rapid technological development, permitting competition based on
lower prices and superior technologies. Existing and future competitors may
develop technologies that will result in products that are less expensive
and/or technologically superior to the Company's systems. The Company's current
competitors include large domestic and international companies, many of which
have substantially greater financial, technical, marketing, manufacturing and
human resources, as well as greater name recognition and a larger customer
base, than the Company. Competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements and to devote
greater resources to the development, promotion, sale and support of their
products, than the Company. The Company expects competition in its markets to
intensify in the future which could adversely affect the Company's revenues and
profitability through pricing pressure and loss of market share. See
"Business--Competition."
UNCERTAINTIES RELATED TO THE ACQUISITION
Management believes that acquisitions of companies in technological
industries can be more difficult to implement than in other industries, since
combining different technologies may not be completely possible. Also, key
employees in the technology industry are typically less easily replaced than in
general manufacturing companies, so the loss of key employees as a result of
the Acquisition could have a negative effect on the combined companies. There
can be no assurance that some or any of the benefits of the Acquisition that
the parties believe possible will result. Moreover, members of the Company's
management have only limited experience with managing acquired companies.
Although management and key employees of each of the combining companies are
confident that their companies, products, technologies and employees will
combine efficiently and effectively, there can be no assurance that this
integration will happen smoothly or that anticipated operating efficiencies and
related cost savings will be realized.
GROWTH THROUGH ACQUISITIONS
The Company may opportunistically evaluate the acquisition of complementary
businesses and technologies. Even if the Company is successful in identifying
such businesses or technologies, there can be no assurance that the Company
will be able to integrate such businesses and technologies in a manner that
will not have an adverse impact on the Company's business, results of
operations and financial condition. To the extent any such businesses or assets
are purchased using the Company's capital stock as consideration, existing
stockholders of the Company, including investors purchasing shares in the
Offering, could experience substantial dilution in net tangible book value per
share.
14
<PAGE>
ABILITY TO MANAGE EXPANSION OF OPERATIONS
To manage its growth the Company will need to significantly increase the
scale of its operations. This increase will include the hiring of additional
personnel, expanding its manufacturing capacity and incurring increased
marketing expenses, resulting in significantly higher operating expenses. If
the Company's sales do not correspondingly increase, the Company's business,
operating results and financial condition would be materially and adversely
affected. Expansion of the Company's operations may also cause a significant
strain on the Company's management, financial and other resources. The
Company's ability to manage recent and possible future growth that may occur
will require a significant expansion of its accounting and other internal
management systems and the implementation and continuing improvement of a
variety of systems, procedures and controls. There can be no assurance that
significant problems in these areas will not occur. Any failure to expand these
areas and implement and improve such systems, procedures and controls in an
efficient manner and at a pace consistent with changes in the Company's
business could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company's ability to achieve and manage sales growth will depend in part
upon expansion of the Company's marketing, sales, manufacturing and customer
support capabilities. There can be no assurance that the Company's efforts to
expand its marketing, sales, manufacturing and customer support resources will
be successful or will result in additional sales or profitability in any future
period. As a result of the expansion of its operations and the anticipated
increase in its operating expenses, as well as the difficulty in forecasting
net sales levels, the Company expects to experience significant fluctuations in
its net sales, cost of sales and gross margins, and therefore in its results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE UPON SUPPLIERS; MANUFACTURING CAPABILITIES
The Company currently depends upon third parties as the sole source of supply
for many of the hardware components used in its digital image management
systems and for manufacture of some of its systems and components. The Company
is generally not a major customer to any of its suppliers or manufacturers and
therefore may not be able to obtain inventory at a cost or on the schedule
which it requires in the event of any supply shortage or to obtain
manufacturing of its systems in the event of manufacturing undercapacity. If
manufacture of the components and/or assembly of the Company's systems is
interrupted for any extended period, or if the Company is not able to purchase
and deliver sufficient quantities of its systems on a timely basis, there could
be a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Manufacturing." In order to attempt to
capture additional efficiencies and improve its control of costs, inventory
levels and cash flow, the Company intends to use a portion of the proceeds of
the Offering to either acquire or construct its own manufacturing facility. See
"Business--Company Strategy" and "Use of Proceeds." The acquisition or
construction of its own manufacturing facility could consume a substantial
amount of management resources. Moreover, the Company has limited manufacturing
experience and has not decided on which approach it will take to develop
manufacturing capacity. The success of such expansion plans will depend in part
upon the Company's ability to improve and expand its management and financial
control systems. To the extent the Company experiences cost or timing
difficulties in acquiring or constructing a manufacturing facility, faces
difficulties in hiring qualified employees, or encounters difficulties in
upgrading its internal control systems, there could be material adverse effects
on the Company's business, results of operations and financial conditions.
Although the Company believes that developing its own manufacturing
capabilities will lower its cost of sales, there can be no assurance that its
manufacturing costs or product quality will be in line with the Company's
expectations. The Company's results of operations will be adversely affected if
net sales do not increase sufficiently to compensate for the increase in
operating expenses resulting from any expansion, and there can be no assurance
that any expansion will be profitable or that it will not adversely affect the
Company's business, results of operations and financial condition.
EXCHANGE RATES; CURRENCY RISKS
A significant portion of the Company's operations are conducted outside the
United States and payment for a majority of the inventory purchased by the
Company is required to be made in foreign currencies. For the
15
<PAGE>
fiscal year ended September 30, 1996, on a pro forma basis after giving effect
to the Acquisition, net sales of the Company's systems outside the United
States totaled approximately $6.4 million, representing approximately 75% of
the Company's net sales. As a result of its current and planned international
operations, the Company is and will be subject to risks associated with
operating in foreign countries, including devaluations and fluctuations in
currency exchange rates, imposition of limitations on conversion of foreign
currencies into U.S. dollars or remittance of dividends and other payments by
foreign subsidiaries, trade barriers, political risks and imposition or
increase of investment and other restrictions by foreign governments. Because a
significant portion of the Company's current net sales and operating expenses
are denominated in Pounds Sterling, the Company's net sales, cash flows and
earnings are directly and materially affected by fluctuations in the exchange
rate between the Pound Sterling and the U.S. dollar. Moreover, because the
Company does not hedge against currency exchange rate risks at this time, the
Company may experience economic loss and a negative impact on earnings solely
as a result of currency exchange rate fluctuations. There can be no assurance
that in the event any such risks are realized, they will not have a material
adverse effect on the Company's business, results of operations and financial
condition.
PRODUCT LIABILITY
The Company's business will expose it to potential product liability risks
that are inherent in the sale of its systems. Although the Company has general
liability and product liability insurance policies, there can be no assurance
that liability claims will not exceed the coverage limits of such policy or
that such insurance will continue to be available on commercially reasonable
terms or at all. If the Company does not or cannot maintain sufficient
liability insurance, its ability to market and sell its systems could be
significantly impaired. In the event that any claims exceed the Company's
coverage or result in decreased sales of its systems, such claims could
adversely affect the Company's business, results of operations and financial
condition.
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon the
continued contributions of its key technical and senior management personnel,
many of whom would be difficult to replace. The Company's future operating
results also depend in significant part upon its ability to attract and retain
qualified personnel, including highly qualified software applications and
development engineers. Engineers that possess the requisite skills and
experience to create applications for the Company's imaging technology have
been in very limited supply in the past, and there can be no assurance that the
Company will be successful in attracting or retaining such personnel. The loss
of any key employee, the failure of any key employee to perform satisfactorily
in his or her current position or the Company's inability to attract and retain
skilled employees as needed, could materially and adversely affect the
Company's business, operating results and financial condition.
UNCERTAINTY REGARDING PROTECTION OF PROPRIETARY RIGHTS
The Company attempts to protect its intellectual property rights through
patents, trademarks, trade secrets, copyrights and other measures. However,
there can be no assurance that such measures will provide adequate protection
for the Company's intellectual property rights, that disputes with respect to
the ownership of its intellectual property rights will not arise, that the
Company's trade secrets or proprietary technology will not otherwise become
known or be independently developed by competitors or that the Company can
otherwise meaningfully protect its intellectual property rights. There can be
no assurance that any patent owned by the Company will not be invalidated,
circumvented or challenged, that the rights granted thereunder will provide
meaningful competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with the scope of the
claims sought by the Company, if at all. Furthermore, there can be no assurance
that others will not develop similar products or software, duplicate the
Company's systems or software or design around the patents owned by the Company
or that third parties will not assert intellectual property infringement claims
against the Company. The failure of the Company to protect its proprietary
rights could have a material adverse effect on its business, operating results
and financial condition.
16
<PAGE>
Litigation may be necessary to protect the Company's intellectual property
rights and trade secrets, to determine the validity of and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that
infringement, invalidity, right to use or ownership claims by third parties or
claims for indemnification resulting from infringement claims will not be
asserted in the future. If any claims or actions are asserted against the
Company, the Company may seek to obtain a license under a third party's
intellectual property rights; there can be no assurance, however, that a
license will be available under reasonable terms or at all. In addition, should
the Company decide to litigate such claims, such litigation could be extremely
expensive and time consuming and could materially and adversely affect the
Company's business, operating results and financial condition, regardless of
the outcome of the litigation. See "Business--Technology and Proprietary
Rights."
CONTROL BY EXISTING STOCKHOLDERS
Following the Offering, the Company's officers, directors and two principal
stockholders will beneficially own approximately 43.2% of the outstanding
shares of the Company's Common Stock (approximately 41.3% if the Over-allotment
Option is exercised in full). As a result, such persons will have the ability
to change the strategic direction of the Company and to exercise significant
influence over all matters requiring stockholder approval, such as the election
of directors, mergers and acquisitions. This concentration of ownership by such
persons and entities could have the effect of delaying, deferring or preventing
a change in control of the Company. See "Principal Stockholders."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may be deemed to have anti-takeover effects and may discourage or make more
difficult a takeover attempt that a stockholder might consider in its best
interest. The Board of Directors may issue up to 5,000,000 shares of
undesignated preferred stock in the future without stockholder approval upon
such terms as the Board of Directors may determine. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the
rights of the holders of any preferred stock that may be issued in the future.
The issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying or preventing a change in control of the Company without further
action by the stockholders. The Company has no present plans to issue any
additional shares of preferred stock. See "Description of Capital Stock--
Preferred Stock" and "--Certain Effects of Authorized But Unissued Stock."
Following the Offering, the Company will become subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which will
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. See "Description of Capital Stock--Certain Provisions
of Delaware Law."
SHARES ELIGIBLE FOR FUTURE SALES; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET
PRICE
Sale of substantial amounts of shares in the public market or the prospect of
such sales could adversely affect the market price of the Company's Common
Stock. The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act of 1933, as amended
(the "Securities Act"), and lockup agreements under which certain stockholders
have agreed not to sell or otherwise dispose of any of their shares for a
period of 180 days after the date of this Prospectus without the prior written
consent of BT Securities Corporation on behalf of the Representatives (as
defined). However, BT Securities Corporation may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to lockup agreements. As a result of these restrictions, based on shares
outstanding and options granted as of September 30, 1996, the following shares
of Common Stock will be eligible for future sale: the 2,666,667 shares
17
<PAGE>
offered hereby (3,066,667 shares if the Over-allotment Option is exercised in
full) will be eligible for immediate sale without restriction in the public
market, and approximately and additional shares will be eligible for
sale in the public market beginning 90 and 180 days, respectively, following
the date of this Prospectus. In addition, shortly after the date of this
Prospectus, the Company intends to register shares reserved for issuance
under its stock option plans. As of September 30, 1996, options to purchase a
total of shares were outstanding under the Company's option plans. After
the Offering, subject to the lockup agreements described above, the holders of
shares of Common Stock will be entitled to certain demand and piggyback
registration rights with respect to such shares. If such holders were to
exercise their demand registration rights and cause a larger number of shares
to be sold in the public market, such sales could have an adverse effect on the
market price for the Company's Common Stock. If the Company were required to
include in a Company-initiated registration shares held by such holders, such
sales could have an adverse effect on the Company's ability to raise needed
capital. See "Management--Stock Option Plan," "Management," "Description of
Capital Stock--Registration Rights" and "Shares Eligible for Future Sales."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained after the Offering. The initial public offering price will be
determined through negotiations between the Company and the representatives of
the Underwriters based on several factors and may not be indicative of the
market price of the Common Stock after the Offering. See "Underwriting." The
market price of the shares of Common Stock is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of technological
innovations, new products or new contracts by the Company, its competitors or
their customers, government regulatory action, developments with respect to
patents or proprietary rights, general market conditions and other factors. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations which have particularly affected the market prices for
the common stock of technology companies and that have often been unrelated to
the operating performance of particular companies. These broad market
fluctuations may also adversely affect the market price of the Company's Common
Stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has occurred against
the issuing company. There can be no assurance that such litigation will not
occur in the future with respect to the Company. Such litigation could result
in significant liability and substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on the
Company's business, operating results and financial condition.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of the Common Stock. Investors purchasing shares
of Common Stock in the Offering will therefore incur immediate and substantial
net tangible book value dilution. To the extent that outstanding stock options
to purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution."
18
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 2,666,667 shares of Common Stock
offered by the Company hereby are estimated to be $36.4 million ($42.0 million
if the Over-allotment Option is exercised in full) assuming an initial
offering price of $15.00 per share and after deducting estimated underwriting
discounts and commissions and estimated expenses of the Offering. The Company
anticipates that the net proceeds of the Offering will be used primarily as
follows: (i) $10.0 million to fund the cash portion of the Acquisition
consideration, if needed, (ii) approximately $9.5 million to repay various
debt financings provided by the Company's principal stockholders for the
Company's working capital needs, which bear interest at 13.0% and are payable
upon the closing of the Offering; (iii) approximately $6.9 million for general
corporate purposes, including research and development and marketing, (iv)
approximately $6.3 million for expansion of manufacturing capability, (v)
approximately $0.6 million in transaction fees and expenses related to the
Acquisition, (vi) approximately $1.2 million in integration expenses for
combining the operations of TVX and Active Imaging, (vii) approximately $1.5
million to redeem and pay accrued dividends on the Company's outstanding TVX
Series A Preferred Stock, and (viii) approximately $0.4 million to redeem the
Company's redeemable common stock. Pending such uses, the Company intends to
invest the net proceeds from the Offering in investment grade, short-term,
interest-bearing securities.
Although the Company does not anticipate significant changes in the
allocation of net proceeds described above, it may vary the allocation as
necessary to respond to changes in its business and financial needs, such as
expansion of marketing resources or increases in funding requirements for
research and development of new products and systems.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings for use in the
operation and expansion of its business and, therefore, does not anticipate
paying cash dividends on its Common Stock in the foreseeable future. The
Company is, however, using a portion of the net proceeds of the Offering to
pay accrued dividends on the TVX Series A Preferred Stock. As of September 30,
1996, the accrued dividends on the TVX Series A Preferred Stock were
approximately $436,000. The Company is redeeming all outstanding shares of the
TVX Series A Preferred Stock upon closing of the Offering. See "Use of
Proceeds."
19
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, (i) on a pro forma basis assuming the acquisition of all
of the outstanding shares of capital stock of Active Imaging and (ii) on a pro
forma adjusted basis to give effect to the Transactions.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
PRO FORMA
PRO FORMA(2) AS ADJUSTED(2)
------------ --------------
<S> <C> <C>
Long-term debt:
Notes payable, related parties including accrued
interest of $708,532............................ $ 7,077,532 $ --
Other............................................ 133,052 133,052
------------ ------------
Total long-term debt............................. $ 7,210,584 $ 133,052
------------ ------------
Redeemable Series A preferred Stock, nonvoting,
$.01 par value; authorized 5,000,000 shares;
issued and outstanding 1,000,000 shares, pro
forma; no shares pro forma, as adjusted;
redemption and liquidation preference of $1 per
share plus unpaid and accumulated dividends...... 1,435,822 --
Redeemable common stock, issued and outstanding
63,812 shares, pro forma; no shares pro forma, as
adjusted; redeemable beginning May 1996 at $5.48
per share........................................ 350,000 --
Stockholders' equity:
Series B non-voting convertible preferred stock,
$.01 par value; 577,812 shares to be issued, pro
forma; no shares pro forma, as adjusted......... 5,778 --
Common stock, $.01 par value; authorized
50,000,000 shares; issued and outstanding
4,168,971 pro forma, 7,362,372 shares pro forma,
as adjusted(1).................................. 41,690 73,623
Capital in excess of par......................... 32,696,868 69,070,713
Deficit.......................................... (15,926,114) (15,976,114)
------------ ------------
Total stockholders' equity .................... 16,818,222 53,168,222
------------ ------------
Total capitalization.......................... $ 25,814,628 $ 53,301,274
============ ============
</TABLE>
- --------
(1) Excludes (i) shares issuable upon exercise of the Over-allotment Option,
(ii) 938,036 shares of Common Stock reserved for issuance pursuant to the
exercise of outstanding stock options under the Company's stock option
plans at a weighted average price of approximately $1.09 per share, (iii)
259,614 shares of Common Stock reserved for future issuance pursuant to
such stock option plans, (iv) 911,600 shares of Common Stock reserved for
issuance upon exercise of outstanding warrants at a price of approximately
$.73 per share and (v) 319,147 shares of Common Stock reserved for
issuance upon exercise of Active Imaging options and warrants currently
outstanding or conditionally issuable. See "Management" and "Description
of Capital Stock--Warrants."
(2) Assumes an initial public offering price of $15.00 and that none of the
Active Imaging common shareholders accept the cash alternative. If all of
the Active Imaging common shareholders accept the cash alternative, pro
forma as adjusted total stockholders' equity would be $45,268,222.
20
<PAGE>
DILUTION
As of September 30, 1996, on a pro forma basis after giving effect to the
Acquisition, the Company had a net tangible book value (deficit) of
approximately $(7,231,599) or $(1.73) per share. Pro forma net tangible book
value per share represents the amount of total tangible assets less total
liabilities, divided by the pro forma number of shares of Common Stock
outstanding. After giving effect to the Transactions, the pro forma net
tangible book value of the Company on September 30, 1996, would have been
approximately $29,118,401, or $3.96 per share. This represents an immediate
increase in net tangible book value of $5.69 per share to the existing
stockholders and an immediate dilution of $11.04 per share to investors
purchasing the Common Stock in the Offering. Dilution is determined by
subtracting pro forma net tangible book value per share after the Offering
from the amount of cash paid by a new investor for a share of Common Stock.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial Public Offering Price................. $15.00
Pro forma net tangible book value (deficit) before
the Offering........................................ (1.73)
Increase attributable to new stockholders............ 5.69
Pro forma net tangible book value per share after the
Offering............................................. 3.96
------
Dilution per share to new stockholders................ $11.04
======
</TABLE>
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company, and
the average price paid by existing stockholders and to be paid by the
stockholders who purchase Common Stock in the Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).. 2,643,640 35.9% $ 1,942,840 3.7% $0.73
Former Active Imaging
stockholders(2).......... 2,052,065 27.9 11,213,809 21.1 5.46
New investors(3).......... 2,666,667 36.2 40,000,000 75.2 15.00
--------- ----- ----------- -----
Total................. 7,362,372 100.0% $53,156,649 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Excludes (i) shares issuable upon exercise of the Over-allotment Option,
(ii) 938,036 shares of Common Stock reserved for issuance pursuant to the
exercise of outstanding stock options under the Company's stock option
plans at a weighted average price of approximately $1.09 per share,
(iii) 259,614 shares of Common Stock reserved for future issuance pursuant
to such stock option plans, (iv) 911,600 shares of Common Stock reserved
for issuance upon exercise of outstanding warrants at a price of
approximately $.73 per share and (v) 319,147 shares of Common Stock
reserved for issuance upon exercise of Active Imaging options and warrants
currently outstanding or conditionally issuable. To the extent any of
these options or warrants are exercised, there will be further dilution.
See "Management" and "Description of Capital Stock--Warrants."
(2) Assumes (i) all of the Active Imaging stockholders will accept TVX Common
Stock rather than cash, (ii) an initial public offering price of $15.00
per share, and (iii) an exchange rate of $1.611 for (Pounds)1.00 to
compute the shares to be issued.
(3) Assumes the sale of 2,666,667 shares of Common Stock by the Company at
$15.00 per share before deducting underwriting discounts and commissions
and the estimated expenses of the Offering.
21
<PAGE>
TVX, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial information includes an
unaudited combined balance sheet and unaudited combined statement of
operations for TVX, Inc. as of September 30, 1996 and for the year then ended
(the "Pro Forma Statements"). The pro forma combined balance sheet gives
effect to the proposed acquisition of all of the outstanding shares of capital
stock of Active Imaging plc as if it had occurred on September 30, 1996. The
pro forma combined balance sheet has also been adjusted to reflect the
conversion of the TVX Series B Preferred, receipt of the net proceeds of the
Offering less the repayment of all of the Company's long-term notes payable
and redemption of stock issues as outlined in "Use of Proceeds." The pro forma
statement of operations gives effect to the acquisition of TVX Limited and the
proposed acquisition of Active Imaging plc as if both had occurred on October
1, 1995. In combining the financial information of TVX, Inc., TVX Limited and
Active Imaging plc and the accounting policies that will be used, certain
reclassifications of historical financial data have been made.
The unaudited pro forma combined balance sheet combines the September 30,
1996 balance sheet of TVX, Inc. with the December 31, 1996 balance sheet of
Active Imaging plc as adjusted to reflect accounting principles generally
accepted in the United States as more fully described in Note (a) to the Pro
Forma Statements. The unaudited pro forma combined statement of operations for
the year ended September 30, 1996 combines the statement of operations for the
year ended September 30, 1996 for TVX, Inc., the period from December 1, 1995
through September 17, 1996 for TVX Limited and the year ended December 31,
1996 for Active Imaging plc as similarly adjusted. Although the financial
periods of TVX Inc., Active Imaging plc and TVX Limited are not identical,
management of the Company believes the Pro Forma Statements provide a
representative display of the financial position and results of operations as
of and for the year ended September 30, 1996.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of TVX, Inc., TVX Limited and Active Imaging plc,
including the related notes thereto, which are included or incorporated by
reference herein, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
THE PRO FORMA STATEMENTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY AND
ARE NOT NECESSARILY INDICATIVE OF THE OPERATING RESULTS OR FINANCIAL POSITION
THAT WOULD HAVE OCCURRED HAD THE ACQUISITIONS AND OFFERING BEEN CONSUMMATED AT
THE DATES INDICATED, NOR DO THESE PRO FORMA STATEMENTS PURPORT TO INDICATE THE
RESULTS OF FUTURE OPERATIONS OF THE COMPANY.
22
<PAGE>
TVX, INC.
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------
ACTIVE PRO-FORMA PRO FORMA,
TVX, INC IMAGING PLC(A) ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
----------- -------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 35,101 $ 2,161,679 $(2,092,000)(i) $ (495,220) $36,400,000 (f) $ 26,991,426
(600,000)(b) (8,863,354)(g)
(50,000)(h)
Accounts receivable,
net of allowance for
doubtful accounts..... 432,375 2,030,195 2,462,570 2,462,570
Inventories............ 1,329,931 1,634,173 2,964,104 2,964,104
Prepaid expenses....... 21,671 -- 21,671 21,671
----------- ----------- ----------- ------------ ----------- ------------
Total current assets... 1,819,078 5,826,047 (2,692,000) 4,953,125 27,486,646 32,439,771
Property and equipment,
net of accumulated
depreciation and
amortization........... 263,299 516,549 779,848 779,848
Other assets
Goodwill, net of
accumulated
amortization.......... 1,539,319 1,654,522 (1,654,522)(b) 23,957,718 23,957,718
22,418,399 (b) --
Software development
costs, net of
accumulated
amortization.......... 92,103 -- 92,103 92,103
Other.................. 21,011 1,471,383 (1,471,383)(b) 21,011 21,011
----------- ----------- ----------- ------------ ----------- ------------
Total assets........... $ 3,734,810 $ 9,468,501 $16,600,494 $ 29,803,805 $27,486,646 $ 57,290,451
=========== =========== =========== ============ =========== ============
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable,
trade................. $ 399,619 $ 2,961,547 $ $ 3,361,166 $ $ 3,361,166
Due to related
parties............... 33,883 -- 33,883 33,883
Accrued expenses....... 21,228 572,900 594,128 594,128
Accrued interest,
related parties....... 708,532 -- 708,532 (708,532)(g) --
----------- ----------- ----------- ------------ ----------- ------------
Total current
liabilities........... 1,163,262 3,534,447 4,697,709 (708,532) 3,989,177
Long-term notes
payable, related
parties............... 6,369,000 -- 6,369,000 (6,369,000)(g) --
Other long-term
liabilities........... -- 133,052 133,052 133,052
Redeemable preferred
stock................. 1,435,822 2,034,890 (2,034,890)(b) 1,435,822 (1,435,822)(g) --
Redeemable common
stock................. 350,000 -- 350,000 (350,000)(g) --
Stockholders' equity
(deficiency):
Convertible preferred
stock................. 5,778 -- 5,778 (5,778)(j) --
Common stock........... 21,169 286,450 (286,450)(b) 41,690 26,667 (f) 73,623
20,521 (i) 5,267 (j)
Capital in excess of
par................... 1,915,893 7,378,824 (7,378,824)(b) 32,696,868 36,373,333 (f) 69,070,713
30,780,975 (i) 511 (j)
Other.................. 3,626,800 (3,626,800)(b) -- --
Retained deficit....... (7,526,114) (7,525,962) 7,525,962 (b) (15,926,114) (50,000)(h) (15,976,114)
(8,400,000)(b)
----------- ----------- ----------- ------------ ----------- ------------
Total stockholders'
equity (deficiency)... (5,583,274) 3,766,112 18,635,384 16,818,222 36,350,000 53,168,222
----------- ----------- ----------- ------------ ----------- ------------
Total liabilities and
stockholders' equity
(deficiency).......... $ 3,734,810 $ 9,468,501 $16,600,494 $ 29,803,805 $27,486,646 $ 57,290,451
=========== =========== =========== ============ =========== ============
</TABLE>
See accompanying notes
23
<PAGE>
TVX, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------
TVX, ACTIVE
TVX, INC. LIMITED(L) IMAGING PLC(A) ADJUSTMENTS PRO FORMA
----------- ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 1,033,920 $1,016,652 $ 6,618,873 $ (118,325)(c) $ 8,551,120
Cost of sales:
Related party......... 320,286 -- -- (99,147)(c) 221,139
Other................. 466,374 990,668 4,776,538 6,233,580
----------- ---------- ----------- ----------- ------------
786,660 990,668 4,776,538 (99,147) 6,454,719
----------- ---------- ----------- ----------- ------------
Gross profit............ 247,260 25,984 1,842,335 (19,178) 2,096,401
Operating expenses:
General and
administrative
expenses............. 2,276,573 849,247 5,350,793 148,532 (d) 10,866,985
2,241,840 (k)
Research and
development.......... 541,950 34,935 2,525,146 3,102,031
----------- ---------- ----------- ----------- ------------
2,818,523 884,182 7,875,939 2,390,372 13,969,016
----------- ---------- ----------- ----------- ------------
Loss from operations.... (2,571,263) (858,198) (6,033,604) (2,409,550) (11,872,615)
Other credits (charges):
Interest expense:
Related party....... (429,032) -- -- (273,699)(e) (702,731)
Other............... -- -- (130,584) (130,584)
Other income
(expense)............ (1,453) -- 165,197 163,744
----------- ---------- ----------- ----------- ------------
(430,485) -- 34,613 (669,571)
----------- ---------- ----------- ----------- ------------
Net loss................ (3,001,748) (858,198) (5,998,991) (2,683,249) (12,542,186)
Accrued preferred stock
dividends and accretion
of redeemable common
stock.................. (248,000) (248,000)
----------- ---------- ----------- ----------- ------------
Net loss applicable to
common stockholders.... $(3,249,748) $ (858,198) $(5,998,991) $(2,683,249) $(12,790,186)
=========== ========== =========== =========== ============
Loss per common share $ (0.93) $ (2.31)
=========== ============
Common shares used in
computing net loss per
common share........... 3,476,865 2,052,065 (m) 5,528,930
=========== =========== ============
</TABLE>
See accompanying notes
24
<PAGE>
TVX, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) Represents Active Imaging's financial statements either as of or for the
year ended December 31, 1996. Amounts relating to Active Imaging's balance
sheet have been translated using the noon buying rate of $1.5653 to 1.0000
pound sterling on September 30, 1996. Amounts relating to Active Imaging's
statement of operations have been translated using the average noon buying
rate for pounds sterling on the last day of each full month during the period
for the twelve months ended December 31, 1996 of $1.5733. These financial
statements have been adjusted to reflect changes in accounting for
acquisitions and research and development expense and other items to comply
with accounting principles generally accepted in the United States. See notes
to the Active Imaging financial statements.
(b) To reflect the Acquisition and adjust the combined financial statements
to eliminate the stockholders' equity of Active Imaging, to adjust Active
Imaging's net assets to fair market value and to record the excess of the
purchase price to goodwill, to expense the amount of the purchase price
attributed to in-process research and development of $8,400,000 and to reflect
the purchase price of $32,872,975 as a purchase price payable.
(c) Represents elimination of intercompany sales from TVX Limited to TVX,
Inc.
(d) Represents the amortization of the goodwill recognized by TVX, Inc.
related to the purchase of TVX Limited for the period from October 1, 1995
through September 17, 1996. Amortization for the period from September 18,
1996 through September 30, 1996 is already included in the TVX, Inc.
historical column.
(e) Represents interest expense for the period from October 1, 1995 through
September 17, 1996 related to the $2,200,000 note payable issued to CommNet
Cellular Inc. the proceeds of which were used to acquire TVX Limited on
September 17, 1996. Interest expense on this note payable for the period from
September 18, 1996 through September 30, 1996 is already included in the TVX,
Inc. historical column.
(f) Represents the proceeds from the Offering of 2,666,667 shares resulting
in anticipated proceeds of $40,000,000 reduced by offering expenses of
$3,600,000.
(g) Represents the repayment of all TVX, Inc. long-term notes payables
including related interest and the redemption of all TVX, Inc. stock issues
scheduled to be redeemed from the proceeds of the Offering.
(h) Represents $50,000 bonus to be paid to Robert C. Mulverhill, President
and Chief Executive Officer of TVX, Inc., upon closing of the Offering.
(i) Represents the issuance of shares and the payment of cash related to the
acquisition of Active Imaging. The pro forma, as adjusted combined balance
sheet assumes all of the existing Active Imaging stockholders will accept
shares in TVX, Inc. rather than cash. This assumption results in the issuance
of 2,052,065 shares of TVX, Inc. common stock and payment of $2,200,000 in
cash to the holders of Active Imaging preferred stock and assumes an offering
price of $15 per share for TVX, Inc. common stock. However, should the Active
Imaging common stockholders elect to receive the maximum cash available
pursuant to the purchase offer, the pro forma combined balance sheet would
reflect a cash balance of $(8,395,220), total assets of $21,903,805 and total
stockholders' equity of $8,918,222 and the pro forma, as adjusted combined
balance sheet would reflect a cash balance of $19,091,426, total assets of
$49,390,451 and total stockholders' equity of $45,268,222.
(j) Represents the conversion of the Series B convertible stock into Common
Stock to occur concurrent with the Offering.
(k) Represents the amortization of the goodwill and other intangibles which
resulted from the acquisition of Active Imaging. Assumes the goodwill and
other intangibles generated by the Acquisition of Active Imaging will be
equivalent to the $22,418,399 reflected on the pro forma combined balance
sheet and utilizing an amortization period of ten years. Amount excludes
$8,400,000 of the purchase price which will be attributed
25
<PAGE>
TVX, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
to in-process research and development and $600,000 to be paid in transaction
fees for the Acquisition. These amounts are not considered to be a part of
continuing operations but will be expensed in the consolidated financial
statements upon the acquisition of Active Imaging.
(l) Represents the historical results of TVX Limited for the period from
December 1, 1995 through September 17, 1996 as included herein multiplied by
the average noon buying rate for pounds sterling on the last day of each full
month during the period and where the period is less than one full month, the
last day of the period for the pro forma combined statement of operations of
$1.54108 to 1 pound sterling. Management of TVX, Inc. believes the period from
December 1, 1995 through September 17, 1996 materially approximates TVX
Limited's results for a complete twelve month year.
(m) Does not include 319,147 shares of the Company's Common Stock issuable
upon exercise of Active Imaging options and warrants currently outstanding or
conditionally issuable.
26
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are derived from the consolidated
financial statements of TVX. The financial statements for the year ended
September 30, 1996 have been audited by Ernst & Young LLP, independent
auditors. The financial statements for each of the years in the three year
period ended September 30, 1995 and the period January 13, 1992 (inception)
through September 30, 1992 have been audited by Gelfond Hochstadt Pangburn &
Co., independent auditors. The data should be read in conjunction with the
consolidated financial statements, the related Notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations-TVX"
and other financial information included herein.
TVX, INC.
<TABLE>
<CAPTION>
JANUARY 13, 1992 YEAR ENDED SEPTEMBER 30,
(INCEPTION) THROUGH ------------------------------------------------
SEPTEMBER 30, 1992 1993 1994 1995 1996
------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 321,282 $1,041,142 $1,812,293 $ 1,071,019 $ 1,033,920
Cost of sales........... 230,200 686,655 1,203,019 754,915 786,660
--------- ---------- ---------- ----------- -----------
Gross profit........... 91,082 354,487 609,274 316,104 247,260
General, administrative
and other expenses..... 294,216 885,884 1,186,798 2,445,917 2,276,573
Research and development
expenses............... 1,800 39,800 90,100 652,000 541,950
--------- ---------- ---------- ----------- -----------
Loss from operations... (204,934) (571,197) (667,624) (2,781,813) (2,571,263)
Other credits
(charges).............. 5,366 7,815 (58,773) (253,206) (430,485)
--------- ---------- ---------- ----------- -----------
Net loss............... (199,568) (563,382) (726,397) (3,035,019) (3,001,748)
Accrued preferred stock
dividends.............. -- (5,918) (129,904) (192,000) (248,000)
--------- ---------- ---------- ----------- -----------
Net loss applicable to
common stockholders... $(199,568) $ (569,300) $ (856,301) $(3,227,019) $(3,249,748)
========= ========== ========== =========== ===========
Net Loss per common
share................. $ (0.12) $ (0.19) $ (0.27) $ (0.99) $ (0.93)
========= ========== ========== =========== ===========
Common shares used in
computing net loss per
share.................. 1,613,379 3,033,582 3,130,986 3,268,049 3,476,865
========= ========== ========== =========== ===========
BALANCE SHEET DATA:
Working capital......... $ 716,197 $ 287,325 $ 724,742 $ 791,336 $ 655,816
Total assets............ 884,363 1,361,801 2,532,939 2,038,987 3,734,810
Long term notes
payable................ -- -- 800,000 2,000,000 6,369,000
Redeemable preferred
stock.................. -- 205,918 1,135,822 1,285,822 1,435,822
Redeemable common
stock.................. -- -- -- 252,000 350,000
Stockholders' equity
(deficiency)........... 750,432 581,132 (275,169) (2,333,526) (5,583,274)
</TABLE>
27
<PAGE>
The following selected financial data for the three years ended December 31,
1996 are derived from the financial statements of Active Imaging which have
been audited by Coopers & Lybrand, Chartered Accountants and Registered
Auditors. The data should be read in conjunction with the financial
statements, related notes and other financial information included herein.
ACTIVE IMAGING PLC
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------
1992 1993 1994(1) 1995(1) 1996(1) 1996(2)
------------ ------------ ------------ ------------ ------------ -------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 $'000
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... 2,336 3,103 4,448 5,063 4,207 6,585
Cost of sales........... (1,447) (1,875) (2,840) (3,292) (3,036) (4,752)
------ ------ ------ ------ ------ ------
Gross profit........... 889 1,228 1,608 1,771 1,171 1,833
General, administrative
and other expenses..... (853) (1,069) (1,628) (1,883) (3,359) (5,258)
Research and development
expenses (net of
grants)................ -- (40) (52) (389) (1,440) (2,254)
------ ------ ------ ------ ------ ------
Operating (loss)/profit (36) 119 (72) (501) (3,628) (5,679)
Interest
receivable/(payable)
and similar
income/charges......... (7) (10) (17) (51) 22 34
------ ------ ------ ------ ------ ------
(Loss)/profit on
ordinary activities
before taxation........ (43) 109 (89) (552) (3,606) (5,645)
Tax (payable)/repayable
on loss on ordinary
activities............. (1) (32) -- 38 -- --
------ ------ ------ ------ ------ ------
(Loss)/profit for the
year................... (44) 77 (89) (514) (3,606) (5,645)
Dividends and
appropriations:
Preference share
appropriations........ -- -- -- (37) (44) (69)
------ ------ ------ ------ ------ ------
(Loss)/profit for the
year after
appropriations......... (44) 77 (89) (551) (3,650) (5,714)
====== ====== ====== ====== ====== ======
Loss per ordinary common
stock.................. 12.89p 79.78p 24.56p 38.44c
====== ====== ====== ======
Adjusted loss per
ordinary common stock.. 1.29p 7.98p 24.56p 38.44c
====== ====== ====== ======
<CAPTION>
1992 1993 1994 1995 1996(1) 1996(2)
------------ ------------ ------------ ------------ ------------ -------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 $'000
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... 58 68 162 (262) 1,464 2,292
Total assets............ 851 950 1,990 2,688 5,648 8,841
Shareholders' funds..... 88 166 551 374 3,305 5,173
</TABLE>
- --------
(1) The results summarized above were prepared under accounting principles
generally accepted in the United Kingdom. If the above results would have
been prepared under accounting principles generally accepted in the
United States, the net loss presented for the years ended December 31,
1994, 1995 and 1996 would have been (Pounds)201,000, (Pounds)785,000 and
(Pounds)3,859,000, respectively. The shareholders' funds at December 31,
1996 would have been (Pounds)2,406,000 under United States generally
accepted accounting principles. See Notes to the Active Imaging Financial
Statements.
(2) The 1996 results and balance sheet data have been converted into US
dollars for convenience purpose only using the Noon Buying Rate at
September 30, 1996.
28
<PAGE>
The following selected financial data for the year ended November 30, 1995
and for the period December 1, 1995 through September 17, 1996 are derived
from the financial statements of TVX Limited which have been audited by Binder
Hamlyn, Chartered Accountants and Registered Auditors.
TVX LIMITED
<TABLE>
<CAPTION>
PERIOD PERIOD
YEAR ENDED DECEMBER 1, 1995 THROUGH DECEMBER 1, 1995 THROUGH
NOVEMBER 30, 1995(1) SEPTEMBER 17, 1996(1) SEPTEMBER 17, 1996(1)(2)
-------------------- ------------------------ ------------------------
(Pounds)'S (Pounds)'S $'S
STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C>
Net Sales............... 997,599 659,701 1,032,630
Cost of sales........... (962,118) (642,840) (1,006,237)
---------- -------- ----------
Gross profit........... 35,481 16,861 26,393
Administrative
expenses............... (887,427) (573,742) (898,078)
Other................... (559,140) -- --
---------- -------- ----------
Loss on ordinary
activities before
taxation............... (1,411,086) (556,881) (871,685)
Taxation credit......... 275,920 -- --
---------- -------- ----------
Loss on ordinary
activities............. (1,135,166) (556,881) (871,685)
========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1995(1) SEPTEMBER 17, 1996(1) SEPTEMBER 17, 1996(1)(2)
-------------------- --------------------- ------------------------
(Pounds)'S (Pounds)'S $'S
BALANCE SHEET DATA:
<S> <C> <C> <C>
Working capital......... (2,199,214) 372,748 583,462
Total assets............ 1,227,020 497,590 778,878
Shareholders' funds..... (2,159,793) 418,326 654,806
</TABLE>
- --------
(1) No significant differences exist between generally accepted accounting
principles from these in the United States versus those in the United
Kingdom as such accounting principles relate to TVX Limited. See Notes to
the TVX Limited financial statements.
(2) The 1996 results and balance sheet data have been converted into U.S.
Dollars for convenience purposes only using the Noon Buying Rate at
September 30, 1996.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TVX, INC.
OVERVIEW
TVX designs, develops and distributes image management systems for the
security and surveillance and transportation management industries. TVX's
systems incorporate digital imaging technology enabling images to be captured,
digitized and compressed for storage or immediate transmission over wired or
wireless networks for evaluation by end-users. Within the security and
surveillance industry, primary applications of TVX systems include security
alarm systems with visual verification capability ("Apollo") and monitoring
systems which monitor and record ATM transactions ("DTR ViewPoint") to prevent
fraud. Within the transportation management industry, TVX systems
("MobileView") are utilized by transit authorities to prevent vandalism and
fraud through visual monitoring of activity on mass transit systems.
TVX was formed in January of 1992 by several individuals and Automated
Security (Holdings) PLC ("ASH") to capitalize on security industry
applications of TVX's visual surveillance technology. TVX's original 1021
"camera on a chip" technology has served as a platform for the development of
its second generation digital imaging technology currently used in its alarm
verification and transportation management systems.
Since TVX's inception in 1992, its sales have been limited and it has
experienced operating losses due to its focus and expenditures on technology
development. Historically, TVX has relied extensively upon subcontractors and
distributors to manufacture and sell its systems while it focused on
technology development. Currently, however, management has begun to focus on
increasing its in-house manufacturing capabilities and sales of its systems.
As part of this initiative, TVX acquired TVX Limited in September 1996 for
$2,200,000 giving TVX worldwide distribution rights to TVX technology and
increased manufacturing capabilities. Management intends to continue to invest
in manufacturing capabilities and sales and marketing initiatives in the
future.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
net sales represented by certain line items in TVX's statements of operations:
STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED SEPTEMBER 30,
-----------------------
1994 1995 1996
----- ------ ------
<S> <C> <C> <C>
Net sales............................................ 100.0 % 100.0 % 100.0 %
Cost of sales........................................ 66.4 70.5 76.1
----- ------ ------
Gross profit........................................ 33.6 29.5 23.9
General and administrative expenses.................. 65.5 160.6 220.2
Research and development expenses.................... 4.9 60.9 52.4
Other operating expenses............................. -- 67.7 --
----- ------ ------
Loss from operations................................. (36.8) (259.7) (248.7)
Interest and other expense........................... 3.2 23.6 41.6
----- ------ ------
Net loss............................................. (40.0)% (283.3)% (290.3)%
===== ====== ======
</TABLE>
Twelve Months Ended September 30, 1996 Compared to Twelve Months Ended
September 30, 1995
Net Sales. Net sales were $1,033,920 for the twelve months ended September
30, 1996, a decrease of 3.5% from the net sales of $1,071,109 recorded during
the same period in 1995. The decrease in net sales was due primarily to lower
sales of the 1021 system resulting from anticipation of and subsequent delay
of the release of Apollo because of design changes requested by customers
during beta testing.
30
<PAGE>
Gross Profit. Gross profit as a percentage of net sales was 23.9% and 29.5%
for the twelve months ended September 30, 1996 and 1995, respectively. The
decline in gross profit is primarily the result of initial startup
manufacturing costs and low-volume production runs associated with the
introduction of the Apollo system.
General and Administrative Expenses. General and administrative expenses
increased by approximately 32.3% from $1,720,370 for the twelve months ended
September 30, 1995 to $2,276,573 for the year ended September 30, 1996. This
increase was due to costs associated with relocating and expanding TVX's
office and warehouse facilities from 4,000 square feet to 10,000 square feet,
growth in personnel and payroll related expenses due to a 39% increase in
employee headcount due primarily to growth in the engineering and marketing
staffs and a writeoff for demonstration and research and development inventory
which resulted in a charge of $178,150 for the twelve months ended September
30, 1996, compared to $80,956 for the twelve months ended September 30, 1995.
Research and Development Expenses. Research and development expenses
decreased by approximately 16.9% from $652,000 for the twelve months ended
September 30, 1995 to $541,950, which includes a write-off of $138,345 related
to previously capitalized software development costs, for the year ended
September 30, 1996. The decrease was primarily attributable to the completion
of research and development associated with the Apollo project.
Other Operating Expenses. There were no other operating expenses for the
year ended September 30, 1996. TVX recorded $725,547 to write off a license
agreement and an investment in Securis International, Inc. ("Securis") in the
year ended September 30, 1995.
As a result of the items described above, TVX's loss from operations
decreased 7.6% from $2,781,813 for the twelve months ended September 30, 1995
to $2,571,263 for the twelve months ended September 30, 1996.
Interest Expense. Interest expense for the twelve months ended September 30,
1996 increased to $429,032 from $239,535 for the year ended September 30,
1995, relating directly to the increase in long-term debt from CommNet.
Twelve Months Ended September 30, 1995 Compared to Twelve Months Ended
September 30, 1994
Net Sales. Net sales for the twelve months ended September 30, 1995
decreased 40.9% to $1,071,109 from $1,812,293 for the year ended September 30,
1994. This decrease was due primarily to the delayed introduction of Apollo,
originally scheduled for May 1995, resulting from delays in the delivery of
customized software from subcontractors. The announcement of Apollo caused
many of TVX's existing dealers to forgo their purchases of the original 1021
system in anticipation of the introduction of Apollo.
Gross Profit. Gross profit decreased approximately 48.1% from $609,274 for
the twelve months ended September 30, 1994 to $316,104 for the twelve months
ended September 30, 1995. This decrease resulted primarily from the decreased
sales during the period. TVX's gross profit margin decreased from
approximately 33.6% for the twelve months ended September 30, 1994 to 29.5%
for the twelve months ended September 30, 1995 due to changes in TVX's
customer mix, which consisted of a larger percentage of lower margin national
and OEM accounts in the twelve months ended September 30, 1995 compared to the
twelve months ended September 30, 1994.
General and administrative. General and administrative expenses increased by
approximately 45.0% from $1,186,798 for the twelve months ended September 30,
1994 to $1,720,370 for the twelve months ended September 30, 1995. The
increase was attributable primarily to professional fees and a 30% increase in
the number of employees principally in research and development. TVX took a
charge for damaged and obsolete inventory of $10,767 for the twelve months
ended September 30, 1994 compared to $80,956 for the twelve months ended
September 30, 1995.
Research and Development. Research and development costs increased from
$90,100 for the twelve months ended September 30, 1994 to $652,000 for the
twelve months ended September 30, 1995 due to costs associated with the
development of the Apollo system and its related projects.
31
<PAGE>
Other operating expenses. Other operating expenses for the twelve months
ended September 30, 1995 of $725,547 consisted of the write off of $331,333
related to the original 1021 technology and the write off $394,214 related to
the disposition of TVX's investment in Securis International Inc.
As a result of the items described above, the loss from operations increased
from $667,624 for the twelve months ended September 30, 1994 to $2,781,813 for
the twelve months ended September 30, 1995.
Interest expense. Interest expense for the twelve months ended September 30,
1995 increased to $239,535 from $45,750 for the twelve months ended September
30, 1994 relating directly to the increase in long-term debt extended to TVX
by ASH and CommNet during the twelve months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in January 1992 through September 30, 1996, TVX has
incurred total losses of $7,526,114. These losses and other capital
requirements of TVX have been financed through a combination of equity and
debt financing. For the twelve months ended September 30, 1996 and subsequent
thereto, TVX has been dependent on CommNet for all of its financing
requirements. TVX will require additional financing prior to the completion of
the Offering. CommNet has indicated its intent to provide such financing
through the earlier of a public offering or September 30, 1997. See also "Risk
Factors--Limited Sales; History of Net Losses; Potential Fluctuations in
Operating Results."
As of January 28, 1997, TVX had borrowed $6,921,450 from CommNet and
$1,000,000 from ASH. Of the amounts borrowed from CommNet, $2,200,000 was used
to acquire all of the outstanding stock of TVX Limited. All of the notes
payable for these borrowings have an interest rate of 13.0% and are due on the
earlier of the closing of an initial public offering or October 1, 1997. TVX
intends to repay the outstanding principal and interest on these notes payable
with a portion of the net proceeds of the Offering. See "Certain Transactions"
and "Use of Proceeds."
At September 30, 1996, TVX had cash and cash equivalents of $35,101. TVX
also had 1,000,000 shares of its Redeemable Series A Preferred Stock
outstanding having a redemption value of $1,435,822 including accrued
dividends. The Redeemable Series A Preferred Stock can be redeemed at the
request of 60% of the holders or by the election of TVX at any time. TVX
intends to redeem the Redeemable Series A Preferred Stock with a portion of
net proceeds of the Offering. See "Use of Proceeds."
In connection with the disposition of the TVX investment in Securis, TVX
issued to the majority owners of Securis shares of redeemable common stock
with an estimated fair value of $210,000. The holders of the redeemable stock
had the option to require TVX to redeem these 63,812 shares at $5.48 per share
between May 1 and August 31, 1996. The original carrying amount of $210,000
was increased quarterly up to $350,000 which was scheduled to be paid upon
redemption on May 1, 1996. As a result of TVX not redeeming these shares upon
request, the holders filed suit against TVX to enforce the obligation to
redeem their shares. TVX intends to redeem this stock with a portion of the
net proceeds of the Offering.
While there can be no assurance that the Company will be profitable in the
future or that the net proceeds from the Offering, together with any funds
provided by operations and presently available capital, will be sufficient to
fund the on going operations of the Company, management believes its current
operating funds, along with the proceeds of the Offering after amounts used to
repay debt and redeem preferred stock, and the synergies created by the
acquisition of Active Imaging will be sufficient to finance its cash
requirements for at least the next 12 months.
Upon the completion of the Offering, the Company will have no outstanding
long-term debt. See "Use of Proceeds." Two of Active Imaging's U.K.
subsidiaries have factoring facilities which allow them to borrow between 50%
and 70% of eligible accounts receivable. See Note 15 to Active Imaging
Financial Statements.
If the Company has insufficient funds, there can be no assurance that
additional financing can be obtained on acceptable terms, if at all. The
absence of such financing could have a material adverse effect on the
Company's business. See also "Risk Factors-Limited Sales; History of Net
Losses; Potential Fluctuations in Operating Results." During the twelve months
ending December 31, 1997, the Company expects to invest approximately $3.3
million in research and development and to incur capital expenditures of
approximately $6.8 million, including $6.3 million for construction or
acquisition of a manufacturing facility.
32
<PAGE>
ACTIVE IMAGING PLC
GENERAL
Active Imaging is engaged in the development and marketing of its
proprietary and jointly owned imaging systems, and through its Data Cell
subsidiary, is a value added reseller, systems integrator and supplier of
third party imaging products. Active Imaging has facilities for prototype
assembly and testing. It sub-contracts the manufacture and assembly of its
proprietary products to specialized manufacturers. Primary applications of the
Active Imaging's proprietary imaging technology include transportation
management and internet video applications. Active Imaging's digital imaging
technology enables municipalities to monitor and analyze vehicular traffic by
collecting and relaying digital images and data relating to traffic conditions
to a central monitoring station for analysis. Active Imaging's internet video
technology combines a video camera, computer network and communications device
and Web server which, when accessed via the Internet, provides data and live
images at the request of remote authorized viewers using standard Internet
viewing software. As a value added reseller, Active Imaging markets and
distributes application specific products for use in scientific, and medical
and industrial applications.
The Company's predecessor was founded in August 1988 solely as a value added
reseller of image acquisition hardware, related software and imaging systems.
Over the next several years, the Company developed its proprietary imaging
system through in-house research and development and through acquisitions. In
April of 1996, Active Imaging was admitted onto the Alternative Investment
Market ("AIM") of the London Stock Exchange.
Active Imaging has experienced continuous revenue growth since inception
through 1995, with an increasing percentage of revenue attributable to
manufactured products, but suffered a fall in net revenue in 1996, for the
reasons set out below. Active Imaging reported losses in 1994, 1995 and 1996,
due to substantial investment in product development, high levels of sales and
marketing expenditure in the United Kingdom, and expenditures related to
establishment of brand recognition and sales and distribution channels in the
United States.
33
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
net sales represented by certain line items in Active Imaging's statements of
operations:
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS DATA: TWELVE MONTHS
ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net Sales................................ 100% 100% 100%
------ ------ ------
Cost of Sales............................ 64 65 72
------ ------ ------
Gross margin............................. 36 35 28
Operating expenses..................... 38 45 114
------ ------ ------
Operating income (expense)............. (2) (10) (86)
Net interest income/(expense)........... -- (1) 1
------ ------ ------
Net loss before taxes................... (2) (11) (85)
Credit for income taxes................. -- 1 --
------ ------ ------
Net loss................................ (2)% (10)% (85)%
====== ====== ======
</TABLE>
Twelve Months Ended December 31, 1996 ("fiscal 1996") compared to Twelve
Months Ended December 31, 1995 ("fiscal 1995")
Net Sales. Net Sales decreased (Pounds)856,000 or 17% to (Pounds)4,207,000
in fiscal 1996 from (Pounds)5,063,000 in fiscal 1995 due primarily to
completion of a major supply agreement and the loss of franchise agreements
with two imaging product manufacturers. Active Imaging replaced the
aforementioned agreements with new contracts with Media Cybernetics LLP and
Cognex Inc., two leading manufacturers of imaging products.
Gross Profit. Gross profit decreased (Pounds)600,000, or 34%, to
(Pounds)1,171,000 in fiscal 1996 from (Pounds)1,771,000 in fiscal 1995. As a
percentage of net sales, gross profit decreased to 28% in fiscal 1996 from 35%
in fiscal 1995. This decrease was primarily a result of the lower level of
sales achieved, the loss of gross margin as a result of the lost franchises
referred to above, the lower margins achieved on sales of marketing and
promotional units to a number of major OEMs, and the disposal of certain
surplus stocks of components at cost.
Operating Expenses. Operating expenses increased (Pounds)2,527,000 or 111%,
to (Pounds)4,799,000 in fiscal 1996 from (Pounds)2,272,000 in fiscal 1995.
This increase was primarily due to the acquisitions completed in the latter
part of 1995, the additional staff numbers required to support the development
of the MvVision and Invision cameras, and increases in sales and marketing
staff, administrative staff, premises cost and overhead to support the higher
levels of marketing and development activity.
Operating Loss. As a result of the items described above, operating loss in
fiscal 1995 increased (Pounds)3,127,000 to (Pounds)3,628,000 in fiscal 1996
from (Pounds)501,000 in fiscal 1995.
Net Interest Income/(Expense). Net interest income was (Pounds)22,000 in
fiscal 1996 compared with net interest expense of (Pounds)51,000 in fiscal
1995, the improvement resulting from interest received on cash balances
resulting from the public offering of common stock in April 1996.
Net Loss. After allowing for net interest income/(expense), net loss
increased (Pounds)3,092,000 or 602% to (Pounds)3,606,000 in fiscal 1996 from a
net loss of (Pounds)514,000 in fiscal 1995.
34
<PAGE>
Twelve Months Ended December 31, 1995 ("fiscal 1995") compared to Twelve
Months Ended December 31, 1994 ("fiscal 1994")
Net sales. Net sales increased (Pounds)615,000 or 14% to (Pounds)5,063,000
in fiscal 1995 from (Pounds)4,448,000 in fiscal 1994. The increase was
primarily due to increased sales of Snapper image acquisition boards and
increased revenue generated from systems integration contracts. These
increases were partially offset by lower sales of third party products.
Gross profit. Gross profit increased (Pounds)163,000 or 10% to
(Pounds)1,771,000 in fiscal 1995 from (Pounds)1,608,000 in fiscal 1994,
reflecting the increased level of sales, while as a percentage of net revenues
it decreased from 36% to 35%.
Operating expenses. Operating expenses increased (Pounds)592,000 or 35% to
(Pounds)2,272,000 in fiscal 1995 from (Pounds)1,680,000 in fiscal 1994,
reflecting substantial increases in both marketing and research and
development expenditures.
Operating loss. As a result of the higher operating expenses, the operating
loss increased (Pounds)429,000 or 596% to (Pounds)501,000 in fiscal 1995 from
(Pounds)72,000 in fiscal 1994.
Interest expense. Net interest expense increased from (Pounds)17,000 in
fiscal 1994 to (Pounds)51,000 in fiscal 1995 as a result of higher bank
borrowings to fund increased marketing and research and development
expenditures.
Credit for income taxes. The net losses incurred in fiscal 1995 enabled
Active Imaging to reclaim UK Corporation Tax provided in respect of earlier
years, totalling (Pounds)38,000.
Net loss. After allowance for the above tax credit, the net loss of Active
Imaging increased by (Pounds)425,000 or 477% to (Pounds)514,000 in fiscal 1995
from (Pounds)89,000 in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Active Imaging's cash requirements have been funded
through a combination of equity and debt financing, including borrowings under
its bank facilities and from the factoring of accounts receivable, both at
rates linked to U.K. variable lending rates.
As of December 31, 1996 Active Imaging's principal sources of liquidity
included cash balances of (Pounds)1,381,000, and facilities for the factoring
of trade debts, under which (Pounds)66,000 had been drawn at that date. The
factoring facilities allow two of Active Imaging' s U.K. subsidiaries to draw
between 50% and 70% of eligible trade debtor balances.
The net cash used by Active Imaging in operating activities was
(Pounds)297,000 in fiscal 1995 and (Pounds)3,205,000 in 1996. The net cash
used for investing activities was (Pounds)825,000 in fiscal 1995, and
(Pounds)812,000 in fiscal 1996. These cash requirements were financed in large
part from the issuance of equity and preference shares accounting, net of
issue costs, (Pounds)1,410,000 in fiscal 1995 and (Pounds)5,562,000 in fiscal
1996.
35
<PAGE>
BUSINESS
OVERVIEW
The Company develops and distributes digital image management systems for
the security and surveillance industry, the transportation management industry
and Internet video applications. It also is a value-added reseller, with
system engineering capabilities, of imaging hardware and software. The
Company's systems enable video and still images to be captured, digitized and
compressed for storage or immediate transmission over wired or wireless
networks for evaluation by end users. The Company's systems, many of which are
covered by patents or patents pending, generally consist of proprietary
software and integrated hardware platforms that are sold globally through
multiple distribution channels. The Company believes it differentiates itself
by utilizing its technology to offer high quality integrated solutions that
allow for interactive communication and automated processing of information.
The Company believes that there is significant demand in existing and
developing markets for systems utilizing its technology.
The Company's principal stockholders are CommNet Cellular Inc. ("CommNet"),
one of the largest providers of wireless telephone services for rural areas in
the United States, and ADT Limited ("ADT"), the largest provider of security
alarm systems and monitoring services in the United States and United Kingdom.
ADT's ownership of TVX stock is held through Automated Security (Holdings) plc
("ASH"), which it acquired in September 1996. Both CommNet and ADT are
publicly traded companies listed on Nasdaq under the symbol CELS and the New
York Stock Exchange under the symbol ADT, respectively. TVX was founded in
early 1992 by several individuals and ASH to capitalize on security industry
applications of TVX's visual surveillance technology. CommNet recognized the
synergy between TVX's technology and CommNet's wireless technology and began
investing in TVX in the fall of 1992. As a leading provider of security
systems, ADT is actively evaluating several of the Company's systems.
TVX was incorporated in January 1992 in Delaware. The Company maintains its
executive offices at 14818 West 6th Avenue, Suite 1A, Golden, Colorado 80401.
The Company's telephone number is (303)277-9877.
MARKET BACKGROUND, PRODUCTS AND CUSTOMERS
Advances in computer software and microprocessor technology have enabled the
development of digital image management systems which the Company believes
have applications in numerous industries. Initially, the Company has targeted
the security and surveillance industry, transportation management industry and
Internet video market, where the Company believes there is significant demand
for its systems and technologies.
SECURITY AND SURVEILLANCE. The entire security industry, including access
control, burglary, closed circuit television ("CCTV"), fire, home automation,
systems integration, guard services and armored transport, is estimated to
generate revenues of $60 billion annually. Technology is serving to improve
the quality and lower the cost of service delivery, contributing to strong
growth. Technological issues are becoming increasingly important
considerations in all segments of the security services industry. Recent
advances in both discrete technologies such as wireless transmissions and
video surveillance and generic technologies such as microprocessor control,
analog-to-digital conversion and networking and application software have
ushered in the latest stage in the evolution of electronic security as a
discipline: systems integration. Within the security and surveillance
industry, the Company has focused on the market segments of alarm
verification, automated transaction recording and mobile applications.
Alarm Verification. In 1995, the economic loss from residential and
commercial burglaries in the United States was $4.3 billion. Businesses and
homeowners are increasingly concerned with protecting their property,
employees and families, leading to a growing number of alarm system
installations. Between 1989 and 1995, the installed base of security alarm
systems in the United States increased from approximately 11.0 million to
approximately 17.0 million, representing a compound annual growth rate of
7.5%. Of the security systems in place at the end of 1995, approximately 52%
were residential, 42% were commercial and 6% were related to
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government. At the end of 1995, there were approximately 15.0 million
commercial and residential accounts being monitored by third party providers,
split almost equally between these segments.
The Confederation of British Industry / Crime Concern Working Group
estimates that crime in the form of theft, fraud, violence and arson costs
businesses in the United Kingdom between $7.5 billion and $15.0 billion a
year, an indication of the unknown number of thefts left unreported.
While the installed base of security alarms continues to grow, the incidence
of false alarms presents a serious challenge for the future growth of the
industry. According to United States and United Kingdom police department
studies, approximately 95% of the alarms that are triggered are false alarms,
causing inefficient utilization of scarce law enforcement resources. In
response to this expanding problem, municipalities are increasingly
establishing strict alarm response policies, including downgrading the
priority response time for alarms, imposing fines of up to hundreds of dollars
for each false alarm, and refusing to respond to an alarm after a certain
number of false alarms. The United Kingdom has addressed this problem on a
national level by permitting law enforcement agencies to refuse to respond to
any alarms which have not been visually verified. The imposition of fines and
the lack of timely police responses to alarms threatens to erode the value of
the existing installed base of alarm systems. The Company believes that the
ability of central monitoring services to provide visual verification of
alarms will reduce the number of false alarms, permitting the current rate of
new alarm system sales to continue growing, and thus significantly increase
monitoring service income.
In response to increasing demand for visual verification of alarms, the
Company completed beta testing and began shipping its Apollo system in
September 1996. The Apollo system is a relatively low cost, fully interactive
verification and observation system that can be integrated with most major
alarm systems on the market today. This flexibility allows the Apollo system
to be used in both newly installed and existing alarm systems, which is
particularly important because many of the older, less sophisticated systems
are more prone to generate false alarms. The Company believes that its
relatively low cost and its ability to be used with most existing systems
makes the Apollo system a very cost-effective enhancement for customers.
The Apollo system operates continuously, taking one photo per second. Each
camera can be separately pre-programmed to immediately transmit to a remote
central monitoring station, via conventional telephone lines or wireless
network, up to five digitally compressed photos (ranging from the five
immediately preceding alarm activation to the five immediately following
activation), depending upon the customer's requirements. Upon activation of
the alarm, the Apollo system automatically sends digital images from the alarm
site to a central monitoring station for immediate evaluation, electronic
enhancement or transmission to others, such as law enforcement agencies. At
the central monitoring station, the digital images are displayed for the
operator on a standard personal computer monitor along with alarm site data.
The operator then determines whether the alarm activation is false or requires
an immediate response. The digital images also can be electronically enhanced
or sharpened for greater detail, hard copies can be printed and the digital
image stored electronically. The interactivity of the Apollo system allows the
central monitoring station to access any camera on the system and immediately
retrieve and view the images, as well as select the appropriate image
resolution. The Apollo system can operate up to 120 cameras per installation
and can also be used by any remote or on-site user from his or her PC,
primarily as a management or surveillance tool, in the same manner as used by
a security alarm central monitoring station. Although the Apollo system has
only recently completed beta testing in the United States, the Company
believes that, based upon initial demand and efforts to heighten customer
awareness, sales of the Apollo system should increase significantly.
The Apollo system is sold directly by the Company and through authorized
distributors and dealers, some of whom have purchased the Company's previous
security alarm verification system and are now upgrading to the Apollo system.
The distributors are generally large national and regional security alarm
installation and monitoring companies who install the proprietary Apollo
operating software in their central monitoring stations and then make sales of
the Apollo system to their installed base and new customers.
Most of the Company's sales of security systems have been made by
distributors. The top 100 security alarm system dealers in the United States,
30 of whom carry the Apollo system, controlled approximately 25%
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or $2.8 billion of total security system sales in 1993. In addition, Norbain,
the largest United Kingdom, distributor carries the Company's Apollo system.
The IPS 1000 system is a buried cable system used for large outdoor
perimeter intrusion detection applications, including airports, oil refineries
and military installations, and for smaller installations like car, truck and
merchandise storage areas, salvage yards and other similar outdoor facilities.
The Company is the exclusive distributor of the IPS 1000 system in North
America and South America pursuant to an agreement which is subject to renewal
in November 1998. The IPS 1000 system uses proprietary software to detect and
analyze the fingerprint of the low frequency waves travelling through the
ground generated by moving bodies having a certain mass and compares them with
fingerprints stored in the system's memory. The system cannot be detected by
intruders, is easy to install and program, and costs significantly less than
competing buried cable systems. When used to complement the Apollo system, the
IPS 1000 system can provide outdoor protection with a minimum of false alarms.
The IPS 1000 system is sold through the same distributor network as the
Company's Apollo system. Approximately 50% of the IPS 1000 systems sold by the
Company are used to complement an Apollo system.
The Company is developing Conquest, a new software application that can be
used by end users on demand with any existing security camera equipment,
including CCTV systems or the Apollo system. The Conquest software will allow
individuals to access their cameras remotely from a PC, and thus to monitor on
demand the scene where the camera is located. It will be a less expensive
application than the Apollo system, with scaled-down functionality, and the
Company expects it to be used primarily as a management tool, and not as a
security alarm verification system. The Company expects that the Conquest
software will be released in the third quarter 1997. The Company will sell
this product through the same distribution channels as the Apollo system, as
well as through distributors of CCTV products.
Automated Transaction Recording. As of September 30, 1996, there were over
300,000 automated teller machines ("ATMs") within the United States and
Europe, operated primarily by banks and retailers. The number of ATMs has
increased at a compound annual growth rate of 10% over the three year period
from 1992 to 1995. ATM and electronic point-of-sale ("POS") system usage has
also increased significantly over the past three years, both in terms of the
dollar amount of transactions and per capita use, as banks and retailers have
focused on reducing overhead, decreasing transaction costs and improving
customer service. Industry estimates indicate that, as of the end of 1995,
approximately 10.2 million retailers world-wide used some form of electronic
POS system for registering customer transactions.
With greater deployment of and easier access to ATMs throughout the U.S. and
Europe, ATM providers are increasingly concerned with fraud detection, dispute
resolution and security surveillance. Most ATM systems record ATM users with
video cameras, which are very expensive to maintain, do not provide complete
transaction information, cannot be accessed remotely, and require a time-
consuming process to locate and retrieve information. The Company has
developed a more efficient and less expensive product, the DTR ViewPoint
system, to replace videotape with digitally compressed images of the ATM user
and his or her transaction information, which can be easily retrieved and
evaluated. These images can be stored electronically, transmitted via modem
and, if desired, immediately viewed and downloaded from a remote site.
The DTR ViewPoint system has been sold to Bancorp Hawaii, Inc., for
secondary testing, and to EDS Systems Corp., Compass Bank, Keycorp, Peninsula
Bank and Kerns School Federal Credit Union for beta testing and evaluation. In
addition, the Company is currently negotiating with Wells Fargo Armored
Services ("Wells Fargo"), the largest ATM servicing group in the United
States, for Wells Fargo to market, install and service the DTR ViewPoint
system throughout the U.S. in conjunction with its cash and ATM distribution
functions. The Company believes there are numerous additional applications for
the DTR ViewPoint system including car rentals, check cashing, returning
purchased goods and inventory management.
Mobile Applications. Many of the 5,000 metropolitan area transit authorities
in the United States are increasingly concerned about improving security and
reducing vandalism and accident-related liability claims on their mass transit
systems. Numerous mass transit systems have reported significant problems with
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assaults and even homicides, as well as with obtaining accurate information
regarding on-board incidents and traffic accidents. In 1994, the transit
systems operated in the United States consisted of approximately 65,000 buses,
23,000 demand response vehicles, 10,000 heavy rail cars and 4,500 commuter
rail cars. The Company believes that there is a significant market opportunity
for reliable and cost-effective methods of addressing these concerns.
In response to these concerns, the Company introduced the MobileView system,
which it believes to be the most effective product available today for
surveillance and security on mass transit systems. The MobileView system
captures digital images that are stored on a ruggedized, removable hard drive
or transmitted over a wireless network to a central receiving station for
remote monitoring. Related information (such as time, date and vehicle
information) is also stored or transmitted along with the images. The wireless
transmission of images can be initiated automatically by sensors in the case
of vehicle impact, by the driver in panic situations, or by the central
station operator for further observation and additional information in a
crisis situation. Since the images stored and/or transmitted are digital, the
images can be enhanced, printed and/or faxed quickly and efficiently. With no
VCR to service or tapes to maintain or replace, the MobileView system provides
a cost-effective, long-term operational solution with greater durability for
mass transit and commercial applications.
The Los Angeles County Metro Transit Authority ("LACMTA") has tested the
system and recently ordered 250 units for delivery beginning in June 1997 to
be installed on a portion of its fleet of 2,400 buses. In addition, the
MobileView system is being tested or considered by transit authorities in
various metropolitan areas, including Seattle (a fleet of 1,141 buses), Dallas
(1,059 buses and vans), Denver (824 buses), Oakland (750 buses), San Francisco
(705 buses) and Broward County, Florida (212 buses).
The Company also believes that the MobileView system can provide
manufacturers and shipping companies with a highly effective method for
detecting fraud, theft and other problems in the shipping of goods. For
example, a manufacturer, concerned with theft of PCs while en route from the
manufacturing facility to a distribution center, could place cameras on the
inside of the shipping containers, which typically hold large numbers of
units. If the shipping container is broken into while in transit, the cameras
would automatically take several photos of the thieves and immediately
transmit the photos to a pre-determined monitoring site. This provides the
manufacturer with the ability to both immediately intercept a thief and,
failing that, to more effectively apprehend the suspects. There can be no
assurance, however, that the transit authorities described will order any
MobileView systems for their buses, that LACMTA will order any additional
systems, or that any other uses of the MobileView system will develop for
manufacturers, shipping companies or others. The Company markets the
MobileView system directly to transit authorities who may purchase the system
for installation on existing buses or who may specify the MobileView system in
their purchase order for new buses given to a bus manufacturer.
TRANSPORTATION MANAGEMENT. Traffic jams, and their associated social and
environmental costs, are problems for most developed countries. The Company
believes that both federal governments and local jurisdictions desire cost-
effective mechanisms to monitor, analyze and ultimately control and improve
road traffic. For example, Congress passed the Intermodal Surface
Transportation Efficiency Act of 1991, authorizing expenditures by the U.S.
government on the application of interactive technology to roads.
The Company developed the InVision camera system to assist municipalities in
managing vehicular traffic by collecting digital images and data, then
relaying that information to a central traffic control station for analysis.
The Invision system has two distinct applications, freeway management and
intersection traffic management. As a freeway management application, the
InVision system assists municipalities in managing vehicular traffic by
collecting digital images and data regarding vehicle speed and type, traffic
density and general road conditions. The Texas Department of Transportation is
currently testing the system as a freeway management system in Houston. As an
intersection traffic management tool, the Invision system is being tested to
cost-effectively replace and improve upon the underground sensors (often
referred to as an induction loop system) currently used by many jurisdictions
in the United States and United Kingdom. The city of New Orleans and a Dallas
suburb have substantially completed their testing of the InVision system as an
intersection traffic management system and have indicated their intention to
install such systems upon receipt of funding.
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INTERNET VIDEO APPLICATIONS. As of January 1996, there were approximately 30
million users in over 170 countries connected to the Internet, a global
network of computer networks which allows computers to communicate using
Internet protocols. The rapid growth in popularity of the Internet is in large
part due to the increasing availability of user-friendly navigational and
utility tools designed to enable easier access to the Internet; continued
penetration of computers and modems into households and offices; the growth
and awareness of Internet applications; and the emergence of the World Wide
Web containing text, graphics, sound and other multimedia content as a network
of services and information sources.
Based on its belief that there will be a convergence of broadcast media into
the Internet in order to provide real time access to information and events,
the Company has developed the MvNet camera which can be directly linked to the
Internet to provide constant and immediate video images to a personal
computer. The MvVision camera series, which includes the MvNet camera and the
Mv2000, is an intelligent camera system permitting a user to program it for
specific applications. For example, it might store all image data, but only
transmit images that meet specifically pre-defined criteria such as the
appearance of an object within the field of vision. This minimizes network
traffic and improves the efficiency of monitoring a large number of situations
simultaneously. With its compact, integrated design and networking functions,
it is considered to be more advanced than existing systems using separate
camera and processing units. The MvVision camera series can replace analog
camera systems completely or act as an effective medium for interfacing such
cameras with modern digital networks.
The Company's MvNet camera combines a video camera, computer, network and
communication device and Web server which, when accessed via the Internet or
intranet (a type of internal computer communications network), provides data
and live images at the request of remote authorized viewers using industry
standard Internet viewing software packages such as Netscape Navigator(R). The
MvNet camera is an intelligent video camera and a Web Server for Internet and
intranet applications, primarily for situations in which continuous, live
video is advantageous such as entertainment, leisure, travel, advertising and
simple surveillance applications. The Company currently has an installed base
of approximately 200 MvNet systems used by companies such as Apple Computer,
American Airlines, Los Alamos National Laboratories and Cyberia Internet Cafes
for applications including Webcasts of music concerts, monitoring cargo plane
hangars, monitoring nuclear materials and video communications between cafe
locations. The MvNet camera can be viewed remotely via a number of direct
means of connection, including telephone and network connections, and can be
connected to pan, tilt, zoom (PTZ) mechanisms. The Company currently plans to
provide access to the MvNet camera in the future through wireless telephone
and other radio-based media. The MvNet camera has been designed to anticipate
current developments in rapidly changing Internet technology, such as Java
from SUN Microsystems.
In order to secure a position as a leading supplier of Internet peripherals
for live video, the Company has and will continue to develop relationships
with key strategic Internet partners, including Microsoft, Apple Corporation
and NetScape. The Company works with these strategic partners to enable them
to develop their own software in a format compatible to the software utilized
in the MvNet camera. In 1996, the Company's objective was to generate market
acceptance of the MvNet camera, focusing most of its marketing promotion
efforts on the MvNet camera, the first model of the MvVision camera series. A
key focus in marketing the MvNet camera has been establishing partners willing
to work with the Company to demonstrate the use of this technology.
The Mv2000, a system currently in beta testing, is designed for security,
surveillance and monitoring. The Company believes that the Mv2000 intelligent
programmable digital security system will provide an improved solution to
current security/surveillance systems. Mv2000 is being designed to connect to
PTZ mechanisms and video multiplexers so that it can be incorporated into
existing analog environments (such as CCTV) as well as being integrated into
new applications. At the heart of the Mv2000 is the Intelligent Camera Unit
(ICU) which supports image capture with broadcast quality resolution (both
color and monochrome). The Mv2000/ICU can also acquire images from up to five
additional analog security cameras, enabling retro-fitting into existing
security surveillance. The Mv2000 system will be sold through the same
distribution channels as the Apollo
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system. The Mv2000 is being beta tested by a number of customers, including
Toys "R" Us which is evaluating the camera to both centrally and remotely
monitor their United Kingdom stores and to provide additional management
information. Other potential applications could include industrial inspection
applications, including identifying defects during the production process.
INTEGRATED SOLUTIONS. The Company operates as a United Kingdom-based value-
added reseller of customized imaging hardware and software with systems
engineering capabilities for scientific and medical and industrial
applications. The application specific systems that the Company develops for
various customers include use of both the Company's own and jointly owned
proprietary products and those from some of the world's leading imaging
hardware and software companies. Customers include SmithKline Beecham, Philips
Medical Systems, Unilever and the Defence Research Authority. The Company's
system engineering projects, which are generally created pursuant to
agreements which permit the Company to retain title to the customized solution
developed for such customers, provide it with potential applications for
productization and identification of new applications for its technology. With
respect to its distribution functions, the Company sources its products from
some of the leading imaging vendors, including Media Cybernetics LLP, Cognex,
Inc., JVC Limited and Sharp Electronics Limited.
Many of the customized systems produced by the Company utilize the Company's
Snapper product. Snapper enables image acquisition and compression when
installed as part of a computer and is used in a variety of applications,
including airport parking surveillance, on-line access to ultrasound and other
scanning systems in hospitals, and a computerized police fingerprinting
system. The Snapper product was designed to interface computers with a wide
range of standard and specialized cameras, and allows images to be quickly
passed on to the host computer where, with the use of specific software, the
image can be digitally compressed, analyzed and stored.
COMPANY STRATEGY
The Company's primary objective is to be a leading provider of digital image
management solutions to markets in which immediate image capture and
transmission, storage and/or retrieval are critical. The Company has
historically focused its resources on the research and development of its
systems and is now emphasizing sales and marketing efforts to significantly
and profitably expand the markets for its systems. The principal elements of
the Company's strategy are described in more detail below.
INCREASE SALES AND MARKETING EFFORTS. The Company intends to expand its
sales and marketing efforts to increase sales in existing markets and to
create new applications of its existing technologies. The Company believes
that the increased product offerings and greater distribution strength which
should result from combining TVX and Active Imaging will permit the Company to
become a more competitive global provider of digital image management
solutions. The Company intends to expand its direct sales and marketing force
by fifty percent during the next twelve months and to initiate, with its
distributor network, joint direct marketing and telemarketing efforts,
extensive product training and advertising, and participation in global trade
shows and product seminars. The Company also intends to seek additional
applications for its technologies which it may either develop internally or
license to other companies for development in order to achieve greater market
recognition and penetration.
MAINTAIN TECHNOLOGY LEADERSHIP. The Company believes it provides superior
systems to address specific market needs by incorporating advanced and
innovative technology consisting of integrated hardware and proprietary
software to provide complete solutions for the customer. The Company has
invested and intends to continue to invest significant resources in system
enhancement, particularly in the areas of software, application specific
integrated circuit ("ASIC") development and platform packaging and
integration.
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STRENGTHEN DISTRIBUTION CAPABILITY. The Company's distribution network
consists of its direct sales force, various international, national and
regional distributors and dealers and strategic marketing partners. In order
to increase sales to current markets and penetrate new markets, the Company
intends to strengthen its distribution capabilities by expanding its existing
sales channels and seeking new strategic marketing partners who have expertise
and presence in selected markets. The Company is currently exploring several
such relationships, including discussions with Wells Fargo for the
distribution of the Company's DTR ViewPoint system to ATM providers. The
Company believes that the use of strategic marketing partners can provide a
more efficient and cost-effective route to the marketplace for application
specific products. In many cases, these strategic relationships can provide
immediate world-wide access and distribution, decreasing the need for costly
infrastructure development and permitting the Company to focus on core
technology development.
EMPHASIZE CUSTOMER SERVICE AND SUPPORT. Since its inception, the Company has
emphasized the importance of customer service and support. The Company
believes that its customer support organization, including support provided by
distributors and dealers, is a critical factor in facilitating additional
sales to existing customers as well as sales to new customers. Because the
Company's systems are technically sophisticated, the Company's internal sales
staff is supported by highly qualified and extensively trained systems
specialists. The Company also offers extensive training, maintenance and
software support programs to its customers through its support organization at
five locations in the United States and United Kingdom. The Company also
intends to remain at the forefront in the areas of quality and customer
service through its continued investments in management information
technology. The Company intends to enhance and expand its customer service and
support capability in order to address the needs of its existing and new
markets.
ENHANCE OPERATING EFFICIENCIES. The Company intends to utilize a portion of
the proceeds from the Offering to acquire or construct its own manufacturing
facility which it believes will allow it to react more quickly to changes in
product specifications, to accommodate growth, and to improve cost control,
inventory supply and cash flow, thus improving its gross profit margin.
Additionally, by integrating substantially all of the operations and product
lines of TVX and Active Imaging, and by making additional investments in
management information technology, the Company believes that it will be able
to operate the combined companies on a more efficient and cost-effective
basis.
CUSTOMER CONCENTRATION
Although the Company has had several customers that have accounted for more
than 10% of the Company's net sales during various periods, the Company
currently does not have any customer whose loss would have a material adverse
effect on the Company.
BACKLOG
As of December 31, 1996, the Company had backlog orders believed to be firm
of approximately $5.9 million, $1.3 million of which is not expected to be
filled prior to September 30, 1997. The Company's records do not permit it to
determine the amount of firm backlog orders as of December 31, 1995, but the
Company believes it was significantly less than the current backlog.
TECHNOLOGY AND PROPRIETARY RIGHTS
A large number of video compression techniques and video chip sets are
evolving out of the computing, multimedia and teleconferencing markets. As the
volume of applications increases for such devices, so too do user requirements
in terms of performance and price. The Company uses standard video chips and
adds value to them with its camera triggering, alarm integration, flash
triggering, frame capture and transmission format. The Company is currently
developing its own ASIC with these value-added features, which will allow the
Company to decrease its cost for chips. Conceivably, the Company could promote
its own ASIC chip set as a standard, visual alarm confirmation "building
block" or as a "video image and data capture" chip set for a variety of
applications.
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The Company has devoted significant time and expense to the development and
refinement of the complex hardware and software of its various systems,
particularly the compression technology, the ability to acquire images in poor
light and environmental conditions, and the ability to identify and track
objects.
The Company's future success depends, in part, upon its proprietary
technologies, some of which are jointly owned with, or licensed from, third
parties. The Company relies upon a combination of patent, copyright, trade
secret and trademark laws, confidentiality procedures and nondisclosure and
other contractual provisions to protect its proprietary rights. As part of
these confidentiality procedures, the Company enters into confidentiality and
non-disclosure agreements with its employees and limits access to and
distribution of its proprietary information. The Company holds one United
States patent and has five United States patent applications pending. There
can be no assurance that the Company's pending patent applications will be
allowed or that the issued and pending patents will not be challenged or
circumvented by competitors or provide meaningful protection against
competition. The Company may in the future be notified that it is infringing
certain patent or other intellectual property rights of others. Although there
are no such pending lawsuits against the Company or unresolved notices that
the Company is infringing intellectual property rights of others, there can be
no assurance that litigation or infringement claims will not occur in the
future. See "Risk Factors--Uncertainty Regarding Protection of Proprietary
Rights."
SALES, MARKETING AND CUSTOMER SUPPORT
The Company distributes its systems and products through its direct sales
force, various international, national and regional distributors and dealers
and strategic marketing partners. The Company requires its dealers and
distributors to receive extensive training in the installation, use and
support of the Company's systems. The Company continues to provide ongoing
technical support to its distribution channels. Many of these dealers and
distributors sell products that may be considered competitive with the
Company's products.
The Company's marketing department supports the internal and outside sales
personnel with direct marketing campaigns, attendance at imaging exhibitions
and trade shows, organization of seminars and membership in other industry-
specific groups.
Because the Company's systems are technically sophisticated, the Company's
internal sales staff is supported by highly qualified and extensively trained
systems specialists. The Company also offers extensive training, maintenance
and software support programs to its customers through its support
organization at five locations in the United States and United Kingdom. The
Company also intends to remain at the forefront in the areas of quality and
customer service and support through its continued investments in management
information technology.
MANUFACTURING
The Company currently has limited manufacturing capabilities, although it
does perform final assembly of most of its systems at its facilities in
Golden, Colorado and in Maidenhead, England. Subassembly of a majority of the
Company's systems is performed by several subcontractors in the United States
and England. The Company relies upon outside suppliers for the components of
its various systems, and in some cases relies upon a single source supplier.
The suppliers were chosen based on their relevant experience, high levels of
manufacturing technology, global component purchasing and competitive terms
and conditions. Although the Company has not experienced difficulties in
obtaining these components, there can be no assurance that these sole source
suppliers will be able to meet the needs of the Company on a timely basis. A
lack of availability from any of these suppliers could cause production delays
and increased costs to the Company while it finds replacement sources at
acceptable prices. In addition, reliance upon these suppliers limits the
Company's quality control efforts and its ability to control production and
delivery schedules. The Company believes, however, that it would be able to
replace any such single source supplier. See "Risk Factors--Dependence Upon
Suppliers; Manufacturing Capabilities."
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In order to have greater control over its costs, inventory supply and cash
flow, to permit more rapid reactions to changes in system specifications, to
accommodate the Company's growth and to capture additional operating
efficiencies, the Company is investigating various options relating to the
acquisition or construction of a manufacturing facility, and it intends to use
a portion of the proceeds of this Offering to do so. The success of the
Company's expansion plans may depend upon its ability to obtain or build such
a facility in a cost-effective manner, and on its ability to operate such
facility so as to improve operating efficiencies and gross margins. See "Risk
Factors--Dependence Upon Suppliers; Manufacturing Capabilities."
RESEARCH AND DEVELOPMENT
The imaging technology industry is subject to rapid technological change,
frequent new product introductions and enhancements, product obsolescence and
changes in end user requirements. The Company believes its future success and
ability to compete are largely dependent upon its ability to augment current
product lines and develop, introduce and sell new features and systems, lower
the prices of existing and new systems, and remain technologically competitive
through the advancement of its core technologies.
As of December 31, 1996, the Company employed 56 people in support of its
research and development activities. The Company's strategic systems
development effort is managed by a team comprised of senior managers
representing the fields of product development, production and sales and
marketing. The Company invested approximately $3,102,000, $2,533,000 and
$1,488,000 in research and development for the 1996, 1995 and 1994 fiscal
years, respectively. The Company intends to use a portion of the proceeds of
the Offering to increase its investment in research and development. The
inability of the Company to introduce in a timely manner new products or
enhancements to existing products could have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors--Need to Respond to Rapid Technological Change."
COMPETITION
The market segments in which the Company competes are extremely competitive.
Many of the Company's existing and potential competitors have substantially
greater financial, marketing and technological resources, as well as
established reputations for developing and distributing products in the
Company's markets. The Company expects that existing and new competitors will
continue to introduce products that are competitive with those of the Company.
Such competitors may succeed in developing products that have greater
functionality or are less costly than the Company's products and may be more
successful in marketing such products. There can be no assurance the Company
will be able to compete successfully in these markets. See "Risk Factors --
Competition."
Video and image technology is subject to continual advances due to the rapid
and significant development of new computer hardware and software products.
These technological advances may result in one or more of the Company's
products becoming obsolete or in the development of products with greater
functionality and/or lower prices. The Company's future success will depend in
part on its ability to address these technological factors, to keep its prices
competitive and to hire and retain a technologically sophisticated and
experienced employee base. See "Risk Factors--Competition."
The Company believes that the two most important competitive factors in its
markets are functionality and price. The Company further believes that each of
its products are among the lowest priced of any with the same functionality
and that it can thus compete on the basis of these factors with all other
currently available products.
LITIGATION
The Company is not a party to any material pending legal proceeding and, to
the Company's knowledge, no material legal proceeding is likely or threatened.
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EMPLOYEES
As of December 31, 1996, the Company had 125 full-time employees, including
56 in research and development, 10 technical staff, 35 sales and marketing
personnel and 24 individuals in executive and administrative positions. None
of the Company's employees is subject to a collective bargaining arrangement.
The Company believes its relations with its employees are very good.
FACILITIES
The Company's corporate headquarters is located in Golden, Colorado where it
leases approximately 10,000 square feet of office, development and final
assembly space pursuant to a lease expiring December 1998. The Company's U.K.
operations are headquartered in Maidenhead near Heathrow Airport where it
leases approximately 8,000 sq. ft. of office, storage and limited final
assembly space pursuant to a lease expiring in May 1999. The Company also has
leased marketing and support space in Houston, Texas and Incline Village,
Nevada, and engineering space in Leatherhead, England. The Company leases
other sales offices, all on a short-term basis.
The Company believes that its existing facilities are adequate to meet its
current and foreseeable requirements or that suitable additional or substitute
space will be available as needed.
45
<PAGE>
THE ACQUISITION
Concurrently with the Offering, TVX is acquiring Active Imaging pursuant to
offers (the "Offers") being made to Active Imaging's shareholders. The Offers
are conditional upon, among other things, acceptances of the Offers being
received in respect of at least 90% of the outstanding shares of common stock
of Active Imaging (the "Acquisition") and the Offers being declared
unconditional in all respects, except for the closing of the Offering.
TVX is offering aggregate of up to $10.0 million in cash to the holders of
Active Imaging common and preferred shares. The amount offered to the holders
of Active Imaging preferred stock is equal to the redemption amount of each
share together with accrued and unpaid dividends. Based on an exchange rate of
$1.611 for (Pounds)1.00 (the "Reference Exchange Rate"), this represents
aggregate cash consideration of approximately $2.1 million. TVX is offering
the holders of Active Imaging common stock the alternatives of cash or shares
of TVX Common Stock, in each case having a value of approximately $1.68 per
share (the "Offer Price"). If the initial public offering price of the
Offering exceeds $15.00 per share, then the Offer Price will be
proportionately increased. The maximum cash available for the holders of
Active Imaging common stock will be approximately $7.9 million ($10.0 million
less the cash consideration of $2.1 million to be paid to the holders of the
Active Imaging preferred stock). See "Use of Proceeds." To the extent that
aggregate elections by holders of Active Imaging common stock to receive cash
exceed the maximum cash available for such holders, such elections will be
reduced pro rata and the balance will be satisfied in shares of TVX Common
Stock. Assuming an initial public offering price of between $14.00 and $16.00
per share, the value of the total consideration for the Acquisition will range
from approximately $32.9 million to $34.8 million.
The following table summarizes various possible results of the Offers to the
holders of Active Imaging common stock:
<TABLE>
<CAPTION>
IPO PRICE OFFER PRICE CASH ACCEPTED (1) TVX SHARES ISSUED (1)(2)
--------- ----------- ----------------- ------------------------
<S> <C> <C> <C> <C>
$14.00 $1.68 $7,900,000 1,634,094
14.00 1.68 -- 2,198,380
15.00 1.68 7,900,000 1,525,398
15.00 1.68 -- 2,052,065
16.00 1.79 7,900,000 1,656,350
16.00 1.79 -- 2,046,578
</TABLE>
- --------
(1) Assumes the Offers are accepted by the holders of all of the 18,289,348
shares of Active Imaging common stock currently outstanding and an
exchange rate equal to the Reference Exchange Rate.
(2) Does not include 319,147 shares of the Company's Common Stock issuable
upon exercise of Active Imaging options and warrants currently outstanding
or conditionally issuable.
As of the date of this Prospectus, TVX has received irrevocable undertakings
to accept the Offers from the holders of all of the outstanding Active Imaging
preferred stock and from the holders of approximately 77.5% of the outstanding
Active Imaging common stock. Upon the closing of the Acquisition and the
Offering, one director of Active Imaging will become an officer of the Company
and one director of Active Imaging will become a director of the Company. See
"Management."
Active Imaging's predecessor, Data Cell Limited, was founded by Michael
Brooke, John Osborne and others in August 1988, as a value-added reseller of
image acquisition hardware, related software and imaging systems. In 1991,
Data Cell entered into the first of several collaborations with third-party
organizations to produce its own brand imaging product. In September 1995,
Data Cell acquired Active Imaging (UK) Limited, then a design and consulting
company, which subsequently played a key role in developing the MvVision
camera series. At the same time, Data Cell increased its holdings in Active
Imaging, Inc., its North American distributor, to 90%. These acquisitions
brought an experienced sales and distribution team to the Active Imaging
companies and provided Data Cell with greater control over product development
and direct control over distribution of its
46
<PAGE>
systems in the United States, its largest target market. In December 1995,
Data Cell acquired the assets and know-how relating to the InVision camera
system designed for traffic management applications. In February 1996, Active
Imaging plc was incorporated and became the new holding company of Data Cell
and its various subsidiaries in March 1996. In April 1996, Active Imaging's
stock was admitted onto the Alternative Investment Market ("AIM") of the
London Stock Exchange in conjunction with the public offering of
(Pounds)5,500,000 ($8,609,150) of its common shares.
The Company believes the Acquisition will permit the combined entities to
improve their existing systems and to develop new technologies more
efficiently since both TVX and Active Imaging are in the business of
developing and distributing digital image management systems and thus will be
able to share their existing technologies, sales and marketing efforts and
research and development capabilities. Moreover, even though TVX and Active
Imaging are in the same business, Active Imaging has pursued the market for
video applications while TVX has pursued the market for still image
applications and thus their technologies are complementary. In addition, the
Company believes it will be able to operate the combined companies on a more
efficient and cost-effective basis.
47
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Immediately following the closing of the Acquisition, the Company's
directors and executive officers will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert C. Mulverhill............ 42 President, Chief Executive Officer
and Director
John Osborne.................... 33 Executive Vice President
Thomas W. Vander Stel........... 37 Vice President, Chief Financial Officer,
Secretary and Treasurer
Arnold C. Pohs.................. 68 Chairman of the Board, Director
Daniel P. Dwyer................. 37 Director
Michael J. Brooke............... 55 Director
R. Graham Morrison.............. 55 Director
William N. Moody................ 70 Director
</TABLE>
Robert C. Mulverhill. Mr. Mulverhill joined TVX in November 1995 as
Executive Vice President and Chief Operating Officer. In September 1996, Mr.
Mulverhill was elected President and Chief Executive Officer of the Company
and as a director. Prior to joining the Company, Mr. Mulverhill held various
positions with Stanley Aviation Corporation, a major aerospace corporation,
from August 1986 until June 1995, including Manager of Materials and
Distribution, Managing Director of a Thailand subsidiary, Manager of Pricing
and Cost Analysis and Manager of Contracts and Business Development. From May
1979 through August 1986 he was in various management positions with Sperry
Corporation. Mr. Mulverhill is a 1976 graduate of Millikin University where he
received a Bachelor of Science degree in Business Administration. He also
completed studies in business administration, contract management and
materials management at Arizona State University and the American Graduate
University.
John Osborne. Upon closing of the Acquisition, Mr. Osborne will become the
Executive Vice President of the Company. He is currently the Chief Executive
Officer of Active Imaging, a position he held since 1988, when he co-founded
Data Cell (Active Imaging's predecessor) with Mr. Brooke and others. He will
have the primary responsibility for the initiation of new product development.
Following Active Imaging's acquisition of its U.S. subsidiary in September
1995, he moved to the U.S. to be President of Active Imaging, Inc. and to
develop the market for Active Imaging products. From 1984 to 1988 he was in
technical sales at Micro Systems Services Limited, a distributor of real time
systems products and services.
Thomas W. Vander Stel. Mr. Vander Stel joined TVX in October 1992 as Chief
Financial Officer. He was elected Treasurer in January 1993 and Vice President
and Secretary in May 1994. Prior to joining the Company, he was a corporate
tax consultant to CommNet where he had worked since July 1992. He worked from
January 1991 until July 1992 as a financial consultant to Ultratech Knowledge
Systems, Inc., a software development company. From June 1989 through January
1991, Mr. Vander Stel worked at the Grand Summit Hotel in Summit, New Jersey,
first as financial controller and then as Assistant General Manager. He served
as the controller for Ultratech Knowledge Systems, Inc. from November 1988 to
June 1989. Mr. Vander Stel has a B.A. in Business Administration from Hope
College in Holland, Michigan.
Arnold C. Pohs. Mr. Pohs has been a director of TVX since September 1992 and
was elected Chairman of the Board in January 1993. Mr. Pohs has been Chairman
of the Board of CommNet since February 1991, President and Chief Executive
Officer since August 1989 and a director since September 1985. He currently
serves as 1st Vice-Chairman and a member of the Executive Committee of the
Board of Directors of the Cellular Telecommunications Industry Association
("CTIA") and as Chairman of the Public Policy Council. Mr. Pohs is a director,
and former Chairman, of the CTIA Foundation for Wireless Telecommunications
and is also a member of the CEO Council.
48
<PAGE>
Daniel P. Dwyer. Mr. Dwyer has been a director of TVX since September 1992.
Mr. Dwyer has been Executive Vice President of CommNet since November 1992, a
director since March 1990, Chief Financial Officer since August 1988 and
Treasurer since August 1987. He is a Certified Public Accountant and a member
of the American Institute of Certified Public Accountants and the Colorado
Society of Certified Public Accountants.
Michael J. Brooke. Upon closing of the Acquisition, Mr. Brooke will become a
member of the Board of Directors of the Company. Mr. Brooke is currently
Chairman of Active Imaging, a position he held since 1988. He is a director of
a number of U.K. based publicly traded companies, including Azlan Group plc,
Plasmon plc, Prelude Trust plc and Ivory and Sime Enterprise Capital plc.
Since 1985, Mr. Brooke has concentrated on supporting and developing companies
within the information technology sector and has been an investor in a number
of successful ventures.
R. Graham Morrison. Mr. Morrison has been a director of TVX since May 1994.
He has held various positions with General Mills, Inc. for nearly 30 years. In
1995, Mr. Morrison was appointed Corporate Sales Manager. From 1985 to 1995,
Mr. Morrison was the Region Sales Manager of the Consumer Foods Division of
the General Mills Intermountain Region which included all or part of eight
southwestern states. From 1982 to 1985, he was Manager of Field Sales for the
Denver Region, and from 1979 to 1982 was Assistant Region Sales Manager for
the Denver Region, where he had the responsibility of establishing the new
region office. From 1975 to 1978, Mr. Morrison was National Product Sales
Manager, with responsibilities including the development and implementation of
trade strategies and activation programs for General Mills products
nationally.
William N. Moody. Mr. Moody has been a director of the Company since
December 1996. Mr. Moody is currently Vice President of Material Functions and
Technology of ADT Security Systems, Inc., a subsidiary of ADT Limited, where
he has held various positions since 1981. He holds both B.S. and M.S. degrees
in electrical engineering.
Directors of the Company hold office until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier resignation or removal. All officers are appointed and serve at
the discretion of the Board of Directors. There are no family relationships
among any directors or executive officers of the Company. Messrs. Pohs and
Dwyer were elected to the Board of Directors as a condition to CommNet's
initial investment in the Company.
COMMITTEES
Pursuant to authority granted under the Bylaws of the Company, in May 1994,
the Board of Directors established a Compensation Committee and an Audit
Committee. The Compensation Committee, which is currently comprised of Messrs.
Pohs, Morrison and Moody is responsible for the administration and grant of
awards under the Omnibus Stock and Incentive Plan, the 1996 Directors' Stock
Option Plan, and the 1993 Nonqualified Stock Option Plan, as well as the
recommendation of annual salaries for senior management to the Company's Board
of Directors. The Audit Committee, which is currently comprised of Messrs.
Dwyer, Morrison and Brooke, is responsible for meeting periodically with
representatives of the Company's independent public accountants to review the
general scope of audit coverage, including consideration of the Company's
accounting practices and procedures and system of internal accounting
controls, and to report to the Board of Directors with respect thereto. The
Audit Committee also recommends to the Board of Directors the appointment of
the Company's independent auditors.
DIRECTOR COMPENSATION
Except for reimbursement of their expenses in attending Board meetings and
options granted under the 1996 Directors' Stock Option Plan, directors do not
receive compensation from the Company for their service as members of the
Board.
49
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENTS
Mr. Mulverhill has an employment agreement dated November 14, 1995, with the
Company. Mr. Mulverhill is entitled to a $50,000 cash bonus payable upon the
closing of the Offering. Upon termination of employment by the Company, the
agreement requires monthly severance payments equal to Mr. Mulverhill's salary
for the remaining term of the agreement and, under certain circumstances, the
bonus of $50,000. The agreement expires on May 14, 1997 and is subject to
extensions for up to an additional five years. Upon his death, Mr.
Mulverhill's estate is also entitled to a payment equal to the lesser of three
months' salary or the salary due for the remaining term of the agreement. Mr.
Mulverhill is subject to a non-competition agreement for the term of the
agreement and during any severance payment period.
Mr. Osborne has an employment agreement dated April 18, 1996, with Active
Imaging which may be terminated by either party upon six months notice. Active
Imaging may also terminate the agreement immediately upon the payment of a
lump sum equal to six months salary. Mr. Osborne is subject to a non-
competition agreement during the term of the agreement and for twelve months
thereafter.
Coinshire Limited ("Coinshire"), a company controlled by Mr. Brooke, has a
consulting agreement dated April 18, 1996, with Active Imaging pursuant to
which Coinshire agrees to provide the services of Mr. Brooke to the Company
for a monthly fee of (Pounds)3,000 ($4,696) plus (Pounds)333 ($522) per day
for any days in excess of nine days per calendar month. The agreement is
subject termination by either party upon six months notice of termination.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation earned for services rendered in all capacities to the Company for
the fiscal year ended September 30, 1996 by the Company's Chief Executive
Officer (including its former Chief Executive Officer) and each other
executive officer whose salary and bonus for such fiscal year was in excess of
$100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
SHARES OF
COMMON STOCK
UNDERLYING
OPTIONS
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OTHER ($) GRANTED (#)
--------------------------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C>
Theodore A. Waibel, Former
Chief
Executive Officer and
President(1)................. 41,850 -- -- --
Robert C. Mulverhill, Chief
Executive Officer and
President(2)................. 88,269 -- -- 127,624
John Osborne, Executive
Vice President............... 101,710(3) -- 21,718 --
</TABLE>
- --------
(1) Mr. Waibel was the Company's Chief Executive Officer and President until
his resignation in March 1996.
(2) Mr. Mulverhill served as the Company's Chief Operating Officer from
November 1995 until his appointment as Chief Executive Officer and
President in September 1996.
(3) Represents compensation paid by Active Imaging during the year ended
December 31, 1996. Mr. Osborne was paid in Pounds Sterling through July
31, 1996. This number assumes an exchange rate of $1.54/Pound Sterling
from January 1, 1996 through July 31, 1996.
50
<PAGE>
OPTION GRANTS
The following table contains information concerning the stock options
granted under the Company's Omnibus Stock and Incentive Plan to each of the
Named Executive Officers during the fiscal year ended September 30, 1996.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION
----------------------------------------------- TERM(2)
------------------------
NUMBER OF
SHARES OF
COMMON PERCENT OF
STOCK TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE EXPIRATION
NAME GRANTED(1) FISCAL YEAR PRICE/SHARE DATE 5% 10%
---- ---------- ------------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Theodore A. Waibel...... -- -- -- -- -- --
Robert C. Mulverhill.... 127,624 56% $1.645 9/17/2006 $ 132,031 $ 334,593
John Osborne............ -- -- -- -- -- --
</TABLE>
- --------
(1) All options were granted under the Company's Omnibus Stock and Incentive
Plan and 1993 Nonqualified Stock Option Plan. Generally, options granted
under the Company's Omnibus Stock and Incentive Plan become exercisable
over a five-year period (20% per year) and have ten-year terms so long as
the optionee's employment with the Company continues. All of the above
options were granted at no less than fair market value as determined by
the Board of Directors.
(2) This column reflects the potential realizable value of each grant assuming
that the market value of the Company's stock appreciates at five percent
or ten percent annually from the date of grant over the term of the
option. There is no assurance provided to any executive officer or any
other holder of the Company's securities that the actual stock price
appreciation over the option term will be at the assumed five percent and
ten percent levels or at any other defined level. Unless the market price
of the Common Stock does in fact appreciate over the option term, no value
will be realized from the option grants made to the executive officers.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option exercises and
option holdings under the Company's Omnibus Stock and Incentive Plan for the
fiscal year ended September 30, 1996, with respect to the Named Executive
Officers.
AGGREGATE OPTIONS EXERCISED IN THE LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED,
NUMBER OF UNEXERCISED OPTIONS IN-THE- MONEY
HELD AT SEPTEMBER 30, 1996 OPTIONS AT SEPTEMBER 30, 1996(2)
--------------------------------- --------------------------------------
NUMBER OF
SHARES
ACQUIRED VALUE
ON REALIZED($)
NAME EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- ----------- -------------- --------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Theodore A. Waibel...... -- -- 91,160 -- $ 83,411 --
Robert C. Mulverhill.... -- -- 18,232 109,392 -- --
John Osborne............ -- -- -- -- -- --
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock on the exercise date,
less the per share exercise price.
(2) Based on the fair market value of the underlying shares of Common Stock of
$1.645 per share, as determined by the Compensation Committee of the
Company's Board of Directors on September 18, 1996, less the per share
exercise price.
51
<PAGE>
OPTION PLANS
1993 Nonqualified Stock Option Plan
The Company adopted the 1993 Nonqualified Stock Option Plan (the "1993
Plan") to provide long-term incentives to certain of its directors,
consultants and full-time, nonunion, salaried employees. The 1993 Plan is
administered by the Board of Directors, which selects the persons to whom
options are granted, the size of options, and the terms and conditions of the
options, except that no option may have an exercise price less than 85% of the
fair market value of the Common Stock on the date of grant. Subject to the
right of the Board of Directors to terminate the 1993 Plan, it shall remain in
effect until all shares subject to it have been purchased or acquired pursuant
to its provisions; however, no option may be granted on or after May 17, 2003.
The Board of Directors may terminate, amend or modify the 1993 Plan, but
without the approval of the stockholders of the Company, no such termination,
amendment or modification may: increase the total number of shares of Common
Stock which may be issued under the 1993 Plan; change the class of persons
eligible to participate in the 1993 Plan; materially increase the cost of the
1993 Plan or the benefits to participants; extend the maximum period during
which options may be exercised; or change any provisions of the 1993 Plan
regarding option price.
Since the 1993 Plan's inception, eight individuals have been granted
options. As of September 30, 1996, options for 569,750 shares of Common Stock
are outstanding under the 1993 Plan, all of which are currently exercisable at
an exercise price of approximately $0.73 per share. No additional shares are
available for grants of options under the 1993 Plan, except to the extent of
any that become available upon cancellation of outstanding options.
The foregoing description of the 1993 Plan is qualified in its entirety by
the provisions of the 1993 Plan, a copy of which has been filed as an exhibit
to the Company's Registration Statement of which this Prospectus is a part.
Omnibus Stock and Incentive Plan
The Company adopted an Omnibus Stock and Incentive Plan in July 1994 (the
"Omnibus Plan") to provide long term incentives to the Company's consultants
and full-time, nonunion, salaried employees and to provide flexibility to the
Company in its ability to motivate, attract and retain the services of key
employees upon whose judgment, interest and special effort the successful
conduct of its operation largely is dependent. As of September 30, 1996,
options to purchase 227,900 shares of Common Stock had been granted under the
Omnibus Plan.
The Omnibus Plan is administered by a committee (the "Committee") consisting
of not less than three disinterested Directors. The Committee, subject to
ratification by the Board of Directors, selects the key employees or
consultants ("Participants") to whom grants ("Awards") will be made under the
Omnibus Plan; the size and type of Awards; and the terms and conditions of
such Awards. Awards may include Non-Qualified Stock Options ("NQSOs"),
Incentive Stock Options ("ISOs" and, together with NQSOs, "Options"), Stock
Appreciation Rights ("SARs"), Phantom Stock Rights ("Phantom Rights"),
restricted shares of Common Stock ("Restricted Stock") and incentive
compensation in the form of shares of Common Stock ("Performance Shares") or
valued by reference to shares ("Performance Units"). The Committee may make
any Award in conjunction with any other amount or compensation, including
Awards previously made under the Omnibus Plan or any other plan. Subject to
the right of the Board of Directors to terminate the Omnibus Plan, it shall
remain in effect until all shares subject to it have been purchased or
acquired pursuant to its provisions; however, no Award may be granted on or
after May 9, 2004.
Subject to adjustment as set forth therein, the maximum number of shares
that may be granted under the Omnibus Plan as of January 31, 1997 is 400,000,
increased each fiscal year by a number of shares equal to one percent of the
number of shares of Common Stock outstanding as of the end of the prior fiscal
year. In no event,
52
<PAGE>
however, shall more than 400,000 shares be available for issuance upon the
exercise of ISOs. Shares delivered under the Omnibus Plan shall be authorized
and unissued shares or treasury shares. All shares subject to any Award which
terminates, expires or lapses for any reason without the issuance of such
shares or without payment therefor, shall be available for further Awards
under the Omnibus Plan.
Options may be granted under the Omnibus Plan, either as ISOs, which comply
with the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or NQSOs which do not meet such requirements. The
purchase or option price per share, as determined by the Committee, shall not
be less than 100% of the fair market value of a share on the date of grant of
an ISO and not less than 85% of the fair market value of a share on the date
of grant of an NQSO. An ISO granted to a holder of more than 10% of the
combined voting power for all classes of stock of the Company, shall have an
exercise price which is at least 110% of the fair market value of the shares.
The Committee shall determine the duration and conditions of exercisability
of Options, provided that no ISO shall be exercisable later than the tenth
anniversary date of its grant. Further, no Participant may receive an Award of
ISOs that are first exercisable during any calendar year to the extent that
the aggregate fair market value of the shares subject to the Award (determined
as of the date the Award is granted) exceeds $100,000.
SARs may be granted to Participants in lieu of Options, in addition to
Options, upon lapse of Options, independent of Options, and in each of the
foregoing manners in connection with previously awarded Options. Each Award of
an SAR shall specify the fair market value of the underlying shares of Common
Stock on the date of grant, the term of the SAR (not to exceed ten years) and
such other provisions as the Committee shall determine. Upon exercise of an
SAR, a Participant shall receive the excess of the fair market value of the
Common Stock on the date of exercise over the price fixed by the Committee at
the day of grant, multiplied by the number of shares as to which the SAR is
exercised.
The Committee may grant Phantom Rights to Participants in such amounts, upon
such terms and subject to such conditions as the Committee shall determine.
The Committee shall establish the appropriate method of establishing the value
of each Phantom Right, provided that the method used at date of payment may
not differ from the method used to establish the initial value. Holders of
Phantom Rights shall not be deemed stockholders and shall have no rights
related to any shares of Common Stock, except to the extent provided in the
Omnibus Plan. Payment for Phantom Rights may be made in cash, in shares of
Common Stock of equivalent value or any combination thereof.
The Committee may grant shares of Restricted Stock to Participants in such
amounts, subject to such restrictions and for such periods as the Committee
shall determine. Shares subject to restrictions established by the Committee
may not be sold or otherwise transferred prior to the lapse of such
restrictions.
The Committee may grant Performance Units or Performance Shares to
Participants in such amounts as the Committee shall determine. Each Award of a
Performance Unit or Performance Share shall specify the value of the
Performance Unit or Performance Share, the duration of the performance period,
the number of Performance Units or Performance Shares and such other
provisions as the Committee shall determine. Each Performance Unit shall have
an initial value of $1.00, and each Performance Share initially shall
represent one share. The Committee shall set performance goals which,
depending on the extent to which they are met, will determine the ultimate
value of the Performance Unit or Performance Share to the Participant. Payment
for Performance Units or Performance Shares shall be made in cash, shares of
Common Stock of equivalent value or any combination thereof.
In the event of a change in control of the Company, as defined below, the
Omnibus Plan generally provides for the acceleration of applicable exercise
dates and vesting periods for the Options and other Awards granted to
Participants under the Omnibus Plan, in order to maintain the rights of the
Participants. Performance Units and Performance Shares shall be paid out based
upon the extent to which performance goals during the performance
53
<PAGE>
period have been met up to the date of the change in control. A change in
control shall be deemed to have occurred if any person (other than CommNet or
ASH) acquires at least 30% of the combined voting power of the Company's
voting securities; individuals constituting the Board of Directors on the date
the Omnibus Plan was adopted and persons nominated and approved by at least
three-quarters of such individuals cease to constitute at least a majority of
the Board of Directors; or the stockholders of the Company approve a
dissolution of the Company, certain merger or consolidation transactions or
the sale or disposition of substantially all of the assets of the Company.
The Company believes that under current federal tax laws, the grant of
Options will not result in any tax liability for the Company. The Company will
be entitled to subsequent deductions to the extent, and only to the extent,
that Participants recognize ordinary income upon exercise of Options. A
Participant must generally recognize ordinary income equivalent to the
difference between the exercise price and the fair market value of a share of
Common Stock on the date of exercise of an NQSO. A Participant generally will
have no taxable income upon exercise of an ISO. Generally, if the Participant
does not dispose of shares acquired pursuant to the exercise of an ISO within
two years of the grant or one year of the exercise, any gain or loss realized
on their subsequent disposition will be capital gain or loss. If such holding
period requirements are not satisfied, the Participant generally will realize
ordinary income at the time of disposition in an amount equal to the excess of
the fair market value of the shares of Common Stock on the date of exercise
(or, if less, the amount realized upon disposition) over the option price. Any
remaining gain is taxed as long- or short-term capital gain.
The Committee, with the approval of the Board of Directors, may terminate,
amend or modify the Omnibus Plan, but without the approval of the stockholders
of the Company, no such termination, amendment or modification may: increase
the total number of shares of Common Stock which may be issued under the
Omnibus Plan; change the class of employees eligible to participate in the
Omnibus Plan; materially increase the cost of the Omnibus Plan or the benefits
to Participants; extend the maximum period during which Options or SARs may be
exercised; or change any provisions of the Omnibus Plan regarding option
price.
The foregoing description of the Omnibus Plan is qualified in its entirety
by the provisions of the Omnibus Plan, a copy of which has been filed as an
exhibit to the Company's Registration Statement of which this Prospectus is a
part.
1996 Directors' Stock Option Plan
Under the 1996 Directors' Stock Option Plan (the "Directors' Plan"), options
may be granted to nonemployee directors of the Company. Only directors who are
not also employees of the Company or any of its subsidiaries are eligible to
participate in the Directors' Plan.
An aggregate of 227,900 shares of Common Stock have been reserved for
issuance under the Directors' Plan, 140,386 of which have been granted. All
such options are currently exercisable. The Directors' Plan is currently
administered by the Compensation Committee.
Each option granted under the Directors' Plan expires ten years from the
date of grant. The option exercise price must be equal to 100% of the fair
market value of the Common Stock on the date of grant of the option. Options
granted to directors under the Directors' Plan will be treated as nonqualified
stock options under the Code.
If the Company pays or makes a dividend or distribution upon the Common
Stock payable in securities of another corporation or property (except money
or Common Stock), a proportionate part of such securities or property shall be
set aside and delivered upon the exercise of stock options then outstanding
under the Directors' Plan. If the Company grants to its holders of Common
Stock rights to subscribe pro rata for additional shares of Common Stock or
any other securities of the Company or another corporation, the Company shall
reserve such rights with respect to stock options then outstanding and, upon
exercise of such options, the holders shall also be entitled to exercise such
rights.
54
<PAGE>
The Board of Directors may alter, amend, suspend or discontinue the
Directors' Plan at any time, except that any amendment which under state or
federal law or the applicable rules of any exchange or trading system on which
the Common Stock is traded, would require stockholder approval shall take
effect only upon such approval. In addition, no action by the Board of
Directors may alter or impair any option previously granted without the
consent of the optionee.
The foregoing description of the Directors' Plan is qualified in its
entirety by the provisions of the Directors' Plan, a copy of which has been
filed as an exhibit to the Company's Registration Statement of which this
Prospectus is a part.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
the Company's Common Stock as of December 31, 1996 after giving effect to the
acquisition of all of the outstanding shares of capital stock of Active
Imaging, and as adjusted to reflect the sale of the Common Stock offered
hereby, for (i) each director and each executive officer of the Company (ii)
all directors and executive officers of the Company as a group, and (iii) each
person known by the Company to own beneficially 5% or more of the outstanding
shares of Common Stock. All beneficial ownership is sole and direct unless
otherwise indicated.
Except as otherwise indicated, the address of each of the following persons
is c/o TVX, Inc., 14818 West 6th Avenue, Suite 1A, Golden, Colorado 80401.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------------------
PERCENT PRIOR PERCENT AFTER
DIRECTORS, OFFICERS AND FIVE PERCENT STOCKHOLDERS NUMBER TO OFFERING OFFERING(1)
- ------------------------------------------------- --------- ------------- -------------
<S> <C> <C> <C>
Robert C. Mulverhill(2).................. 18,232 * *
Thomas W. Vander Stel(2)................. 38,201 * *
John Osborne(3).......................... 140,250 3.0 1.9
Arnold C. Pohs(2)(4)..................... 2,363,433 43.2 29.0
Daniel P. Dwyer(2)(4).................... 2,272,273 42.2 28.2
Michael J. Brooke(3)(5).................. 177,478 3.8 2.4
R. Graham Morrison(2).................... 9,285 * *
William N. Moody(6)...................... 857,756 17.1 11.2
CommNet Cellular Inc.
8350 E. Crescent Parkway, Suite 400
Englewood, CO 80111..................... 2,135,533 40.7 27.0
ADT Limited
One Boca Place
2255 Glades Road
Boca Raton, FL 33431.................... 857,756 17.1 11.2
All directors and officers as a group (7
persons) ............................... 3,741,285 62.5 43.2
</TABLE>
- --------
*less than 1%
(1) Gives effect to the sale in the Offering of a total of 2,666,667 shares.
(2) Includes 18,232, 22,790, 227,900, 136,740 and 1,823 and shares of Common
Stock, respectively, issuable on or prior to March 15, 1997 upon the
exercise of outstanding stock options to each of Messrs. Mulverhill,
Vander Stel, Pohs, Dwyer and Morrison, respectively. Does not include
options to purchase 109,392 and 22,790 shares of Common Stock held by
Messrs. Mulverhill and Vander Stel, respectively, which are not
exercisable by the holder on or prior to March 15, 1997.
(3) Assumes an initial public offering price of $15.00 per share and an
exchange rate of $1.611 for (Pounds)1.00.
(4) Includes 2,135,533 shares beneficially owned by CommNet, of which he is an
officer and director.
(5) All of which shares are held by Coinshire Limited, a company of which Mr.
Brooke is the controlling shareholder.
(6) Includes 857,756 shares beneficially owned by ADT. Mr. Moody is an officer
of ADT Security Systems, Inc., a subsidiary of ADT.
56
<PAGE>
CERTAIN TRANSACTIONS
In March and July 1995, the Company sold 113,038 shares of its Common Stock
to each of ASH and CommNet at a price of approximately $3.29 per share. ADT,
through its ownership of ASH, and CommNet have certain registration rights in
connection with their shares of the Company's Common Stock, including Common
Stock issuable upon exercise of the Warrants, held by them. See "Description
of Capital Stock--Registration Rights."
Upon completion of the Offering, the Company intends to redeem all
outstanding shares of the TVX Series A Preferred Stock, and in connection
therewith, declare and pay approximately $510,000 in accrued dividends to the
holders of the TVX Series A Preferred Stock. Each of CommNet and ASH owns
approximately 48.5% of the outstanding TVX Series A Preferred Stock. See
"Dividend Policy" and "Use of Proceeds."
From May 1994 through September 1996, the Company borrowed an aggregate of
$1,000,000 from ASH and $5,369,000 from CommNet. The Company expects that it
will continue to borrow from CommNet through the closing of the Offering. The
borrowings are at the rate of 13% per annum. The Company used the proceeds of
these borrowings for its working capital requirements. The notes are payable
on the earlier of the closing of the Company's initial public offering or
October 1, 1997. The Company anticipates repaying these loans with a portion
of the proceeds of the Offering. See "Use of Proceeds."
In September 1996, the Company purchased all of the outstanding stock of TVX
International from ASH for a purchase price of $2,200,000, which the Company
borrowed from CommNet. As security for the loan, the Company pledged such
stock to CommNet. In connection with this acquisition, CommNet purchased from
ASH 526,734 shares of the Company's Common Stock and warrants to purchase
112,155 shares of Common Stock. Effective immediately upon such purchase, the
526,734 shares of Common Stock purchased from ASH were exchanged by CommNet
for 577,812 shares of TVX Series B Non-Voting Convertible Preferred Stock.
The Company is the exclusive distributor in North and South America of the
HESA outdoor perimeter security system. At the time the arrangement was
entered into, the principal shareholder of HESA owned more than five percent
of the Company's outstanding Common Stock.
Immediately upon the closing of the Offering, the Acquisition will be
closed, and holders of Active Imaging common stock will receive shares of TVX
Common Stock and/or cash. See "The Acquisition." Messrs. Brooke and Osborne
beneficially own 1,581,800 and 1,250,000 shares of Active Imaging common
stock. Assuming an initial public offering price of $15.00 per share, Messrs.
Brooke and Osborne will receive approximately 180,000 and 140,000 shares of
the Company's common stock, respectively, pursuant to the Acquisition.
Also see "Management--Employment and Consulting Agreements."
The Company believes that the foregoing transactions were in its best
interests. As a matter of policy any future transactions between the Company
and any of its executive officers, directors or principal stockholders will be
approved by a majority of the disinterested members of the Board of Directors,
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties, and will be in connection with bona fide business
purposes of the Company.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $0.01 par value per share, and 5,000,000 shares of preferred
stock, $0.01 par value per share (the "Preferred Stock"). No shares of
Preferred Stock will be designated, issued or outstanding after the Offering
(assuming the redemption of 1,000,000 shares of the TVX Series A Preferred
Stock and the conversion of 577,812 shares of TVX Series B Non-Voting
Convertible Preferred Stock into 526,734 Common Stock upon the closing of the
Offering). As of December 31, 1996, there were 2,180,718 shares of TVX Common
Stock outstanding (including 63,812 shares of redeemable Common Stock) held of
record by 46 stockholders, 1,000,000 shares of TVX Series A Preferred Stock
outstanding, held of record by 8 stockholders and 577,812 shares of Series B
Non-Voting Convertible Preferred Stock outstanding held of record by one
stockholder. The following description of the capital stock of the Company is
a summary and is qualified in its entirety by the provisions of the Company's
Certificate of Incorporation, a copy of which has been filed as an exhibit to
the Company's Registration Statement of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders, including the
election of directors. Accordingly, holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of
the directors standing for election if they chose to do so. Voting for
directors is non-cumulative. Subject to the preferences that may be applicable
to any outstanding Preferred Stock, the holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In
the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets of the
Company available after payment of all debts and other liabilities, subject to
prior distribution rights of Preferred Stock, if any, then outstanding. See
"--Preferred Stock." Holders of Common Stock have no preemptive subscriptions
or redemption rights.
PREFERRED STOCK
Pursuant to its Certificate of Incorporation, the Company is authorized to
issue 5,000,000 shares of Preferred Stock, which may be issued from time to
time in one or more series upon authorization by the Company's Board of
Directors. The Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
and any other rights, preferences, privileges and restrictions applicable to
each series of the Preferred Stock. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things, adversely affect the voting
power of the holders of Common Stock and the likelihood that such holders will
receive dividend payments and payments upon liquidation. The Company has no
current plans to designate or issue any shares of Preferred Stock.
WARRANTS
In connection with the sale of the TVX Series A Preferred Stock, the Company
issued warrants to purchase 911,600 shares of Common Stock at an exercise
price of approximately $0.73 per share. All such warrants are currently
exercisable and remain exercisable through 2003 or 2004.
REGISTRATION RIGHTS
In connection with the purchases of shares of Common Stock of the Company by
CommNet in September 1992 and ASH in November 1992, the Company entered into
agreements with CommNet and ASH granting each of them the following rights:
(i) within 90 days after the Company's first public offering of its
securities, the right to demand that the Company register all or part of their
shares of Common Stock, including shares which are issuable upon exercise of
certain warrants to purchase the Company's Common Stock held by each such
stockholder, and (ii) at any time the Company proposes to register shares of
its securities for a public offering, to provide notice to each of CommNet and
ASH and to register in such offering all shares of Common Stock
58
<PAGE>
requested to be registered by either of such stockholders. Both CommNet and
ASH have waived this latter right to obtain registration of their shares in
connection with the Offering. In the event of any exercise of the rights
granted to CommNet or ASH, the Company is required to pay all costs of
registration, and the stockholder or stockholders whose shares of Common Stock
are being registered are required to pay any brokerage discounts, commission
or fees with respect to the shares being sold by such stockholder in the
Offering, and any fees or disbursements of counsel retained by such
stockholder. See "Description of Capital Stock--Preferred Stock."
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under the Company's Certificate of Incorporation, upon closing of the
Offering there will be 42,637,628 shares of Common Stock and 5,000,000 shares
of Preferred Stock available for future issuance without stockholder approval
(except that as part of the criteria for maintaining a designation as a Nasdaq
National Market security, the Company is required to obtain stockholder
approval of certain issuances of stock). These additional shares may be
utilized for a variety of corporate purposes including future public offerings
to raise additional capital or to facilitate corporate acquisitions.
One of the effects of the existence of unissued and unreserved Common Stock
and Preferred Stock may be to enable the Board of Directors to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity
of the Company's management. Such additional shares also could be used to
dilute the stock ownership of persons seeking to obtain control of the
Company.
The Board of Directors is authorized without any further action by the
stockholders to determine the rights, preferences, privileges and restrictions
of the unissued Preferred Stock. The purpose of authorizing the Board of
Directors to determine such rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The Board of
Directors may issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock, and
which could, among other things, have the effect of delaying, deferring or
preventing a change in control of the Company.
The Company does not currently have any plans to issue additional shares of
Common Stock or Preferred Stock other than shares of Common Stock which may be
issued upon the exercise of (i) options which have been granted or which may
be granted in the future to the Company's employees, nonemployee directors and
consultants, and (ii) warrants which have been granted to certain of the
Company's stockholders in connection with their purchase of the TVX Series A
Preferred Stock.
CERTAIN PROVISIONS OF DELAWARE LAW
Under Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law"), certain "business combinations" between a Delaware
corporation, whose stock generally is publicly traded or held of record by
more than 2,000 stockholders, and an "interested stockholder" are prohibited
for a three-year period following the date that such stockholder became an
interested stockholder, unless (i) the corporation by action of its
stockholders adopts an amendment to its Certificate of Incorporation or Bylaws
expressly electing not to be governed by the Delaware anti-takeover law (which
the Company has not adopted), (ii) the business combination or the transaction
in which the person became an interested stockholder was approved by the board
of directors of the corporation before the other party to the business
combination became an interested stockholder, (iii) upon consummation of the
transaction that made it an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
commencement of the transaction (excluding voting stock owned by directors who
are also officers or held in employee benefit plans in which the employees do
not have a confidential right to tender or vote stock held by the plan) or
(iv) the business combination was approved by the board of directors of the
corporation and ratified by holders of two-thirds of the voting stock which
the interested stockholder did not own. The three-year prohibition also does
not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder
59
<PAGE>
during the previous three years or who became an interested stockholder with
the approval of a majority of the corporations' directors. The term "business
combination" is defined generally to include mergers or consolidations between
a Delaware corporation and an "interested stockholder," transactions with an
"interested stockholder" involving the assets or stock of the corporation or
its majority-owned subsidiaries and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined generally as a stockholder who becomes a beneficial owner of 15% or
more of a Delaware corporation's voting stock.
TRANSFER AGENT
will be the Transfer Agent for the Common Stock.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 7,362,372 shares of
Common Stock outstanding (assuming no exercise of the Over-allotment Option or
outstanding options after December 31, 1996). Of these shares, the 2,666,667
shares of Common Stock sold in the Offering will be freely tradeable without
restriction under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (as that term is defined under the rules
promulgated under the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act.
SALES OF RESTRICTED SHARES
The remaining 4,695,705 shares of Common Stock held by officers, directors
and other stockholders of the Company were sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act and are
"restricted" securities within the meaning of Rule 144 under the Securities
Act. Holders of of these shares have agreed, as described below, not to
sell any of their shares during the 180 days following the effective date of
the Registration Statement of which this Prospectus is a part. Beginning 90
days after the effective date of the Registration Statement of which this
Prospectus is a part, the remaining shares will become eligible for sale
subject to the provisions of Rule 144 and shares issuable upon the exercise
of outstanding options may be sold pursuant to Rule 701 under the Securities
Act. Upon the expiration of agreements not to sell such shares, all of such
shares will immediately become eligible for sale subject to the provisions of
Rule 144 and an additional shares will become eligible for sale pursuant
to Rule 701.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a person (or persons whose shares are aggregated) who has beneficially
owned "restricted" shares for at least two years, including any person who may
be deemed an affiliate of the Company, is entitled to sell within any three-
month period a number of shares of Common Stock that does not exceed the
greater of one percent (1%) of the then-outstanding shares of Common Stock of
the Company (approximately shares after giving effect to the Offering), or
the average weekly trading volume of Common Stock in the Nasdaq National
Market during the four calendar weeks preceding the date on which notice of
the sale is filed with the Commission. Sales under Rule 144 are subject to
certain restrictions relating to manner of sale, notice and availability of
current public information about the Company. A person who is not an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned restricted shares for at least three years, would be
entitled to sell such shares without regard to the volume limitations, manner
of sale provisions or notice or other requirements of Rule 144. Affiliates
must comply with the restrictions and requirements of Rule 144, other than the
two year holding period requirement, in order to sell shares which are not
restricted securities. In meeting the two and three year holding periods
described above, a holder of restricted shares can include the holding period
of a prior owner who was not an affiliate. The two and three year holding
periods described above do not begin to run until the full purchase price or
other consideration is paid by the person acquiring the restricted shares from
the Company or an affiliate.
In addition, the Commission has proposed an amendment to Rule 144 which
would reduce the holding period for shares subject to Rule 144 to become
eligible for sale in the public market. This proposal, if adopted, would
substantially increase the number of shares of the Company's Common Stock
eligible for immediate resale following the expiration of the lock-up
agreements.
OPTIONS
Any officer or employee of the Company who purchased his or her shares
pursuant to a written compensation plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits non-affiliates to sell their Rule
701 shares without having to comply with the public-confirmation, holding-
period, volume-limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this
61
<PAGE>
Prospectus, except to the extent any such holder executed an agreement not to
sell for the 180-day period following the date of this Prospectus.
The Company intends to file a registration statement under the Securities
Act covering shares of Common Stock reserved for issuance under the Company's
stock option plans. Accordingly, the shares registered under such registration
statement could be available for sale in the open market in the future,
subject to any applicable vesting or contractual restrictions. See
"Management."
LOCK-UP AGREEMENTS
The Company, its directors and officers and certain shareholders, holding in
the aggregate approximately percent ( %) of the shares of Common Stock
outstanding after completion of the Offering, have agreed that they will not,
subject to certain exceptions, offer, sell, contract to sell, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any
interests therein, or any securities convertible into, or exchangeable for
shares of Common Stock or rights to acquire the same, for a period of 180 days
from the date of this Prospectus without the prior consent of BT Securities
Corporation on behalf of the Representatives (as defined).
CONTROL BY CURRENT STOCKHOLDERS
Following the close of the Offering, the Company's officers, directors and
two principal stockholders will own approximately 43.2% of the shares of the
Company's Common Stock (approximately 41.3% if the Over-allotment Option is
exercised in full), and thereby control the voting of such Common Stock. See
"Description of Capital Stock--Preferred Stock."
REGISTRATION RIGHTS
The Company is also party to agreements with its two principal stockholders
requiring the Company to provide certain registration rights to such
stockholders. See "Description of Capital Stock--Registration Rights."
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), and each of the Underwriters
for whom BT Securities Corporation and Genesis Merchant Group Securities (the
"Representatives") are acting as representatives has agreed to purchase from
the Company, the aggregate number of shares of Common Stock (the "Shares") set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
BT Securities Corporation............................................
Genesis Merchant Group Securities....................................
---------
Total............................................................ 2,666,667
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of
Common Stock offered hereby (other than those subject to the Over-allotment
Option described below) if any such shares are purchased. In the event of a
default by the Underwriters, the Underwriting Agreement provides that, in
certain circumstances, the purchase commitments of non-defaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option, exercisable by the
Representatives during the 30-day period after the date of this Prospectus, to
purchase up to 400,000 shares of Common Stock at the same price per share as
the initial shares of Common Stock to be purchased by the Underwriters. The
Representatives may exercise such option only to cover over-allotments in the
sale of the shares of Common Stock. To the extent that the Representatives
exercise such option, the Underwriters will have a firm commitment, subject to
certain conditions, to purchase the same proportion of such additional shares
of Common Stock as the number of shares of Common Stock to be purchased and
offered by such Underwriters in the above table, bears to the total number of
shares in the above table.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Shares to the public at the public offering
price set forth on the cover page of this Prospectus, and through the
Representatives to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the Offering, the public offering price and other selling terms
may be changed upon the mutual agreement of the Representatives.
The Company, its directors and officers and certain shareholders, holding in
the aggregate approximately [ ] percent ([ ]%) of the shares of Common Stock
outstanding after completion of the Offering, have agreed that they will not,
subject to certain exceptions, offer, sell, contract to sell, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any
interests therein, or any securities convertible into, or exchangeable for
shares of Common Stock or rights to acquire the same, for a period of 180 days
from the date of this Prospectus without the prior consent of BT Securities
Corporation on behalf of the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), or contribute to payment that the Underwriters
may be required to make in respect thereof.
63
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the shares of Common Stock
offered hereby was determined by negotiations among the Company and the
Representatives. Among the factors considered in determining the initial
public offering price were the history of, and the prospects for, the
Company's business and the industry in which it competes, an assessment of the
Company's management, its past and present operations, its past and present
net sales and earnings and the trend of such net sales and earnings, the
prospects for growth of the Company's net sales and earnings, the present
state of the Company's development, the general condition of the securities
market at the time of the Offering and the market prices and earnings of
similar securities of comparable companies at the time of the Offering, the
current state of the economy and the current level of economic activity in the
industry in which the Company competes.
BT Securities Corporation and its affiliates have provided financial
advisory and investment banking services to the Company and its affiliates in
the past for which they have received customary compensation, and the
Representatives may provide such services to the Company and its affiliates in
the future.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "TVAI".
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Ireland, Stapleton, Pryor & Pascoe, P.C., Denver, Colorado. Certain
legal matters will be passed upon for the Underwriters by Cahill Gordon &
Reindel (a partnership including a professional corporation), New York,
New York.
EXPERTS
The consolidated financial statements of TVX, Inc. at September 30, 1996,
and for the year then ended, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of TVX, Inc. as of September 30, 1995, and for each
of the years in the two-year period ended September 30, 1995, included in this
Prospectus and Registration Statement have been audited by Gelfond Hochstadt
Pangburn & Co., independent auditors, as stated in their report appearing
elsewhere herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The financial statements of TVX Limited at September 17, 1996, and for the
period December 1, 1995 through September 17, 1995, appearing in this
Prospectus and Registration Statement have been audited by Binder Hamlyn,
chartered accountants, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The financial statements of Active Imaging plc at December 31, 1996 and
1995, and for each of the three years ended December 31, 1996, appearing in
this Prospectus and Registration Statement have been audited by Coopers &
Lybrand, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, a Registration Statement on Form S-1 under the Securities Act with
respect to the shares of Common Stock offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which are omitted as
64
<PAGE>
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the shares offered by this
Prospectus, reference is made to the Registration Statement, including the
exhibits and schedules filed therewith. Statements contained in this
Prospectus regarding the contents of any contract or other document referred
to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
Copies of the Registration Statement, of which this Prospectus is a part,
together with such exhibits and schedules, may be obtained upon payment of the
charges prescribed therefor by the Commission from the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following regional offices of the
Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and
7 World Trade Center, Suite 1300, New York, New York 10048.
EXCHANGE RATES
The following table sets forth, at the dates indicated, certain information
regarding the noon buying rate as certified by the Federal Reserve Bank of New
York (the "Noon Buying Rate") for Pounds Sterling, expressed in U.S. dollars
per Pound Sterling. On February 3, 1997, the Noon Buying Rate was (Pounds)1.00
= $1.6135.
<TABLE>
<CAPTION>
AT PERIOD AVERAGE
END RATIO(1) HIGH LOW
--------- -------- ---- ----
<S> <C> <C> <C> <C>
1991.......................................... 1.87 1.76 2.00 1.60
1992.......................................... 1.51 1.76 2.00 1.51
1993.......................................... 1.48 1.50 1.59 1.42
1994.......................................... 1.57 1.54 1.64 1.46
1995.......................................... 1.55 1.58 1.64 1.53
1996.......................................... 1.71 1.57 1.71 1.51
</TABLE>
- --------
(1) The average of the Noon Buying Rate for Pounds Sterling on the last
business day of each full month during the period.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TVX, INC.
Report of Independent Auditors, Ernst & Young LLP ........................ F-2
Report of Independent Auditors, Gelfond Hochstadt Pangburn & Co. ......... F-3
Consolidated Financial Statements at September 30, 1996 and 1995 and for
each of the three years in the period ended September 30, 1996........... F-4
ACTIVE IMAGING PLC
Report of Independent Auditors, Coopers & Lybrand ........................ F-16
Financial Statements at December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996........................ F-17
TVX LIMITED
Report of Directors....................................................... F-45
Report of Independent Auditors, Binder Hamlyn............................. F-47
Financial Statements at September 17, 1996 and November 30, 1995 and for
the period December 1, 1995 through September 17, 1996 and the year ended
November 30, 1995........................................................ F-48
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
TVX, Inc.
We have audited the accompanying consolidated balance sheet of TVX, Inc. as
of September 30, 1996, and the related consolidated statements of operations,
stockholders' deficiency, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TVX, Inc. at
September 30, 1996 and the consolidated results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Denver, Colorado
January 28, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
TVX, Inc.
We have audited the accompanying balance sheet of TVX, Inc. as of September
30, 1995, and the related statements of operations, stockholders' deficiency,
and cash flows for each of the years in the two-year period ended September
30, 1995. 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 the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TVX, Inc. as
of September 30, 1995 and the results of its operations and its cash flows for
each of the years in the two-year period ended September 30, 1995, in
conformity with generally accepted accounting principles.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
December 8, 1995
F-3
<PAGE>
TVX, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 28,010 $ 25,101
Certificate of deposit............................ 10,000 10,000
Accounts receivable, trade, net of allowance for
doubtful accounts of $95,600 and $55,881 at
September 30, 1995 and 1996, respectively........ 382,352 432,375
Due from related parties.......................... 71,426 --
Inventories....................................... 1,116,077 1,329,931
Prepaid expenses.................................. 18,162 21,671
----------- -----------
Total current assets............................ 1,626,027 1,819,078
----------- -----------
Furniture, fixtures and equipment, at cost.......... 169,325 355,536
Less accumulated depreciation..................... (63,072) (92,237)
----------- -----------
Net furniture, fixtures and equipment............... 106,253 263,299
----------- -----------
Other assets:
Goodwill, net of accumulated amortization of
$6,000 at September 30, 1996..................... -- 1,539,319
Software development costs, net of accumulated
amortization of $69,708 and $103,070 at September
30, 1995 and 1996, respectively.................. 263,810 92,103
Deferred offering costs........................... 16,388 --
Deposits and other................................ 26,509 21,011
----------- -----------
306,707 1,652,433
----------- -----------
Total assets.................................... $ 2,038,987 $ 3,734,810
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable, trade........................... $ 346,084 $ 399,619
Due to related parties............................ 201,786 33,883
Accrued expenses.................................. 7,321 21,228
Accrued interest, related parties................. 279,500 708,532
----------- -----------
Total current liabilities....................... 834,691 1,163,262
----------- -----------
Long-term notes payable, related parties............ 2,000,000 6,369,000
Redeemable Series A preferred stock, nonvoting, $.01
par value; authorized 5,000,000 shares; issued and
outstanding 1,000,000 shares; redemption and
liquidation preference of $1 per share plus unpaid
and accumulated dividends.......................... 1,285,822 1,435,822
Redeemable common stock, issued and outstanding
63,812 shares, redeemable beginning May 1996 at
$5.48 per share.................................... 252,000 350,000
Stockholders' deficiency:
Series B non-voting convertible preferred stock,
$.01 par value; 577,812 shares to be issued...... -- 5,778
Common stock, $.01 par value; authorized
50,000,000 shares; issued and outstanding
2,643,640 shares and 2,116,906 shares at
September 30, 1995 and 1996, respectively........ 26,436 21,169
Capital in excess of par.......................... 2,164,404 1,915,893
Deficit........................................... (4,524,366) (7,526,114)
----------- -----------
Total stockholders' deficiency.................. (2,333,526) (5,583,274)
----------- -----------
Total liabilities and stockholders' deficiency.. $ 2,038,987 $ 3,734,810
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
TVX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Net sales............................... $1,812,293 $ 1,071,019 $ 1,033,920
Cost of sales:
Related party......................... 835,310 460,072 320,286
Other................................. 367,709 294,843 466,374
---------- ----------- -----------
1,203,019 754,915 786,660
---------- ----------- -----------
Gross profit........................ 609,274 316,104 247,260
Operating expenses:
General and administrative............ 1,186,798 1,720,370 2,276,573
Research and development.............. 90,100 652,000 403,605
Write off of capitalized software
development costs.................... -- -- 138,345
Write-off of license agreement........ -- 331,333 --
Loss from investment.................. -- 394,214 --
---------- ----------- -----------
1,276,898 3,097,917 2,818,523
---------- ----------- -----------
Loss from operations.................... (667,624) (2,781,813) (2,571,263)
Other credits (charges):
Interest expense, related party....... (45,750) (239,535) (429,032)
Other income (expense)................ 10,611 (13,671) (1,453)
Loss from equity investment........... (23,634) -- --
---------- ----------- -----------
(58,773) (253,206) (430,485)
---------- ----------- -----------
Net loss................................ (726,397) (3,035,019) (3,001,748)
Accrued preferred stock dividends and
accretion of redeemable common stock... (129,904) (192,000) (248,000)
---------- ----------- -----------
Net loss applicable to common
stockholders........................... $ (856,301) $(3,227,019) $(3,249,748)
========== =========== ===========
Loss per common share................... $ (0.27) $ (0.99) $ (0.93)
========== =========== ===========
Common shares used in computing net loss
per common share....................... 3,130,986 3,268,049 3,476,865
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
TVX, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
SERIES B
COMMON STOCK CAPITAL PREFERRED
------------------ IN EXCESS STOCK TO BE
SHARES AMOUNT OF PAR ISSUED DEFICIT TOTAL
--------- ------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, October 1,
1993................... 2,279,000 $22,790 $1,321,292 -- $ (762,950) $ 581,132
Accrued dividends on
redeemable preferred
stock................ -- -- (129,904) -- -- (129,904)
Net loss.............. -- -- -- -- (726,397) (726,397)
--------- ------- ---------- ------ ----------- -----------
Balances, September 30,
1994................... 2,279,000 22,790 1,191,388 -- (1,489,347) (275,169)
Sales of common stock,
net of costs of
$31,338.............. 364,640 3,646 1,165,016 -- -- 1,168,662
Accrued dividends on
redeemable preferred
stock................ -- -- (150,000) -- -- (150,000)
Accretion to carrying
amount of redeemable
common stock......... -- -- (42,000) -- -- (42,000)
Net loss.............. -- -- -- -- (3,035,019) (3,035,019)
--------- ------- ---------- ------ ----------- -----------
Balances, September 30,
1995................... 2,643,640 26,436 2,164,404 -- (4,524,366) (2,333,526)
Accrued dividends on
redeemable preferred
stock................ -- -- (150,000) -- -- (150,000)
Accretion to carrying
amount of redeemable
common stock......... -- -- (98,000) -- -- (98,000)
Transfer to Series B
Convertible preferred
stock to be issued... (526,734) (5,267) (511) 5,778 -- --
Net loss.............. -- -- -- -- (3,001,748) (3,001,748)
--------- ------- ---------- ------ ----------- -----------
Balances, September 30,
1996................... 2,116,906 $21,169 $1,915,893 $5,778 $(7,526,114) $(5,583,274)
========= ======= ========== ====== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
TVX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $(726,397) $(3,035,019) $(3,001,748)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 68,656 93,494 68,527
Loss from investment................. 23,634 394,214 --
Write-off of license agreement....... -- 331,333 --
Write-off of capitalized software
costs............................... -- -- 138,345
Write-off of deferred offering
costs............................... -- 134,705 16,388
Changes in assets and liabilities:
Accounts receivable and due from
related parties................... (321,086) 321,031 256,050
Inventories........................ (434,001) (362,651) 258,898
Prepaid expenses and other......... (22,885) 16,796 (3,509)
Deposits and other assets.......... (12,822) (2,661) 5,498
Due to related parties............. 875,077 300,602 (167,903)
Accounts payable, other............ 245,691 20,806 (70,513)
Accrued expenses................... (13,978) 2,242 13,907
Accrued interest, related party.... 40,745 238,755 429,032
--------- ----------- -----------
Total adjustments................ 449,031 1,488,666 944,720
--------- ----------- -----------
Net cash used in operating activities.. (277,366) (1,546,353) (2,057,028)
--------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment..... (48,769) (46,569) (114,881)
Additions to capitalized software
costs................................. (117,764) (161,745) --
Investment in affiliate................ (183,077) -- --
Purchase of certificate of deposit..... -- (10,000) --
Purchase of TVX Limited................ -- -- (2,200,000)
--------- ----------- -----------
Net cash used in investing activities.. (349,610) (218,314) (2,314,881)
--------- ----------- -----------
Cash flows from financing activities:
Proceeds from sales of common stock.... -- 1,200,000 --
Increase in notes payable, related
parties............................... 400,000 600,000 4,369,000
Proceeds from sale of redeemable
preferred stock....................... 350,000 -- --
Deferred offering costs................ (166,044) (16,388) --
--------- ----------- -----------
Net cash provided by financing
activities............................ 583,956 1,783,612 4,369,000
--------- ----------- -----------
Net increase (decrease) in cash.......... (43,020) 18,945 (2,909)
Cash, beginning of year.................. 52,085 9,065 28,010
--------- ----------- -----------
Cash, end of year........................ $ 9,065 $ 28,010 $ 25,101
========= =========== ===========
Supplemental disclosure of additional cash flow information and noncash
activities:
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Cash paid for interest................... $ 8,539 $ 780 $ --
Dividends accrued on Series A Preferred
Stock................................... 129,904 150,000 150,000
Conversion of related party accounts
payable into shares of redeemable
preferred stock......................... 250,000 -- --
Conversion of a related party note
payable into shares of redeemable
preferred stock......................... 200,000 -- --
Deferred offering costs charged to
capital in excess of par................ -- 31,338 --
Issuance of redeemable common stock...... -- 210,000 --
Accretion to redeemable common stock..... -- 42,000 98,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
TVX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations and Organization
TVX, Inc. (the "Company"), formed in January 1992, develops and distributes
digital image management systems in the security and surveillance and
transportation management industries. The Company's systems are sold primarily
to national and major regional security dealers in the United States and
Canada.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, TVX Limited, a United Kingdom organized
company (see Note 3). All significant intercompany accounts and transactions
have been eliminated in consolidation.
Foreign Currency Translation
Translation adjustments resulting from translating the accounts of TVX
Limited from the functional currency to U.S. dollars were not material at
September 30, 1996. Exchange gains (losses) resulting from foreign currency
transactions are included in the consolidated statement of operations.
Inventories
Inventories, consisting of digital image management systems and component
parts, are stated at the lower of cost or market determined by the average
cost method.
Property and Equipment
Furniture, fixtures and equipment are stated at cost. Depreciation is
provided by the use of the straight-line method over the estimated useful
lives of the related assets, which range from 3 to 10 years.
Software Development Costs
Costs incurred in developing computer software are expensed when incurred
until technological feasibility has been established for the product.
Thereafter, software production costs are capitalized and carried at the lower
of unamortized costs or net realizable value. These software development costs
are amortized over a period not to exceed 60 months.
Goodwill
The excess of cost over net assets of subsidiaries at acquisition, which is
recorded as goodwill, is being amortized over 10 years (see Note 3).
Research and Development Expenses
Research and development expenses are charged to operations when incurred.
Stock Split
On January 28, 1997, the Company's board of directors approved a split of
the Common Stock on a 0.9116-for-1 basis (the "Stock Split") and an increase
in the Company's authorized Common shares. All Common Stock and Common per
share amounts have been retroactively restated in the consolidated financial
statements to reflect the Stock Split. The Stock Split is subject to obtaining
ratification of the Company's shareholders.
F-8
<PAGE>
TVX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings per Common Share
Pursuant to Securities and Exchange Commission Staff Accounting Bulletins
and Staff Policy, common equivalent shares issued during the 12-month period
prior to initial public offering at prices below the public offering price are
presumed to have been issued in contemplation of the public offering, even if
antidilutive, and have been included in the calculation as if these common
equivalent shares were outstanding for all periods presented (using the
treasury stock method, and the estimated initial public offering price for the
Company's common stock). Net loss has been adjusted for cumulative unpaid
dividends on the preferred stock and accretion of the carrying amount of
redeemable common stock.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first fiscal quarter of 1997 and,
based on current circumstances, does not believe the effect of adoption will
be material.
In October 1995, the FASB issued FASB Statement No. 123, Accounting for
Stock-Based Compensation, which would allow the Company to expense the fair
value of all employee stock awards on the date of grant. The Company has
elected to continue following Accounting Principles Board Statement No. 25 and
does not plan to adopt this new fair value approach to account for employee
stock awards, as allowed by the Statement. However, the Company will be
required to provide fair value disclosures relating to employee stock awards
effective fiscal 1997.
2. LIQUIDITY AND MANAGEMENT PLANS
The Company has incurred a net loss applicable to common stockholders of
$3,249,748 for the year ended September 30, 1996 and has an accumulated
deficit of $7,526,114 at September 30, 1996. During fiscal 1996, the Company
funded these deficiencies primarily by receiving additional financing from
CommNet Cellular Inc. ("CommNet") in the form of advances (see Note 4).
CommNet has committed to fund the 1997 operating cash needs of the Company
until the Company completes a public offering. Between October 1, 1996 and
January 28, 1997, the Company has issued a total of $1,552,450 in additional
notes payable to CommNet in exchange for cash. The notes bear interest at 13%
and principal and interest are due the earlier of October 1, 1997 or the
closing of a public offering.
3. ACQUISITION OF TVX LIMITED
On September 17, 1996, the Company borrowed $2,200,000 from CommNet, and
used the proceeds to acquire 100% of the outstanding stock of TVX Limited from
Automated Security (Holdings) PLC, ("ASH") a common and preferred stockholder
of the Company. As security for the loan, the Company has pledged all of
F-9
<PAGE>
TVX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the outstanding capital stock of TVX Limited. TVX Limited designs and sells
security equipment and owns the rights to distribute TVX products to all
locations outside the Western hemisphere.
The acquisition was accounted for using the purchase method of accounting.
The applicable results of operations of TVX Limited are included in the
Company's consolidated statements of operations beginning September 18, 1996.
The following represents the pro forma unaudited results of operations as if
the TVX Limited acquisition had occurred at the beginning of the periods
presented:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues......................................... $ 2,246,207 $ 1,932,247
Net loss applicable to common shareholders....... (4,958,541) (4,549,355)
Net loss per common share........................ (1.52) (1.31)
</TABLE>
4. RELATED PARTY TRANSACTIONS
Accounts Payable, Trade
Prior to the acquisition of TVX Limited, the Company purchased a substantial
portion of its inventory from TVX Limited. At that time, TVX Limited was a
wholly-owned subsidiary of ASH, a common and preferred stockholder of the
Company. At September 30, 1996, ASH owned 24.2% of the outstanding common
stock and 48.47% of the outstanding Series A Preferred Stock.
At September 30, 1995 and 1996, related party accounts payable also included
approximately $33,900 due to CommNet, a common and preferred stockholder of
the Company, for certain expenses incurred by CommNet on behalf of the
Company. At September 30, 1996, CommNet owned 48.4% of the outstanding common
stock and 48.47% of the outstanding Series A Preferred Stock.
Long-Term Notes Payable
In May 1994, $400,000 of accounts payable to ASH were converted to a
$400,000 note payable. The Company also issued a $400,000 note payable to
CommNet in exchange for cash.
On October 17, 1994, $375,000 of accounts payable to ASH were converted to a
note payable, and the Company issued a $375,000 note payable to CommNet in
exchange for cash. On January 11, 1995, $225,000 of accounts payable to ASH
were converted to a note payable, and the Company issued a $225,000 note
payable to CommNet in exchange for cash. From January through September 1996,
the Company issued an additional $4,369,000 of notes payable to CommNet in
exchange for cash. The total notes of $6,369,000 bear interest at 13% and
principal and interest are due the earlier of the closing of an initial public
offering or October 1, 1997.
Due from Related Parties
Due from related parties represent amounts due from subsidiaries and an
affiliate of ASH and from CommNet for various reimbursements.
Rent Expense
Through July 1996, the Company rented office space from an entity controlled
by the Company's former president and a current common stockholder. Related
party rent expense was $15,800, $16,800 and $14,000 for the years ended
September 30, 1994, 1995 and 1996, respectively.
F-10
<PAGE>
TVX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LICENSE AND DISTRIBUTION AGREEMENTS
ASH Agreements
The Company has entered into a license agreement with a subsidiary of ASH
which grants to the Company the right to utilize certain electronic security
system technology. The term of the agreement is for the intellectual life of
the technology. In exchange for this license, the Company issued 546,960
shares of its common stock, valued at $400,000 to ASH.
During the year ended September 30, 1995, the remaining unamortized cost of
a license agreement with TVX Limited of $331,333 was charged to operations and
is included in nonrecurring expenses on the statement of operations. This
charge to operations was a result of management's belief that sufficient
operating profits would not be generated to fully recover the unamortized cost
of the license. The license agreement related to the original TVX 1021 System
which was essentially replaced by the Company's Apollo technology.
HESA Agreement
In July 1994, the Company entered into a distribution agreement for a
computer-based outdoor perimeter security system ("perimeter system") with
HESA S.p.A. of Milan, Italy ("HESA"), whereby the Company is the exclusive
distributor in North and South America of the perimeter system. The agreement
has an initial term through December 1996 and provides for automatic
successive two-year extensions thereafter. The agreement requires the Company
to purchase a certain minimum number of perimeter systems each calendar year.
Under HESA's current pricing structure, the minimum purchase requirements are
approximately $113,000 and $163,500 for calendar year 1997 and 1998,
respectively. An exclusive license to manufacture the perimeter system will be
granted to the Company if HESA is unable to provide sufficient quantities of
the perimeter system to meet the Company's needs. If the Company determines it
can manufacture, or have the perimeter system manufactured, at a lower cost,
the Company may take over manufacturing responsibilities for the perimeter
system. The Company will then pay HESA a royalty based on the number of
systems sold by the Company.
The Company has never met any of the minimum purchase requirements under the
agreement. However, HESA has waived all of these requirements through December
31, 1996 and confirmed the distribution agreement is in full force and the
Company is not in default under any terms of the agreement.
6. INCOME TAXES
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable.............................. $ 35,700 $ 20,702
License agreement................................ 113,600 103,694
Interest payable, related party.................. 104,300 264,281
Property and equipment--international............ -- 79,087
Other--international............................. -- 36,690
Net operating loss--domestic..................... 1,381,300 2,501,690
----------- -----------
Total gross deferred tax assets................ 1,634,900 3,006,144
Valuation allowance.............................. (1,613,600) (2,962,743)
----------- -----------
Net deferred tax assets........................ $ 21,300 $ 43,401
=========== ===========
Deferred tax liabilities:
Property and equipment........................... $ 21,300 $ 43,401
=========== ===========
</TABLE>
F-11
<PAGE>
TVX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has not recognized any benefit of the domestic net losses
incurred through September 30, 1996 as the future realization is not assured,
due to the limited operating history of the Company and recurring losses. The
total domestic net operating loss carryforward at September 30, 1996 was
approximately $6,707,000 which expires from 2007 through 2011.
7. LEASE COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases its office space for the Golden, Colorado headquarters
location under an operating lease. Future lease commitments in the aggregate
for the initial lease term are as follows:
<TABLE>
<S> <C>
1997................................................................ $ 72,180
1998................................................................ 72,180
1999................................................................ 24,060
--------
Total............................................................. $168,420
========
</TABLE>
The Company has issued unused letters of credit totaling $10,000 at
September 30, 1996.
8. REDEEMABLE SERIES A PREFERRED STOCK AND WARRANTS
Through September 30, 1996, the Company has issued 1,000,000 shares of
redeemable Series A Preferred Stock. Warrants to purchase 911,600 shares of
the Company's common stock at an exercise price of $0.73 per share were issued
concurrent with the issuance of the redeemable preferred stock.
At September 30, 1996, none of the warrants to purchase 911,600 shares of
common stock had been exercised. All unexercised warrants expire during the
period from May, 2003 to February, 2004. Dividends on the redeemable preferred
stock accrue at $0.15 per share per year. The preferred stock dividends are
payable before any dividends or other distributions can be made to the holders
of common stock. At September 30, 1996, preferred stock dividends accrued but
not paid were approximately $436,000. In the event of liquidation, preferred
stockholders are entitled to a liquidation preference equal to $1 per share
plus all accrued but unpaid dividends. Shares of preferred stock are
redeemable by the Company beginning January 1995, and beginning in May 1996 at
the request of the holders of 60% of the preferred stock at a price of $1 per
share plus all accrued but unpaid dividends. The rights of the holders of the
preferred stock to require the Company to redeem the stock will terminate upon
the Company completing a public offering which results in net proceeds to the
Company of at least $7,500,000.
9. SERIES B CONVERTIBLE PREFERRED STOCK TO BE ISSUED
Effective September 17, 1996, CommNet acquired 526,734 shares of common
stock and warrants to purchase 112,155 shares of common stock from ASH for
$800,000, and agreed with the Company to exchange the 526,734 shares for
577,812 shares of the Company's Series B Non-Voting Convertible Preferred
Stock ("Series B Preferred Stock"), a new series of preferred stock for the
Company. These shares were issued on November 27, 1996 after the filing of the
Certificate of Designation with the Delaware Secretary of State.
The Series B Preferred Stock is not redeemable but may be converted into the
Company's common stock at the option of CommNet. The Series B Preferred Stock
can be converted into the Company's common stock at a rate of 0.9116 shares of
common stock for each share of Series B Preferred Stock. The Series B
Preferred Stock also converts automatically to the Company's common stock upon
closing of an initial public offering of at least
F-12
<PAGE>
TVX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$10 million at a price not less than $5 per share. The Series B Preferred
Stock shares ratably with the Company's common stock in relation to dividends
and liquidation preference.
10. REDEEMABLE COMMON STOCK
In connection with the disposition of the Company's investment in Securis
International Inc. ("Securis"), on June 27, 1995 the Company issued to the
majority owners of Securis International, Inc. 63,812 shares of redeemable
common stock with an estimated fair value of $210,000. The holders of the
redeemable stock had the option to require the Company to redeem these 63,812
shares at $5.48 per share between May 1 and August 31, 1996. The original
carrying amount of $210,000 was periodically increased up to the $350,000
which was scheduled to be paid on May 1, 1996 upon redemption. Through
September 30, 1996, the total accretion to the carrying amount was $140,000
which resulted in a corresponding decrease to capital in excess of par.
As a result of the Company not redeeming these shares upon request, the
holders filed suit against the Company to enforce the obligation to redeem
their shares. The Company does not believe the outcome of this matter will
have a material effect on its operations.
11. STOCK OPTION PLANS
1993 Nonqualified Stock Option Plan
The Company has a Nonqualified Stock Option Plan (the "1993 Plan") for
Company employees, directors and consultants. The total number of stock
options authorized under the 1993 Plan is 569,750. Each option allows the
holder to purchase one share of the Company's common stock at $0.73 and is
exercisable immediately. All unexercised options expire in May 2003.
Omnibus Stock and Incentive Plan
In May 1994, the Company adopted an Omnibus Stock and Incentive Plan (the
"Omnibus Plan") for Company employees and consultants. The Omnibus Plan
provides for granting key employees nonqualified stock options, incentive
stock options, stock appreciation rights, phantom stock rights, restricted
shares of common stock and incentive compensation in the form of shares of
common stock (performance units) or valued by reference to shares (performance
shares).
The number of shares of common stock that may be granted under the Omnibus
Plan is 227,900, increased each fiscal year by a number equal to one percent
of the number of shares of common stock outstanding as of the end of the prior
fiscal year. Options issued under the Omnibus Plan have an exercise period of
ten years or less.
1996 Directors' Stock Option Plan
On September 18, 1996, the Company adopted the 1996 Directors' Stock Option
Plan (the "Directors Plan") to replace the Company's prior Nonemployee
Directors' Stock Option Plan. All options outstanding on September 18, 1996
related to the Nonemployee Directors' Stock Option Plan were cancelled and
reissued under the Directors' Plan on the same date. All members of the
Company's board of directors who are not also an employee of the Company or
any of its subsidiaries are qualified to participate in the Directors' Plan.
The Directors' Plan provides for options to purchase up to 227,900 shares of
the Company's common stock. Each option granted under the Directors' Plan
carries an exercise price equal to 100% of the fair market value of
F-13
<PAGE>
TVX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the common stock on the date of grant of the option, can be exercised
immediately upon grant and expires ten years from the date of grant. In the
event of a change in control of the Company, the Company's board of directors
will accelerate the exercise date of any outstanding options under the
Directors' Plan and may, without stockholders' approval: (a) grant a cash
bonus award to any option holder in an amount necessary to pay the exercise
price of all or any portion of options held by the individual, (b) pay cash to
all option holders in exchange for the cancellation of their outstanding stock
options in an amount equal to the difference between the exercise price of the
stock options and the greater of the tender offer price for the underlying
common stock or the fair market value of the common stock on the date of
cancellation of the stock options and (c) make any other adjustments or
amendments to the options outstanding.
An analysis of options related to the Company's benefit plans is as follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
GRANTED PRICES
-------- -------------
<S> <C> <C>
Outstanding options at September 30, 1994........... 665,468 $0.73 - $6.14
Granted............................................. 123,066 $1.65 - $3.29
Terminated.......................................... (123,066)
--------
Outstanding at September 30, 1995................... 665,468 $0.73 - $3.29
Granted............................................. 456,711 $1.65 - $4.39
Terminated.......................................... (184,143)
--------
Outstanding at September 30, 1996................... 938,036 $0.73 - $1.65
========
Options exercisable at September 30, 1996........... 736,572
========
Options available for grant at September 30, 1996... 136,740
========
</TABLE>
At September 30, 1996, the Company has reserved 1,074,776 shares of its
authorized Common Stock under the plans. No compensation expense was
recognized upon the grant of the options as all options were granted with an
exercise price determined by the Company's Board of Directors to be equal to
or in excess of fair market value at the date of grant.
On January 28, 1997, the Company's Board of Directors increased the number
of shares of Common Stock which may be granted under the Omnibus Plan to
400,000 shares which increased the number of shares of authorized Common Stock
reserved under the plans from 1,074,776 to 1,197,650.
12. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
The Company grants credit, generally without collateral, to its customers in
the commercial and industrial security industry. The Company's customers are
not concentrated in any specific geographic region. At September 30, 1995, two
of the Company's customers accounted for approximately 11% and 10% of the
Company's trade receivables. At September 30, 1996, three of the Company's
customers accounted for approximately 10%, 12%, and 14% of the Company's trade
receivables. Bad debt expense was approximately $84,000, $92,000 and $156,000
for the years ended September 30, 1994, 1995, and 1996, respectively.
One customer accounted for 14% of total sales during the year ended
September 30, 1994 and 1996. No customer accounted for more than 10% of total
sales during the year ended September 30, 1995. The major customer was
different in each year.
During the years ended September 30, 1995 and 1996, export sales to
customers in Canada were approximately $151,000 and $112,000, respectively.
Export sales did not exceed 10% of sales for the year ended September 30,
1994.
F-14
<PAGE>
TVX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
13. EMPLOYEE SAVINGS PLAN
The Company has adopted a Simplified Employee Defined Contribution Pension
Plan. Participants eligible for the plan have attained at least 21 years of
age and have completed at least 90 days of service. Participants may elect to
make contributions, subject to limitations based on provisions of tax law. The
Company may make discretionary matching contributions to the plan. However,
the Company has never contributed to the plan.
F-15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ACTIVE IMAGING PLC
We have audited the accompanying consolidated financial statements set out
on pages F-17 to F-44, which have been prepared in accordance with accounting
principles generally accepted in the United Kingdom.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
group as at the end of the financial year and of the profit or loss of the
group for that period. In preparing those financial statements, the directors
are required to
. select suitable accounting policies and then apply them consistently;
. make judgments and estimates that are reasonable and prudent;
. state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
. prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business for
the forseeable future.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
group and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets
of the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
It is our responsibility to form an independent opinion, based on our audit,
on those financial statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with UK Auditing Standards issued by
the Auditing Practices Board, which are substantially the same as those issued
in the United States. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgments made
by the directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the group's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the consolidated financial position of Active Imaging
plc and subsidiary companies at 31 December 1995 and 1996, and the
consolidated results of their operations, total recognised losses and cash
flows for the years ended 31 December 1994, 1995 and 1996 in accordance with
accounting principles generally accepted in the United Kingdom.
The accounting principles applied vary in certain respects from accounting
principles generally accepted in the United States. In our opinion,
application of accounting principles generally accepted in the United States
would have affected the determination of the amounts shown as net income and
shareholders' equity, for the years ended 31 December 1994, 1995 and 1996 to
the extent summarised in note 30 on pages F-42 to F-44.
Coopers & Lybrand
Chartered Accountants and Registered Auditors
Reading
31 January 1997
F-16
<PAGE>
ACTIVE IMAGING PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER
--------------------------------------
NOTES 1994 1995 1996
----- ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Turnover......................... 3,4
Continuing operations.......... 4,448 4,849 4,207
Acquisitions................... -- 214 --
------ ------ ------
4,448 5,063 4,207
Cost of sales.................... 5 (2,840) (3,292) (3,036)
------ ------ ------
Gross profit..................... 1,608 1,771 1,171
Distribution costs............... 5 (1,191) (1,511) (1,510)
Administrative expenses.......... 5 (489) (761) (3,289)
(1,680) (2,272) (4,799)
Operating loss
Continuing operations.......... (72) (371) (3,628)
Acquisitions .................. -- (130) --
(72) (501) (3,628)
Interest receivable and similar
income.......................... 7 -- 10 105
Interest payable and similar
charges......................... 8 (17) (61) (83)
------ ------ ------
Loss on ordinary activities
before taxation................. 6 (89) (552) (3,606)
Tax repayable on loss on ordinary
activities...................... 9 -- 38 --
------ ------ ------
Loss for the financial year...... (89) (514) (3,606)
Dividends and appropriations:
Preference share
appropriations................ -- (37) (44)
------ ------ ------
Loss for the financial year after
appropriations.................. 20 (89) (551) (3,650)
====== ====== ======
Loss per ordinary share.......... 10 12.89p 79.78p 24.56p
====== ====== ======
Adjusted loss per ordinary
share........................... 10 1.29p 7.98p 24.56p
====== ====== ======
</TABLE>
STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER
--------------------------------------
1994 1995 1996
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Loss for the financial year............ (89) (514) (3,606)
Currency translation differences on
foreign currency net investments...... -- 11 (62)
--- ---- ------
Total recognised losses relating to the
year.................................. (89) (503) (3,668)
=== ==== ======
</TABLE>
HISTORICAL PROFITS AND LOSSES
There is no difference between the loss on ordinary activities before
taxation and the retained loss for the years ended 31 December 1994, 1995 and
1996, and their historical cost equivalents.
The accompanying notes on pages F-20 to F-44 are an integral part of these
consolidated financial statements
F-17
<PAGE>
ACTIVE IMAGING PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
31 DECEMBER
-------------------------
NOTES 1995 1996
------ ------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Fixed assets
Tangible fixed assets...................... 11 328 470
Intangible fixed assets.................... 12 351 1,441
Investments................................ 13 -- 15
------ ------
679 1,926
------ ------
Current assets
Stocks and work in progress................ 14 397 1,044
Debtors.................................... 15 1,479 1,297
Cash at bank and in hand................... 133 1,381
------ ------
2,009 3,722
Creditors: amounts falling due within one
year........................................ 16 (2,271) (2,258)
------ ------
Net current (liabilities)/assets............. (262) 1,464
------ ------
Total assets less current liabilities........ 417 3,390
Creditors: amounts falling due after more
than one year............................... 17 (43) (85)
------ ------
Net assets................................... 374 3,305
====== ======
Capital and reserves
Called up share capital.................... 19 385 443
Share premium account...................... 20 1,567 5,754
Difference on consolidation................ 20 -- 1,567
Shares to be issued........................ 20, 28 -- 750
Warrant reserve............................ 19, 20 163 140
Profit and loss account.................... 20 (494) (4,162)
Goodwill write-off reserve................. 20 (1,247) (1,187)
Equity shareholders' funds................. (1,546) 2,005
Non equity shareholders' funds............. 1,920 1,300
Total shareholders' funds.................... 20 374 3,305
====== ======
</TABLE>
The accompanying notes on pages F-20 to F-44 are an integral part of these
consolidated financial statements
F-18
<PAGE>
ACTIVE IMAGING PLC
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER
--------------------------------------
NOTES 1994 1995 1996
----- ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Net cash outflow from operating
activities....................... 6 (157) (297) (3,205)
Returns on investments and
servicing of finance
Interest received............... 1 10 104
Interest paid................... (12) (52) (70)
Interest element of finance
lease payments................. (5) (8) (12)
---- ------ ------
Net cash (outflow)/inflow from
returns on investments and
servicing of finance........... (16) (50) 22
---- ------ ------
Taxation
UK Corporation tax paid......... (30) -- --
---- ------ ------
Investing activities
Development expenditure
capitalised.................... (114) (279) (410)
Payments to acquire tangible
fixed assets................... (228) (91) (357)
Payments to acquire own shares.. -- (32) --
Funds advanced to Active Imaging
Inc prior to acquisition....... -- (119) --
Acquisition of investment in
associated undertaking......... (19) -- (15)
Acquisition of subsidiary
undertakings net of cash
acquired....................... -- (281) --
Expenses of acquisition......... -- (23) (30)
---- ------ ------
Net cash outflow from investing
activities....................... (361) (825) (812)
---- ------ ------
Net cash outflow before
financing........................ (564) (1,172) (3,995)
---- ------ ------
Financing
Proceeds from issue and
conversion of convertible
notes.......................... -- -- 650
Proceeds from issue of shares... 506 1,500 5,500
Expenses of share issue......... (32) (90) (588)
Repayment of loans.............. (22) (6) (108)
Capital element of finance
leases, less repayments in
year........................... (41) (57) (73)
Own shares sold through ESOP.... -- -- 66
---- ------ ------
Net cash inflow from financing.... 411 1,347 5,447
---- ------ ------
(Decrease)/increase in cash and
cash equivalents................. 22 (153) 175 1,452
==== ====== ======
</TABLE>
The accompanying notes on pages F-20 to F-44 are an integral part of these
consolidated financial statements
F-19
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
References to Active Imaging plc in the accompanying financial statements
and in the report of the independent auditors prior to 1 January 1996 are to
its predecessor company, Data Cell Limited. References to group prior to 1
January 1996 are to Data Cell Limited and its subsidiaries and references to
group from 1 January 1996 are to Active Imaging plc and its subsidiaries.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the United Kingdom
("UK GAAP") and are presented under the historical cost convention. These
principles differ in certain significant respects from generally accepted
accounting principles in the United States ("US GAAP"); see note 30. All
amounts are expressed in pounds sterling ("(Pounds)").
The accompanying consolidated financial statements for the financial period
from 1 January 1994 to 31 December 1995 represent the financial statements of
Data Cell Limited and its subsidiaries. The accompanying consolidated
financial statements for the financial year ended 31 December 1996 represent
the financial statements of Active Imaging plc incorporating the financial
statements of Data Cell Limited and its subsidiaries, which was acquired by
Active Imaging plc on 22 March 1996 in consideration for the issue of shares
in Active Imaging plc.
The accompanying financial statements do not constitute the UK statutory
accounts of Data Cell Limited or Active Imaging plc within the meaning of
section 240 of the Companies Act 1985. Copies of the audited accounts of Data
Cell Limited for the two years ended 31 December 1995, on which the auditors'
reports were unqualified and did not contain statements under section 237(2)
and (3) of the Companies Act 1985, have been delivered to the Registrar of
Companies in England and Wales. A copy of the audited accounts of Active
Imaging plc for the year ended 31 December 1996, on which the auditors' report
was unqualified and did not contain statements under section 237(2) and (3) of
the Companies Act 1985, will be delivered to the Registrar of Companies in
England and Wales.
2. ACCOUNTING POLICIES
The significant accounting policies adopted are as follows:
BASIS OF ACCOUNTING
The financial statements are prepared in accordance with the historical cost
convention.
CONSOLIDATION
The consolidated financial statements for the periods from 1 January 1994 to
31 December 1995 consolidate the financial statements of Data Cell Limited and
all of its subsidiaries. Acquisitions of subsidiary undertakings by Data Cell
Limited during that period have been accounted for by applying the principles
of acquisition accounting, whereby on acquisition of a subsidiary, all the
subsidiary's assets and liabilities that existed at the date of acquisition
were recorded at their fair values reflecting their condition at that date.
All changes to those assets and liabilities, and the resulting gains and
losses, that arose after control was gained have been taken to the
consolidated profit and loss account.
The consolidated financial statements for the year ended 31 December 1996
consolidate the financial statements of Active Imaging plc and all of its
subsidiaries. The principles of merger accounting have been applied in respect
of the acquisition of Data Cell Limited, whereby the carrying values of the
assets and liabilities of Data Cell Limited and its subsidiaries have not been
adjusted on consolidation and the results of those
F-20
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
subsidiary undertakings have been included in the consolidated profit and loss
account, cash flows and recognised gains and losses as if the companies had
been combined throughout the period. The principles of acquisition accounting
have been applied in respect of the acquisition of Active Vision Systems Inc.
All intercompany balances and transactions are eliminated on consolidation.
ASSOCIATED UNDERTAKINGS
The group's share of profits less losses of associated undertakings is
included in the consolidated profit and loss account, and the group's share of
their net assets is included in the consolidated balance sheet. These amounts
are taken from the latest audited financial statements of the undertakings
concerned, which all have the same accounting reference date.
GOODWILL
Goodwill arising on consolidation represents the excess of the fair value of
the consideration given over the fair value of the identifiable net assets
acquired. Goodwill arising on the acquisition of subsidiaries and associates
is written off immediately against reserves. Other purchased goodwill is
eliminated by amortisation through the profit and loss account over its useful
economic life.
TURNOVER
Turnover is stated net of value added tax and represents the invoiced
amounts to customers for goods sold, services provided and deferred income
recognised on support contracts.
RESEARCH AND DEVELOPMENT
Pure and applied research expenditure is written off to the profit and loss
account in the year in which it is incurred.
Expenditure incurred with third party companies in the course of the
development of major product lines and related know-how that satisfies the
criteria stipulated by Statement of Standard Accounting Practice No. 13 is
capitalised and written off over the lesser of its useful life or two years
from the date of first commercial sale of the completed product.
TANGIBLE FIXED ASSETS AND DEPRECIATION
The cost of fixed assets is their purchase price, together with any
incidental costs of acquisition.
Tangible fixed assets are stated at cost less depreciation. Depreciation is
calculated so as to write off the cost, less estimated residual value, over
the expected useful life of the assets concerned as follows:
Leasehold improvements -- shorter of economic life or remaining period of
lease
Computer and electronic equipment
Office equipment -- straight line over 3 years
Motor vehicles -- straight line over 4 years
Patents and trademarks -- straight line over 4 years
-- straight line over 10 years
F-21
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FINANCE AND OPERATING LEASES
Costs in respect of operating leases are charged to the profit and loss
account on a straight line basis over the lease term. Leasing agreements which
transfer to the company substantially all the benefits and risks of ownership
of an asset are treated as if the asset had been purchased outright. The
assets are included in fixed assets and the capital element of the leasing
commitments is shown as obligations under finance leases. The lease rentals
are treated as consisting of capital and interest elements. The capital
element is applied to reduce the outstanding obligations and the interest
element is charged against profit in proportion to the reducing capital
element outstanding. Assets held under finance leases are depreciated over the
shorter of the lease terms and the useful lives of equivalent owned assets.
STOCK AND WORK IN PROGRESS
Stock and work in progress are valued at the lower of cost and net
realisable value. In general, cost is determined on a "first in, first out
basis' and includes transport and handling costs. Net realisable value is
determined on the basis of expected selling price less further costs expected
to be incurred to completion and disposal. Where necessary provision is made
for obsolete, slow moving and defective stocks.
DEFERRED TAXATION
Provision is made for deferred taxation using the liability method to take
account of timing differences between the incidence of income and expenditure
for taxation and accounting purposes except to the extent that the directors
consider that a liability to taxation is unlikely to crystallise.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities expressed in foreign currencies are translated into
sterling at rates of exchange ruling at the end of the financial year.
Transactions entered into during the year are translated at the rate ruling at
the time of the transaction, and any foreign exchange differences are taken to
the profit and loss account in the year in which they arise.
Assets and liabilities of subsidiaries in foreign currencies are translated
into sterling at the rates of exchange ruling at the accounting date and the
results of foreign subsidiaries are translated at the average exchange rate
for the period. Differences on exchange arising from the retranslation of the
opening net investment in subsidiary companies and from the translation of the
results of those companies at average rate are taken to reserves and are
reported in the statement of total recognised gains and losses. All other
foreign exchange differences are taken to the profit and loss account in the
year in which they arise.
DEFERRED INCOME
Income derived from support contracts is accounted for evenly over the
period of the contract. Related costs are charged to the profit and loss
account as incurred.
GOVERNMENT GRANTS
Grants in respect of development expenditure are deducted from the relevant
categories of expense in the period to which they relate. Grants in respect of
specific capital expenditure are treated as deferred income which is then
credited to the profit and loss account over the related asset's useful life.
PENSIONS
The group operates various money purchase pension schemes with defined
contribution levels covering the majority of its employees. Contributions to
the schemes are independently administered by insurance companies. Pension
costs are charged to the profit and loss account as incurred.
F-22
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SEGMENTAL ANALYSIS BY GROUP COMPANY
The analysis by individual group company of turnover and operating loss is
set out below:
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER
--------------------------------------
1994 1995 1996
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Turnover
Group excluding acquisitions in the
year................................. 4,448 4,849 4,207
Acquisitions in the year
Active Imaging (UK) Limited......... -- 78 --
Active Imaging Inc.................. -- 136 --
----- ----- ------
4,448 5,063 4,207
===== ===== ======
<CAPTION>
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Operating loss
Group excluding acquisitions in the
year................................. (72) (371) (3,628)
Acquisitions in the year
Active Imaging (UK) Limited......... -- (21) --
Active Imaging Inc.................. -- (109) --
----- ----- ------
(72) (501) (3,628)
===== ===== ======
</TABLE>
4. TURNOVER
The turnover and operating loss are attributable to one activity, the
development, sale and distribution of specialist vision related computer
hardware and software involved in the capture, processing, analysis,
transmission and management of image data.
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER
--------------------------------------
1994 1995 1996
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
By geographical area of destination
United Kingdom........................ 4,059 4,337 2,998
Rest of Europe........................ 137 217 283
North America......................... 87 186 753
Far East and Asia..................... 150 79 167
Middle East........................... 12 8 2
Australia............................. -- 18 2
Africa................................ 3 4 2
----- ----- -----
4,448 4,849 4,207
Acquisitions in the year:
United Kingdom........................ -- 79 --
North America......................... -- 135 --
----- ----- -----
4,448 5,063 4,207
===== ===== =====
</TABLE>
The group's sales originate predominantly in the United Kingdom. The
directors are of the opinion that the geographical segments do not differ
significantly. As such disaggregated information relating to the loss before
tax and net assets is not provided.
5. COST OF SALES AND OPERATING EXPENSES OF ACQUIRED COMPANIES
The figures for continuing operations in the year ended 31 December 1995
include the following amounts relating to acquisitions; cost of sales
(Pounds)98,000, distribution costs (Pounds)32,000 and administrative expenses
(Pounds)215,000.
F-23
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION:
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER
--------------------------------------
1994 1995 1996
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
(a)Loss on ordinary activities before
taxation is stated after crediting
Government grants receivable......... 15 76 123
Exchange gain........................ -- -- 20
(b)And after charging
Depreciation:
Tangible owned fixed assets........ 118 54 114
Fixed assets held under finance
leases............................ 23 53 73
Intangible assets:
Patents and trademarks amortised... -- -- 75
Deferred expenditure amortised..... 2 40 208
Development expenditure............ 65 425 1,355
Exchange loss........................ 1 20 --
Leasing and hire charges - operating
leases
Plant and machinery................ 40 20 20
Other assets....................... 83 114 173
Auditors' remuneration:
As auditors........................ 10 25 66
Other services..................... 1 5 190
==== ==== ======
<CAPTION>
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
(c) Reconciliation of operating loss to
net cash outflow from operating
activities
Operating loss....................... (72) (501) (3,628)
Depreciation on tangible fixed
assets.............................. 141 107 187
Loss on disposal of fixed assets..... 1 -- --
Amortisation of intangible fixed
assets.............................. 2 40 283
(Increase)/decrease in stocks........ (2) 82 (670)
(Increase)/decrease in trade
debtors............................. (612) 53 485
(Increase) in other debtors.......... (55) (18) (114)
Decrease in own shares............... -- -- 18
(Increase) in prepayments and accrued
income.............................. (36) (59) (225)
Increase/(decrease) in trade
creditors........................... 462 (10) 271
(Decrease)/increase in other
creditors........................... -- (1) 15
Increase/(decrease) in other tax and
social security costs............... 100 (41) (28)
(Decrease)/increase in accruals and
deferred revenue.................... (86) 51 201
---- ---- ------
Net cash outflow from operating
activities.......................... (157) (297) (3,205)
==== ==== ======
7. INTEREST RECEIVABLE AND SIMILAR INCOME
<CAPTION>
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Bank interest received................. -- 10 105
==== ==== ======
8. INTEREST PAYABLE
<CAPTION>
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
On bank loans and overdrafts -
repayable within five years, not by
instalments........................... 12 35 60
On finance leases...................... 5 9 14
On other loans......................... -- 17 9
---- ---- ------
17 61 83
==== ==== ======
</TABLE>
F-24
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. TAX ON LOSS ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER
--------------------------------------
1994 1995 1996
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
United Kingdom corporation tax credit on
loss on ordinary activities
at 25 per cent (1994 and 1995) and 33
per cent (1996)........................ -- (34) --
Tax repayable in respect of earlier
years.................................. -- (4) --
--- --- ---
-- (38) --
=== === ===
</TABLE>
10. LOSS PER ORDINARY SHARE
The calculation of loss per share on the net basis is based on the loss on
ordinary activities after taxation and after deduction of dividends and other
appropriations in respect of non-equity shares, namely (Pounds)89,000,
(Pounds)551,000 and (Pounds)3,650,000 for 1994, 1995 and 1996 respectively on
690,680, 690,680 and 14,862,439 ordinary shares, being the weighted average
number of ordinary shares in issue and ranking for dividend during the years
ended 31 December 1994, 1995 and 1996 respectively. The numbers of shares in
issue for 1994 and 1995 have not been adjusted for the share division, which
took place in Active Imaging plc on 22 March 1996.
The calculation of adjusted loss per share is based on the loss on ordinary
activities after taxation and after the deduction of dividends and other
appropriations in respect of non-equity shares, and after adjusting the number
of shares in issue for 1994 and 1995 for the share divisions which took place
on 22 March 1996 as though it had applied throughout these periods.
11. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
COMPUTER
LEASEHOLD AND OFFICE MOTOR
IMPROVEMENTS EQUIPMENT VEHICLES TOTAL
------------ ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Cost
At 31 December 1994...... 39 403 111 553
In respect of
acquisitions............ -- 84 -- 84
Additions................ -- 82 69 151
Transfers to stock....... -- (153) -- (153)
--- ---- --- ----
At 31 December 1995...... 39 416 180 635
Additions................ 4 287 66 357
Disposals................ -- (8) -- (8)
Exchange differences..... -- (24) (2) (26)
--- ---- --- ----
At 31 December 1996...... 43 671 244 958
--- ---- --- ----
Aggregate depreciation
At 31 December 1994...... 5 215 31 251
Transfers to stock....... -- (51) -- (51)
Charge for year.......... 8 60 39 107
--- ---- --- ----
At 31 December 1995...... 13 224 70 307
Charge for the year...... 9 127 51 187
Disposals................ -- (2) -- (2)
Exchange differences..... -- (4) -- (4)
--- ---- --- ----
At 31 December 1996...... 22 345 121 488
--- ---- --- ----
Net book value
At 31 December 1995...... 26 192 110 328
=== ==== === ====
At 31 December 1996...... 21 326 123 470
=== ==== === ====
</TABLE>
Included above are assets held under finance leases or hire purchase
contracts with net book values of (Pounds)113,000 in 1995 and (Pounds)139,000
in 1996.
F-25
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INTANGIBLE FIXED ASSETS
The following costs have been capitalised in respect of expenditure incurred
with third party companies.
<TABLE>
<CAPTION>
PATENTS AND CAPITALISED
TRADEMARKS DEVELOPMENT COSTS TOTAL
------------ ----------------- ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Cost
At 31 December 1994.............. -- 114 114
Additions........................ -- 279 279
----- --- -----
At 31 December 1995.............. -- 393 393
Additions........................ 1,000 410 1,410
Disposals........................ -- (7) (7)
Exchange difference on
translation..................... -- (34) (34)
----- --- -----
At 31 December 1996.............. 1,000 762 1,762
----- --- -----
Amortisation
At 31 December 1994.............. -- 2 2
Charge for year.................. -- 40 40
----- --- -----
At 31 December 1995.............. -- 42 42
Charge for year.................. 75 208 283
Disposals........................ -- (4) (4)
----- --- -----
At 31 December 1996.............. 75 246 321
----- --- -----
Net book value
At 31 December 1995.............. -- 351 351
===== === =====
At 31 December 1996.............. 925 516 1,441
===== === =====
</TABLE>
13. INVESTMENTS
During 1996 Data Cell Limited subscribed for 25 per cent. of the issued
share capital of IMAGINE Medical Systems A/S, a company incorporated in
Denmark, for a cash consideration equivalent to (Pounds)15,000. In the opinion
of the directors, the value of the investment is not less than the amounts
included in the balance sheet.
14. STOCKS AND WORK IN PROGRESS
<TABLE>
<CAPTION>
31 DECEMBER
-------------------------
1995 1996
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Demonstration stock................................ 72 165
Work in progress................................... 139 655
Finished goods..................................... 186 224
--- -----
397 1,044
=== =====
</TABLE>
In the opinion of the directors there is no significant difference between
the book values of stocks and their estimated replacement cost.
F-26
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLDIATED FINANCIAL STATEMENTS--(CONTINUED)
15. DEBTORS
<TABLE>
<CAPTION>
31 DECEMBER
-------------------------
1995 1996
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Amounts falling due within one year:
Trade debtors....................................... 1,235 737
Amount owed by ESOP Trust (see note 19)............. 14 --
Own shares (see note 19)............................ 32 14
Other debtors....................................... 37 166
Taxation recoverable................................ 36 21
Prepayments and accrued income...................... 125 359
----- -----
1,479 1,297
===== =====
</TABLE>
In 1995 Data Cell Limited and one of its subsidiaries entered into a full
recourse debt factoring agreement. Factored trade debtors and the respective
liabilities have been presented separately, in accordance with the provisions
of Financial Reporting Standard No. 5 ("Reporting the substance of
transactions"). The amount of factored trade debtors included above, at 31
December 1995 and 31 December 1996 was (Pounds)1,095,000 and (Pounds)415,000
respectively. Factoring charges relating to the agreement were (Pounds)29,000
during 1995 and (Pounds)31,000 during 1996.
16. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
31 DECEMBER
-------------------------
1995 1996
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Bank loans and overdrafts........................... 76 8
Amounts due in respect of factored debts............ 249 66
Unsecured loans..................................... 61 5
Other loans......................................... 66 --
Trade creditors..................................... 748 1,001
Contingent consideration (see note 19).............. 651 585
Net obligations under finance leases and hire
purchase contracts................................. 69 66
Other taxation and social security.................. 153 117
Other creditors..................................... 29 44
Accruals and deferred income........................ 169 366
----- -----
2,271 2,258
===== =====
</TABLE>
The bank loans and overdraft are secured by a floating charge over the
assets of the group.
The unsecured loans of (Pounds)61,000 at 31 December 1995 were made by Mr S
Meaders, Mr S Gable (directors of a subsidiary company) and their respective
families. The loans were repayable by monthly installments over periods not
exceeding two years and bear interest at rates between 9 per cent. and 10.25
per cent. per annum. These loans were repaid during 1996. The unsecured loan
of (Pounds)5,000 at 31 December 1996 is interest free and payable on demand.
Other loans at 31 December 1995 include (Pounds)59,000 payable to
Moneycentre Capital Corporation, secured on all manufacturing parts and
components of Active Traffic Management Inc. Interest is payable at 21 per
cent. per annum. The remaining loan of (Pounds)7,000 was secured by a specific
equitable charge and a fixed and floating charge over the property and assets
of Active Imaging (UK) Limited under a mortgage debenture dated 23 June 1993.
These loans were repaid during 1996.
F-27
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
31 DECEMBER
-------------------------
1995 1996
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Net obligations under finance leases................ 43 71
Other loans......................................... -- 14
--- ---
43 85
=== ===
The net finance lease obligations to which the group is committed are:
<CAPTION>
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Repayable within one year........................... 72 74
Repayable between one and five years................ 50 79
--- ---
122 153
Finance charges and interest allocated to future
accounting periods................................. (10) (16)
--- ---
112 137
Included in current liabilities..................... (69) (66)
--- ---
43 71
=== ===
</TABLE>
18. DEFERRED TAXATION
The deferred taxation balance at 31 December is as follows:
<TABLE>
<CAPTION>
TOTAL POTENTIAL ASSET
-------------------------
1995 1996
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Timing differences
Accelerated capital allowances........................ 16 24
Other short term timing differences................... 29 22
Tax losses............................................ 71 654
--- ---
116 700
=== ===
</TABLE>
No provision for deferred taxation was required at 31 December 1995 or 1996.
The potential asset shown, which has not been recognised, is computed at the
rate of 25 per cent. and 33 per cent. for the years ended 31 December 1995 and
1996, respectively.
19. SHARE CAPITAL
Data Cell Limited
Authorised share capital
<TABLE>
<CAPTION>
31 DECEMBER
------------
1995
------------
(Pounds)'000
<S> <C>
1,125,000 ordinary shares of 10p each...................................... 112
230,000 cumulative participating "A" ordinary shares of 10p each........... 23
249,990 cumulative redeemable "A" preference shares of (Pounds)1 each...... 250
327,700 cumulative participating "B" ordinary shares of 10p each........... 33
1,050,000 cumulative redeemable "B" preference shares of 1p each........... 10
---
428
===
</TABLE>
F-28
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On 25 February 1994, the 100,000 ordinary shares of (Pounds)1 each were
subdivided into 1,000,000 ordinary shares of 10p each, and the authorised
share capital was increased by the creation of 249,990 cumulative redeemable
"A" preference shares of (Pounds)1 each and 230,000 cumulative participating
"A" ordinary shares of 10p each.
On 1 September 1995 the authorised share capital was increased by the
creation of 1,050,000 cumulative redeemable "B" preference shares of 1p each
and 327,700 cumulative participating "B" ordinary shares of 10p each.
On 19 December 1995 the authorised share capital was increased by 125,000
ordinary shares of 10p each.
Allotted, called up and fully paid
<TABLE>
<CAPTION>
31 DECEMBER
------------
1995
------------
(Pounds)'000
<S> <C>
690,680 ordinary shares of 10p each............................... 69
230,000 cumulative participating "A" ordinary shares of 10p each
(" "A" shares").................................................. 23
249,990 cumulative redeemable "A" preference shares of (Pounds)1
each (" "A" preference shares").................................. 250
327,700 cumulative participating "B" ordinary shares of 10p each
(" "B" shares").................................................. 33
1,050,000 cumulative redeemable "B" preference shares of 1p each
(" "B" preference shares")....................................... 10
---
385
===
</TABLE>
The "A" preference shares are entitled to a fixed cumulative preferential
dividend of 9 per cent. per annum payable as from 1 January 1997. They are
required to be redeemed, subject to the provisions of the Companies Act 1985,
in three equal tranches of (Pounds)83,330 on 1 January 1997, 1998 and 1999.
The "A" preference shares may be redeemed earlier at the company's option.
The "B" preference shares are entitled to a fixed cumulative preferential
net cash dividend of 11p per annum for each share accruing from 30 June 1998.
Subject to the prior redemption of all the "A" preference shares and to the
provisions of the Companies Act 1985, the "B" preference shares are required
to be redeemed in five equal tranches of (Pounds)210,000 on 30 June commencing
in 2000 and each year thereafter until 2004.
The "B" preference shares may be redeemed earlier with the prior written
consent of the holders of 75 per cent. thereof.
The "A" preference shares carry no voting rights, except as provided in the
company's Articles of Association if the company has failed to pay the
preference dividend or has failed to redeem any of the preference shares on
the redemption date. The "B" preference shares carry no voting rights.
The "A" shares are entitled in respect of financial years ending on and
after 31 December 1996 to receive an "A" participating dividend equal to 8 per
cent. of the profit before taxation of the Data Cell Group for such financial
year.
The "B" shares are entitled in respect of each financial year as from 30
June 1998 to a "B" participating dividend equal to 6 per cent. of the net
profit of the Data Cell Group for the relevant financial year, together with a
fixed cumulative preferential dividend of a sum which when added to the "B"
participating dividend (if
F-29
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
any) equals 15.1p per annum for each "B" share. The "B" shares are entitled to
further dividends as from 30 June 1998 if directors' remuneration exceeds
certain amounts specified in the Articles of Association of Data Cell Limited.
The "A" shares and "B" shares are convertible into ordinary shares at the
rate of one ordinary share for each "A" share or "B" share.
On a winding up, surplus funds would be distributed first in repaying the
outstanding "A" preference shares at par, secondly in repaying to the holders
of the "B" preference shares, a sum equal to the issue price thereof, thirdly
in paying to the holders of the "A" shares and "B" shares a sum equal to the
respective issue price thereof, fourthly in paying to the holders of the
ordinary shares a sum equal to the issue price of the "B" shares or, if
greater, the price at which such holder acquired the ordinary shares, and the
balance to the holders of "A" shares, "B" shares and ordinary shares in
proportion to the issue prices of such shares.
In accordance with Financial Reporting Standard No. 4 ("Capital
Instruments") both the "A" shares and "B" shares and the "A" preference
shares" and "B" preference shares have been classified as non-equity funds
together with their associated share premiums.
Share options
As at 1 January 1995, options were outstanding under the Data Cell Executive
Share Option Scheme in respect of 9,897 ordinary shares at a price of 109p per
share exerciseable as to one third between 28 February 1995 and 28 February
2001, one third between 28 February 1996 and 28 February 2001, and one third
between 28 February 1997 and 28 February 2001. During 1995 options were
granted over 76,214 ordinary shares at a price of 137p per share exercisable
as to one third between 1 September 1996 and 1 September 2002, one third
between 1 September 1997 and 1 September 2002 and the remaining one third
between 1 September 1998 and 1 September 2002.
No share options were exercised during 1995.
On 21 March 1996, options were granted over 8,000 ordinary shares at a price
of 458p exercisable as to one third between 21 March 1997 and 21 March 2003,
one third between 21 March 1998 and 21 March 2003, and the remaining one third
between 21 March 1999 and 21 March 2003.
On 22 March 1996 the option holders in Data Cell Limited surrendered their
existing share options over ordinary shares in Data Cell Limited for the grant
of new share options over the same number of ordinary shares in Active Imaging
plc on substantially the same terms as those of the Data Cell Executive
Scheme.
Warrants to subscribe for ordinary shares
Data Cell Limited has conditionally agreed to issue warrants to subscribe
for 125,000 ordinary shares of 10p each pursuant to an agreement dated 19
December 1995 to acquire the assets and certain liabilities relating to the
development of visual image vehicle detection systems (VIVDS business) from
Invision Inc. a company in which Mr. P. Mayeaux (a director of a subsidiary)
had an interest. The warrants are issuable and the contingent cash
consideration of $1,000,000 (equivalent to (Pounds)651,000 at 31 December 1995
included in note 16 above) is payable, conditionally on Active Traffic
Management Inc. obtaining minimum orders for VIVDS products of $2,000,000
within a period of eighteen months of the products being accepted by the Texas
Transportation Institute, and on the completion of a public offering of the
ordinary shares of Data Cell Limited or any holding company of Data Cell. The
exercise price per share is the lesser of $20 or 90 per cent. of the issue
price per share applicable to such public offering subject to a minimum of
$10. The warrants would be exerciseable at any time within three years of the
date of issue. The warrant reserve represents an estimate of the discount on
the issue price. See note 28.
F-30
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Active Imaging plc
Authorised share capital
<TABLE>
<CAPTION>
31 DECEMBER
------------
1996
------------
(Pounds)'000
<S> <C>
27,350,000 ordinary shares of 1p each............................ 274
249,990 "A" cumulative redeemable preference shares of (Pounds)1
each............................................................ 250
1,050,000 "B" cumulative redeemable preference shares of 1p
each............................................................ 10
---
534
===
</TABLE>
The authorised share capital on incorporation on 15 February 1996 was
(Pounds)1,000 divided into 1,000 ordinary shares of (Pounds)1 each.
On 22 March 1996 the authorised 1,000 ordinary share of (Pounds)1 each were
sub-divided into 10,000 ordinary shares of 10p each and the authorised share
capital was increased from (Pounds)1,000 to (Pounds)428,760 by the creation of
249,990 "A" cumulative redeemable preference shares of (Pounds)1 each,
1,050,000 "B" cumulative redeemable preference shares of 1p each, 230,000 "A"
cumulative participating ordinary shares of 10p each, 327,700 "B" cumulative
participating ordinary shares of 10p each and a further 1,115,000 ordinary
shares of 10p each.
On 11 April 1996 the authorised share capital was increased from
(Pounds)428,760 to (Pounds)438,760 by the creation of a further 100,000
ordinary shares of 10p each.
On 18 April 1996 each authorised and issued "A" cumulative participating
ordinary share of 10p each was converted into an ordinary share of 10p each
and each authorised and issued "B" cumulative participating ordinary share of
10p each was converted into an ordinary share of 10p. Each ordinary share of
10p was then sub-divided into 10 ordinary shares of 1p each and the share
capital was increased to (Pounds)533,990 by the creation of 9,523,000 new
ordinary shares of 1p each.
Allotted, called up and fully paid
<TABLE>
<CAPTION>
31 DECEMBER
------------
1996
------------
(Pounds)'000
<S> <C>
18,289,348 ordinary shares of 1p each............................ 183
249,990 "A" cumulative redeemable preference shares of (Pounds)1
each............................................................ 250
1,050,000 "B" cumulative redeemable preference shares of 1p
each............................................................ 10
---
443
===
</TABLE>
On 15 February 1996 two subscriber shares of (Pounds)1 each were allotted
nil paid and were fully paid up on 12 March 1996.
On 22 March 1996 Active Imaging plc acquired the entire issued share capital
of Data Cell Limited in consideration for the allotment and issue to the
shareholders in Data Cell Limited of shares in Active Imaging plc of the same
number and class as their shares in Data Cell Limited, credited as fully paid,
as follows.
<TABLE>
<S> <C>
Ordinary shares of 10p................................................ 690,680
"A" cumulative participating ordinary shares of 10p................... 230,000
"B" cumulative participating ordinary shares of 10p................... 327,700
"A" cumulative redeemable preference shares of (Pounds)1.............. 249,990
"B" cumulative redeemable preference shares of 1p..................... 1,050,000
</TABLE>
F-31
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Merger relief, under section 131 of the Companies Act 1985, has been taken
in respect of the issue of the shares to the shareholders of Data Cell
Limited.
On 9 April 1996 in connection with the acquisition of Active Vision Systems
Inc. ("AVS"), a company in which Mr. P. Mayeaux (a director of a subsidiary)
had an interest, by Active Traffic Management Inc., Active Imaging plc issued
25,000 ordinary shares of 10p each and under the terms of the acquisition
agreement, has an obligation conditional on either the acceptance of the
Invision camera by the Texas Transportation Institute or the group achieving
sales of $2,000,000 from the sale of products incorporating or utilising the
intellectual property owned by AVS, in each case by 9 April 1998, to issue a
further 75,000 ordinary shares of 10p (now 750,000 ordinary shares of 1p each
following the sub-division of ordinary shares on 18 April 1996).
On 11 April 1996 (Pounds)650,000 in nominal amount of convertible loan notes
1996 were issued for cash which converted into 644,834 ordinary shares of 1p
each on 24 April 1996.
On 18 April 1996 each issued "A" cumulative participating ordinary share of
10p was converted into an ordinary share of 10p and each issued "B" cumulative
participating ordinary share of 10p was converted into an ordinary share of
10p and then each ordinary share of 10p was sub-divided into 10 ordinary
shares of 1p each.
On 24 April 1996 4,910,714 ordinary shares of 1p each were issued on
admission to trading on the Alternative Investment Market of the London Stock
Exchange.
The "A" cumulative redeemable preference shares are entitled to a fixed
cumulative preferential dividend of 9 per cent per annum payable as from 1
January 1997. They are required to be redeemed, subject to the provision of
the Companies Act 1985, in three equal tranches of (Pounds)83,330 on 1 January
1997, 1998 and 1999 and may be redeemed earlier at the option of Active
Imaging plc.
The "B" cumulative redeemable preference shares are entitled to a fixed
cumulative preferential net cash dividend of 11p per annum for each share
accruing from 30 June 1998. Subject to the prior redemption of all the "A"
cumulative redeemable preference shares and to the provisions of the Companies
Act 1985, the "B" cumulative redeemable preference shares are required to be
redeemed in five equal tranches of (Pounds)210,000 on 30 June commencing in
2000 and each year thereafter until 2004 and may be redeemed earlier with the
prior written consent of the holders of 75 per cent thereof.
The "A" cumulative redeemable preference shares and the "B" cumulative
redeemable preference shares carry no voting rights.
On a winding up, surplus funds would be distributed firstly, in paying to
each holder of "A" cumulative redeemable preference shares the sum of
(Pounds)1 together with any arrears of the dividends payable and secondly in
paying to each holder of "B" cumulative redeemable preference shares the sum
of (Pounds)1 together with any arrears of the dividends, but subject thereto
the "A" cumulative redeemable preference shares and the "B" cumulative
redeemable preference shares have no further right to participate in the
assets of the company.
In accordance with Financial Reporting Standard No. 4 ("Capital
Instruments") the "A" cumulative redeemable preference shares and "B"
cumulative redeemable preference shares have been classified as non-equity
funds together with their associated share premiums.
Share options
On 22 March 1996 options were granted over an aggregate of 94,111 ordinary
shares of 10p of which 9,897 options were granted at an exercise price of
(Pounds)1.09 per share exercisable as to one third between 28 February 1995
and 28 February 2001, one third between 28 February 1996 and 28 February 2001
and the remaining one third between 28 February 1997 and 28 February 2001.
76,214 options were granted at an exercise price
F-32
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of (Pounds)1.37 per share exercisable as to one third between 1 September 1996
and 1 September 2002, one third between 1 September 1997 and 1 September 2002
and the remaining one third between 1 September 1998 and 1 September 2002.
8,000 options were granted at an exercise price of (Pounds)4.58 per share
exercisable as to one third between 21 March 1997 and 21 March 2003, one third
between 21 March 1998 and 21 March 2003 and the remaining one third between 21
March 1999 and 21 March 2003.
Following the sub-division of the ordinary shares on 18 April 1996 the
aggregate number of ordinary shares over which options have been granted is
941,110 ordinary shares.
On 24 April 1996 an option to subscribe for 22,321 ordinary shares of 1p
each, exercisable within the period of 2 years from 24 April 1996 at a
subscription price of (Pounds)1.12 per share was granted.
During 1996 the following share options were granted under an Inland Revenue
unapproved scheme. On 31 May 1996 options were granted over an aggregate of
340,000 ordinary shares of 1p each with an exercise price of (Pounds)1.19 per
share and on 17 September 1996 options were granted over an aggregate of 5,000
ordinary shares of 1p each with an exercise price of (Pounds)1.205 per share.
Under the unapproved share option scheme options are exercisable within seven
years from their grant.
In the opinion of the directors all options granted were deemed to be at
market value.
During the year ended 31 December 1996 options over 111,667 ordinary shares
of 1p each lapsed of which 96,667 had an exercise price of (Pounds)0.137 per
ordinary share and 15,000 had an exercise price of (Pounds)1.19 per ordinary
share.
Warrants to subscribe for ordinary shares
Active Imaging plc has assumed the obligations of Data Cell Limited pursuant
to the agreement dated 19 December 1995 relating to the acquisition of the
assets and certain liabilities relating to the development of visual image
vehicle detection systems (VIVDS business) from Invision Inc. (a company in
which M.P. Mayeaux, a director of a subsidiary, had an interest) referred to
above and has a contingent obligation to issue warrants to subscribe for
1,250,000 ordinary shares of 1p each at an exercise price equal to the lesser
of $2 and 100.8p per share and pay the contingent cash consideration of
$1,000,000 (equivalent (Pounds)585,000 at 31 December 1996 included in note 16
above) conditionally on Active Traffic Management Inc. obtaining minimum
orders of VIVDS products of $2,000,000 within a period of eighteen months of
the products being accepted by the Texas Transportation Institute and on the
completion of a public offering of the ordinary shares of Active Imaging plc.
The warrants would be exercisable at any time within three years of the date
of issue. The warrant reserve represents the excess of the price at which the
shares were placed over the lesser amount of (Pounds)1.008. See note 28.
Employee share ownership plans
The Active Imaging ESOP trust was established on 1 September 1995 for the
benefit of employees of the group. The trustee is Active Imaging ESOP Trustee
Limited, a wholly owned subsidiary. The trustee has, inter alia, the power to
invest trust monies in the acquisition by purchase or subscription of ordinary
shares of Active Imaging plc and has the discretion to provide benefit to the
beneficiaries of the trust, including pursuant to such employees' share
schemes as Active Imaging plc may adopt.
At 31 December 1995 Data Cell Limited had provided a loan to the Trust of
(Pounds)46,000 which amount is included as current assets in respect of owned
shares ((Pounds)32,000) and an amount due from the ESOP Trust ((Pounds)14,000)
in the balance sheet. The Trust held 29,613 ordinary shares in Data Cell
Limited and (Pounds)14,000 in cash at 31 December 1995. None of the shares
held by the Trust at that date were under option to employees or conditionally
gifted to them. No dividends have been received or waived by the Trust and no
costs have been incurred by it.
At 31 December 1996 the ESOP Trust held 135,050 ordinary shares of 1p each
in Active Imaging plc and (Pounds)22,000 in cash. None of the shares held by
the Trust at that date were under option to employees or conditionally gifted
to them. No dividends have been received or waived by the Trust and no costs
have been incurred by it.
F-33
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS AND MOVEMENTS ON
RESERVES
<TABLE>
<CAPTION>
GOODWILL PROFIT AND
SHARE SHARE DIFFERENCE ON SHARES TO WARRANT WRITE-OFF LOSS
CAPITAL PREMIUM CONSOLIDATION BE ISSUED RESERVE RESERVE ACCOUNT TOTAL
------------ ------------ ------------- ------------ ------------ ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At 31 December
1994........... 342 200 -- -- -- -- 9 551
Loss for the
year........... -- -- -- -- -- -- (551) (551)
Preference share
appropriations.. -- -- -- -- -- -- 37 37
Exchange
difference..... -- -- -- -- -- -- 11 11
Proceeds of
share issues... 43 1,457 -- -- -- -- -- 1,500
Costs of share
issues written
off............ -- (90) -- -- -- -- -- (90)
Contingent
warrant issue.. -- -- -- -- 163 -- -- 163
Goodwill written
off............ -- -- -- -- -- (1,247) -- (1,247)
--- ------ ----- --- --- ------ ------ ------
At 31 December
1995........... 385 1,567 -- -- 163 (1,247) (494) 374
Loss for the
year........... -- -- -- -- -- -- (3,650) (3,650)
Preference share
appropriations.. -- -- -- -- -- -- 44 44
Elimination of
share premium
of subsidiary.. -- (1,567) 1,567 -- -- -- -- --
Exchange
difference..... -- -- -- -- -- -- (62) (62)
Shares issued... 58 6,342 -- -- -- -- -- 6,400
Expenses of
share issue.... -- (588) -- -- -- -- -- (588)
Adjustment to
goodwill
written off
reserve........ -- -- -- -- -- 37 -- 37
Adjustment to
warrant
reserve........ -- -- -- -- (23) 23 -- --
Contingent
shares to be
issued......... -- -- -- 750 -- -- -- 750
--- ------ ----- --- --- ------ ------ ------
At 31 December
1996........... 443 5,754 1,567 750 140 (1,187) (4,162) 3,305
=== ====== ===== === === ====== ====== ======
</TABLE>
The difference on consolidation reserve represents the excess of the nominal
value of the issued share capital and share premium account of Data Cell
Limited over the nominal value of the shares issued by Active Imaging plc in
consideration for the acquisition.
F-34
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. ANALYSIS OF CHANGES IN FINANCING
<TABLE>
<CAPTION>
1995 1996
--------------------------- ---------------------------
SHARE CAPITAL LOANS AND SHARE CAPITAL LOANS AND
(INCLUDING FINANCE LEASE (INCLUDING FINANCE LEASE
PREMIUM) OBLIGATIONS PREMIUM) OBLIGATIONS
------------- ------------- ------------- -------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
At 1 January............ 542 86 1,952 238
Issues of shares........ 1,410 -- 5,750 --
Acquisitions during
year................... -- 155 (588) --
Repayment of loans...... -- (6) -- (108)
Inception of finance
lease contracts........ -- 60 -- 99
Repayment of principal
on finance leases...... -- (57) -- (73)
Conversion of loan
note................... -- -- 650 --
Elimination of share
premium on merger...... -- -- (1,567) --
----- --- ------ ----
At 31 December.......... 1,952 238 6,197 156
===== === ====== ====
</TABLE>
22. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
(Pounds)'000
<S> <C>
At 31 December 1994.......................................... (367)
Net cashflow................................................. 175
-----
At 31 December 1995.......................................... (192)
Net cashflow................................................. 1,452
Exchange differences......................................... 47
-----
At 31 December 1996.......................................... 1,307
=====
</TABLE>
ANALYSIS OF BALANCES
<TABLE>
<CAPTION>
CASH AT BANK BANK
AND IN HAND OVERDRAFTS TOTAL
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
At 31 December 1994...................... 13 (380) (367)
Change in year........................... 120 55 175
----- ---- -----
At 31 December 1995...................... 133 (325) (192)
Change in year........................... 1,201 251 1,452
Exchange differences..................... 47 -- 47
----- ---- -----
At 31 December 1996...................... 1,381 (74) 1,307
===== ==== =====
</TABLE>
Significant non cash transactions
Creditors increased by (Pounds)651,000 in the year ended 31 December 1995 as
a result of the acquisition of assets of Invision Inc. by way of contingent
consideration which represented (Pounds)585,000 at 31 December 1996, see note
19. Fixed asset additions include (Pounds)60,000 in the year ended 31 December
1995 and (Pounds)99,000 in the year ended 31 December 1996 in respect of
assets acquired under finance lease arrangements. On 24 April 1996
(Pounds)650,000 in
F-35
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
nominal amount of convertible loan notes were converted into 644,834 ordinary
shares of 1p each, see note 19. On 9 April 1996 Active Vision Systems Inc. was
acquired by Active Traffic Management Inc. for the issue of shares, see note
28.
23. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
The group had no capital commitments or contingent liabilities at 31
December 1995 or at 31 December 1996 other than that disclosed within
creditors and shares to be issued.
24. FINANCIAL COMMITMENTS
The group had annual commitments under non-cancellable operating leases as
follows:
<TABLE>
<CAPTION>
LAND AND BUILDINGS OTHER
31 DECEMBER 31 DECEMBER
------------------------- -------------------------
EXPIRY DATE 1995 1996 1995 1996
=========== ------------ ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Within one year........... 20 2 5 13
Between two and five
years.................... 130 163 1 --
--- --- --- ---
150 165 6 13
=== === === ===
</TABLE>
The group leases a property used in its operations from a director and a
former director of one of its subsidiary companies. The annual rent for this
property is (Pounds)20,100 and the lease extends to September 2005 with an
option to terminate by the tenant at September 2000.
25. DIRECTORS' EMOLUMENTS
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER
--------------------------------------
1994 1995 1996
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Fees................................... 56 76 83
Other emoluments (including benefits in
kind)................................. 50 76 122
Pensions............................... 5 10 7
Compensation for loss of office........ -- -- 33
--- --- ---
111 162 245
=== === ===
<CAPTION>
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Directors' emoluments include amounts
(excluding pension emoluments) paid in
respect of:
The chairman........................... 17 20 36
=== === ===
The highest paid director.............. 55 59 67
=== === ===
</TABLE>
None of the directors have waived rights to receive emoluments during the
years.
F-36
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The number of directors (including the chairman and the highest-paid
director) who received fees and other emoluments (excluding pension
contributions) in the following ranges was:
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER
---------------------------
1994 1995 1996
------- ------- -------
NUMBER NUMBER NUMBER
<S> <C> <C> <C>
(Pounds) 5,001 to (Pounds)10,000.................. 1 1 --
(Pounds)10,001 to (Pounds)15,000.................. -- -- 2
(Pounds)15,001 to (Pounds)20,000.................. 1 2 --
(Pounds)30,001 to (Pounds)35,000.................. 1 -- --
(Pounds)35,001 to (Pounds)40,000.................. -- -- 2
(Pounds)40,001 to (Pounds)45,000.................. -- -- 1
(Pounds)45,001 to (Pounds)50,000.................. -- 1 --
(Pounds)50,001 to (Pounds)55,000.................. 1 -- --
(Pounds)55,001 to (Pounds)60,000.................. -- 1 --
(Pounds)65,001 to (Pounds)70,000.................. -- -- 1
</TABLE>
Fees of (Pounds)17,000, (Pounds)20,000 and (Pounds)36,000 inclusive of
expenses were paid to Coinshire Limited, a company in which Mr M J Brooke has
an interest, in 1994, 1995 and 1996, respectively. Fees of (Pounds)31,000,
(Pounds)46,000 and (Pounds)23,000 inclusive of expenses were paid to Pentland
Consultants, a firm in which Mr R J Fagan is a partner, in 1994, 1995 and
1996, respectively. Fees of (Pounds)8,000, (Pounds)10,000 and (Pounds)10,000
were paid to companies within the Quester group, of which Mr S H V Acland is a
director, in 1994, 1995 and 1996, respectively. These amounts are included in
the bandings above.
Fees inclusive of expenses of (Pounds)14,000 were paid to George Hayter
Associates in respect of Mr G A Hayter in 1996.
On 11 September 1996 Mr D J Slorach resigned and received (Pounds)33,000 as
compensation for loss of office.
Interest in shares
The interests of the directors in the shares of Active Imaging plc at 31
December 1996 and their interests in the shares of Data Cell Limited at 31
December 1995 and 31 December 1994 were as follows:
<TABLE>
<CAPTION>
31 DECEMBER 31 DECEMBER 31 DECEMBER
1994 1995 1996
----------- ----------- -----------
NUMBER NUMBER NUMBER
<S> <C> <C> <C>
Ordinary shares of lp each (1995 and 1994
10p each)
M J Brooke(1)............................. 213,410 158,180 1,581,800
J Osborne................................. 171,920 125,000 1,250,000
R J Fagan................................. 7,500 7,500 75,000
D J Slorach............................... 66,290 66,290 662,900
G Hayter.................................. -- -- 50,000
</TABLE>
(1) Mr M J Brooke's shares are held by Coinshire Limited, a company in which
Mr Brooke has an interest.
Other than shown in the table above, no director had any interest in the
shares or debentures of the companies or other group companies. There have
been no changes in the interests set out above between 31 December 1996 and 31
January 1997.
F-37
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest in share options
Options have been granted to directors under the Data Cell Executive Share
Option Scheme as follows:
<TABLE>
<CAPTION>
R J FAGAN R J FAGAN D J SLORACH
Ordinary shares of 1p each Exercise price (A) (B)
<S> <C> <C> <C> <C>
At 1 January 1994...............
Granted during the year......... 10.87p 98,970 -- --
------ ------- -------
At 31 December 1994............. 98,970 -- --
Granted during the year......... 13.7p -- 365,000 100,000
------ ------- -------
At 31 December 1995............. 98,970 365,000 --
Cancelled during the year....... 66,667
------ ------- -------
At 31 December 1996............. 98,970 365,000 33,333
</TABLE>
The options are exercisable between the following dates:
(a) in equal instalments between February 1995 and February 1997, expiring in
February 2001.
(b) in equal instalments between September 1996 and September 1998, expiring
in September 2002.
In the opinion of the directors, all options granted were deemed to be at
market value. The market price of Active Imaging plc's shares at 31 December
1996 was 83 1/2p and the range of market prices during that year was between
160p and 75 1/2p.
26. EMPLOYEE INFORMATION
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
NUMBER NUMBER NUMBER
<S> <C> <C> <C>
Average weekly number of persons
(including directors) employed by the
group (by department):
Office and management................ 9 10 18
Technical and sales.................. 22 30 55
--- ----- -----
31 40 73
=== ===== =====
<CAPTION>
YEARS ENDED 31 DECEMBER
--------------------------------------
1994 1995 1996
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Staff costs for the above persons
(including directors)
Wages and salaries..................... 739 957 1,958
Social security costs.................. 72 93 218
Contributions to pension schemes....... 17 43 50
--- ----- -----
828 1,093 2,226
=== ===== =====
</TABLE>
27. PENSIONS
The group contributes to a group personal pension scheme operated by Allied
Dunbar Limited and various other schemes on behalf of eligible employees who
have joined the schemes. The total of contributions paid by the group to the
schemes, which are all defined contribution schemes, was (Pounds)17,000 in
1994, (Pounds)43,000 in 1995 and (Pounds)50,000 in 1996.
28. ACQUISITIONS
(a) Active Imaging (UK) Limited
On 1 September 1995 Data Cell Limited acquired the whole of the share
capital of Active Imaging (UK) Limited (formerly T-Cubed Consultants Limited)
for a total consideration of (Pounds)221,000 in cash. Data Cell Limited has
used acquisition accounting to account for the purchase. As a result of the
acquisition in the 4 months to
F-38
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
31 December 1995, turnover increased by (Pounds)78,000 and the operating loss
increased by (Pounds)21,000. The book values and the fair values at
acquisition of the assets and liabilities of Active Imaging (UK) Limited
acquired are set out below:
<TABLE>
<CAPTION>
BOOK VALUES
AND FAIR VALUES
AT ACQUISITION
---------------
(Pounds)'000
<S> <C>
Tangible fixed assets..................................... 24
Current assets
Stock and work in progress.............................. 22
Debtors................................................. 47
---
Total assets.............................................. 93
Liabilities
Bank loan and overdraft................................. (84)
Creditors............................................... (87)
---
Net liabilities........................................... (78)
Goodwill................................................ 299
---
221
===
Cash consideration........................................ 220
Expenses of acquisition................................... 1
---
221
===
</TABLE>
Active Imaging (UK) Limited contributed a cash outflow of (Pounds)14,000 to
the group's operating cashflows, paid (Pounds)1,000 in respect of net returns
on servicing of finance, and utilised (Pounds)3,000 for investing activities.
The summarised profit and loss account of Active Imaging (UK) Limited for
the three month period from 1 June 1995 to the date of acquisition was as
follows:
<TABLE>
<CAPTION>
(Pounds)'000
<S> <C>
Turnover..................................................... 87
---
Operating loss............................................... (80)
Interest payable............................................. (2)
---
Loss on ordinary activities before taxation.................. (82)
===
</TABLE>
The profit on ordinary activities after taxation for the year ended 31 May
1995 was (Pounds)12,000.
Analysis of net outflow of cash and cash equivalents in respect of the
purchase of Active Imaging (UK) Limited.
<TABLE>
<CAPTION>
(Pounds)'000
<S> <C>
Cash consideration including acquisition expenses............ 221
Bank overdrafts acquired..................................... 75
---
296
===
</TABLE>
(b) Active Imaging Inc.
On 1 September 1995 Data Cell Limited increased its holding in Active
Imaging Inc. to 90 per cent. The shares were acquired for nil consideration.
Data Cell Limited undertook that loans from shareholders in Active Imaging
Inc. not exceeding $115,000 would be repaid. The transaction has been
accounted for as an acquisition.
F-39
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As a result of the acquisition in the four months to 31 December 1995,
turnover increased by (Pounds)136,000 and the operating loss increased by
(Pounds)109,000. The book values and the fair values at acquisition of the
assets and liabilities of Active Imaging Inc. acquired are set out below:
<TABLE>
<CAPTION>
BOOK VALUES AND FAIR
VALUES AT ACQUISITION
---------------------
(Pounds)'000
<S> <C>
Tangible fixed assets............................... 5
Current assets
Stock and work in progress........................ 11
Debtors........................................... 61
Cash at bank...................................... 10
----
Total assets........................................ 87
Liabilities
Creditors......................................... (144)
Other loans....................................... (98)
----
Net liabilities..................................... (155)
Goodwill.......................................... 191
----
36
====
Initial investment................................ 19
Expenses of acquisition........................... 17
----
36
====
</TABLE>
The summarised profit and loss account of Active Imaging Inc. for the eight
months period from 1 January 1995 to the date of acquisition was as follows:
<TABLE>
<CAPTION>
(Pounds)'000
<S> <C>
Turnover..................................................... 190
---
Operating loss............................................... (89)
Interest payable............................................. (2)
---
Loss on ordinary activities before taxation.................. (91)
===
</TABLE>
The loss on ordinary activities after taxation for the year ended 31
December 1994 was (Pounds)86,000.
Analysis of the net outflow of cash and cash equivalents in respect of the
purchase of Active Imaging Inc.
<TABLE>
<CAPTION>
(Pounds)'000
<S> <C>
Cash consideration including acquisition expenses............ 17
Cash at bank and in hand acquired............................ (10)
---
7
===
</TABLE>
F-40
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(c) Active Traffic Management Inc.
On 19 December 1995 Active Traffic Management Inc., a wholly owned
subsidiary, acquired certain assets and liabilities from Invision Inc. as
follows:
<TABLE>
<CAPTION>
BOOK VALUES AND FAIR
VALUES AT ACQUISITION
---------------------
(Pounds)'000
<S> <C>
Tangible fixed assets............................... 55
Current assets
Stock and components.............................. 81
---
Total assets........................................ 136
Liabilities
Creditors......................................... (79)
---
Net assets.......................................... 57
Purchased goodwill................................ 757
---
814
===
Contingent consideration
Cash.............................................. 651
Warrants.......................................... 163
---
814
===
</TABLE>
As stated in note 19, Active Imaging plc has a contingent obligation in
connection with the agreement dated 19 December 1995, inter alia, to make a
payment of $1,000,000 (equivalent to (Pounds)585,000 at 31 December 1996) in
respect of the acquisition of the VIVDS business which is conditional on
Active Traffic Management Inc. obtaining minimum orders of VIVDS products of
$2,000,000 within a period of 18 months of the products being accepted by the
Texas Transportation Institute. This contingent cash consideration and the
contingent warrants represent the consideration given for the assets and have
been provided in full in the financial statements. However at this stage the
directors are not able to assess the amount that will ultimately be payable
under the obligation but are of the opinion that the amount will be less than
the amount provided.
(d) Active Vision Systems Inc.
On 9 April 1996 Active Traffic Management Inc., a wholly owned subsidiary,
acquired the entire issued share capital of Active Vision Systems Inc. for the
issue by Active Imaging plc of 25,000 ordinary shares of 10p each (250,000
ordinary shares of 1p each following the sub-division of the shares) on
completion and a further 75,000 ordinary shares of 10p each (750,000 ordinary
shares of 1p each following the sub-division of the shares) conditional on
acceptance of the Invision camera by the Texas Transportation Institute or the
group achieving sales of $2,000,000 from the sale of products incorporating or
utilising the intellectual property owned by Active Vision Systems Inc., each
within 2 years of 9 April 1996. The contingent consideration reflected in the
accounts has been based on the share price at the date of the acquisition. (At
the closing share price of Active Imaging plc on 31 December 1996, the
contingent consideration would have amounted to (Pounds)626,250).
Save for the acquisition of certain intellectual property, including patents
and trade marks, Active Vision Systems Inc. did not trade in the period from
its date of incorporation to 9 April 1996 and had no book values in respect of
assets and liabilities at acquisition. The fair value attributed by Active
Imaging plc to the intellectual property at the date of acquisition was
(Pounds)1,000,000 representing the fair value of the shares issued for the
acquisition of Active Vision Systems Inc. and the deferred share consideration
based on the share price at the date of acquisition.
F-41
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
29. RELATED PARTY TRANSACTION
In addition to transactions included elsewhere in the notes to the financial
statements, the following transactions were entered into by a company in which
Mr M J Brooke had an interest.
On 11 April 1996 Coinshire Limited and others committed to provide loans of
up to (Pounds)574,400 to Active Imaging plc in the event that the Admission to
the Alternative Investment Market did not take place. A commitment fee of
(Pounds)3,611 was paid to Coinshire Limited in respect thereof. No loan was
made.
30. SUMMARY OF DIFFERENCES BETWEEN UK GAAP AND US GAAP
A description of those accounting policies which differ significantly in
certain respects from United States generally accepted accounting principles
follows:
Accounting for business combinations
The acquisitions of Active Imaging (UK) Limited and Active Imaging Inc. in
1995 have been accounted for in accordance with Financial Reporting Standard
No. 6 as described in note 2. The excess of consideration over the fair value
of net assets acquired was written off directly to reserves in accordance with
UK GAAP. Under US GAAP the purchase price would have been allocated to the
fair value of the net assets acquired with the excess accounted for as an
intangible asset and amortised over its economic life, not to exceed 40 years.
The estimated economic lives associated with these acquisitions is determined
by management to be 5 years. Accordingly goodwill of (Pounds)300,000 and
(Pounds)191,000 for the Active Imaging (UK) Limited and Active Imaging Inc.
entities respectively would have been recognised in the 1995 accounts,
yielding amortisation charges for 1995 of (Pounds)20,000 and (Pounds)12,000
respectively and for 1996 of (Pounds)60,000 and (Pounds)38,000 respectively.
The acquisition of the unincorporated business and net assets of Invision
Inc. in 1995 has been accounted for in accordance with Financial Reporting
Standard No. 6. As described in note 28 the consideration for this acquisition
of (Pounds)814,000 was wholly contingent. The goodwill associated with the
acquisition of (Pounds)756,000 was written off directly to reserves in
accordance with UK GAAP which requires a reasonable estimate of the value of
amounts expected to be payable in the future. Under US GAAP, the contingent
consideration would not be recorded unless the outcome of the contingency was
determinable and that its crystallisation was determinable beyond a reasonable
doubt. Accordingly the exclusion of the contingent cash consideration of
(Pounds)651,000 and the contingent cost of the future issue of warrants to
subscribe of (Pounds)163,000, at 31 December 1995 and (Pounds)140,000 at 31
December 1996, under US GAAP would have created a negative goodwill on the
acquisition. Under US GAAP this negative goodwill would have been set off
against the tangible fixed assets acquired.
As discussed in note 28 the company acquired the whole of the issued share
capital of Active Vision Systems Inc. in 1996. The consideration for the asset
was satisfied by the issue of 250,000 ordinary shares and the conditional
issue of 750,000 shares. The fair value assigned to the shares issued and the
contingent shares to be issued was (Pounds)250,000 and (Pounds)750,000
respectively. The fair value assigned to the intangible assets acquired was
based on the fair value of the consideration issued and to be issued, namely
(Pounds)250,000 and (Pounds)750,000 respectively giving a total of
(Pounds)1,000,000. Under US GAAP, consideration which is to be issued at the
expiration of the contingency period (or when the conditions of the
contingencies are met) should be disclosed but not recorded as outstanding
securities unless the outcome of the contingency is determinable beyond a
reasonable doubt. Accordingly, the contingent share issue would not have been
recorded as costs of the acquisition under US GAAP. Accordingly, only the
costs associated with the share issue are to be allocated to the identifiable
fixed assets, that amount being (Pounds)250,000.
Accounting for research and development costs
Under Statement of Standard Accounting Practice No. 13 research and
development costs incurred can be capitalised if certain requirements are met.
As described in note 2, management has taken the prudent approach
F-42
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of capitalising only those costs which meet the criteria set out in Statement
of Standard Accounting Practice No. 13 and also were incurred with third
parties. Under US GAAP the costs which have been capitalised would be written
off as expensed in accordance with Statements Nos 2 and 86 of Financial
Accounting Standards Board, as they do not wholly relate to software
development costs. The unamortised amounts concerned are (Pounds)112,000,
(Pounds)239,000 and (Pounds)410,000 for the years ending 1994, 1995 and 1996,
respectively.
Accounting for non-equity shares
As described in note 19 cumulative participating and cumulative redeemable
preference shares were issued during 1995 and 1996. These shares and their
related share premium meet the definition of non-equity under Financial
Reporting Standards No 4. Disclosure of these shares and their related share
premium are included as non-equity shareholders' funds on the face of the
balance sheet. The amounts however are not excluded from the total
shareholders' funds of (Pounds)374,000 and (Pounds)3,305,000 for the years
ending 1995 and 1996, respectively. Under US generally accepted accounting
principles only shares subject to mandatory redemption requirements or whose
redemption is outside the control of the issuer are identified as non-equity
shares. In addition, amounts related to the non-equity shares under US GAAP are
not to be included in the total of shareholders' equity.
Accounting for loans to employee share ownership plans
During 1995 the group established an employee share ownership plan (ESOP). As
described in note 19 loans of (Pounds)46,000 were made to the ESOP for purposes
of purchasing shares to later be sold to employees. Under UK GAAP the amount
due from the ESOP was classified as other debtors ((Pounds)14,000) and own
shares ((Pounds)32,000). Under US GAAP own shares would be offset against the
shareholders' equity.
The application of the above US GAAP would have had the following approximate
effect on consolidated net income and shareholders equity:
<TABLE>
<CAPTION>
YEARS ENDED
31 DECEMBER
--------------------------------------
1994 1995 1996
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
LOSS FOR THE FINANCIAL YEAR IN
ACCORDANCE WITH UK GAAP................ (89) (514) (3,650)
Increase for:
Accounting for business combinations.. -- (32) (98)
Accounting for research and
development costs.................... (112) (239) (165)
Accounting for business combinations--
adjustment to amortisation of
intangibles.......................... -- -- 56
---- ---- ------
LOSS FOR THE FINANCIAL YEAR IN
ACCORDANCE WITH US GAAP................. (201) (785) (3,857)
==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
31 DECEMBER
-------------------------
1995 1996
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
SHAREHOLDERS' FUNDS IN ACCORDANCE WITH UK GAAP....... 374 3,305
Increase/(decrease) for:
Accounting for business combinations--reversal of
goodwill write off................................ 1,247 1,187
Accounting for business combinations--goodwill
amortisation...................................... (32) (130)
Accounting for business combinations--elimination
of contingent share reserve....................... (163) (140)
Accounting for research and development costs...... (351) (516)
Accounting for non-equity shares................... (1,300) (1,300)
Accounting for loans to ESOP....................... (32) --
------ ------
SHAREHOLDERS' FUNDS (DEFICIT) IN ACCORDANCE WITH US
GAAP................................................. (257) 2,406
====== ======
</TABLE>
F-43
<PAGE>
ACTIVE IMAGING PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Consolidated statement of cash flows
The consolidated cash flow statements prepared in accordance with Financial
Reporting Standard No. 1 present substantially the same information as that
required under US GAAP. Under US GAAP however, there are certain differences
from UK GAAP with regards to classification of items within the cash flow
statement and with regards to the definition of cash and cash equivalents.
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, investing
activities and financing activities. Under US GAAP however, only three
categories of cash flow are reported, being operating activities, investing
activities and financing activities. Cash flows from taxation and returns on
investments and servicing of finance would, with the exception of dividends
paid and costs of financing be included as operating activities under US GAAP.
The payment of dividends and costs of financing would be included under
financing activities under US GAAP.
Under US GAAP, cash and cash equivalents do not include bank loans and
overdrafts repayable within three months from the date of advance as is the
case under UK GAAP.
Set out below, for illustrative purposes, is a summary consolidated
statement of cash flows under US GAAP.
<TABLE>
<CAPTION>
YEARS ENDED
31 DECEMBER
-------------------------
1995 1996
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Net cash used by operating activities................. (626) (3,593)
Net cash used by investing activities................. (546) (402)
Net cash provided by financing activities............. 1,292 5,196
----- ------
Net cash inflows...................................... 120 1,201
===== ======
</TABLE>
F-44
<PAGE>
TVX LIMITED
REPORT OF THE DIRECTORS
FOR THE PERIOD ENDED SEPTEMBER 17, 1996
FINANCIAL STATEMENTS
The directors present their report and the audited financial statements of
the company for the period from 1st December 1995 to 17th September 1996.
CHANGE IN ACCOUNTING REFERENCE DATE
The company has changed its accounting reference date to 17th September from
30th November.
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
The company designs and sells security equipment. On 17th September 1996 the
company was acquired by TVX Inc., a company incorporated and operating in the
United States.
RESPONSIBILITIES OF DIRECTORS
Company law requires the directors to prepare financial statements for each
financial period which give a true and fair view of the state of affairs of
the company and of the profit or loss of the company for that period. In
preparing those financial statements the directors are required to
(1)select suitable accounting policies and then apply them consistently;
(2)make judgements and estimates that are reasonable and prudent;
(3)state whether applicable accounting standards have been followed subject to
any material departures disclosed and explained in the financial
statements; and
(4)prepare the financial statements on the going concern basis unless it is
inappropriate to assume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
RESULTS AND DIVIDENDS
The loss for the financial period amounted to (Pounds)556,881 (1995: loss
(Pounds)1,135,166). It is recommended that this amount be transferred from
reserves.
FIXED ASSETS
The movements in fixed assets during the year are set out in notes 6 and 7
to the financial statements.
RESEARCH AND DEVELOPMENT
Details of the expenditure incurred on development are set out in note 3.
The expenditure relates to the development of visual verification products.
F-45
<PAGE>
TVX LIMITED
REPORT OF THE DIRECTORS
FOR THE PERIOD ENDED SEPTEMBER 17, 1996
DIRECTORS
The directors of the company who served during the period are as follows:
M J Hawker (resigned 17th September 1996)
P M Bertram (resigned 17th September 1996)
A C Pohs (appointed 17th September 1996)
R C Mulverhill (appointed 17th September 1996)
D P Dwyer (appointed 17th September 1996)
DIRECTORS' INTERESTS IN SHARES
THE COMPANY AND FELLOW SUBSIDIARY UNDERTAKINGS
No director has any interest in the shares of the company.
Under Statutory Instrument No. 802 made under the authority of Section
324(3) of the Companies Act 1985, the directors' interests in the share
capital of the ultimate parent undertaking need not be disclosed.
AUDITORS
A resolution proposing the appointment of Ernst & Young as auditors to the
company will be put to the Annual General Meeting.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
During the financial period the company maintained liability insurance for
the directors and officers as permitted by Section 310 (3)(a) of the Companies
Act 1985.
By Order of the Board
25 January 1997
F-46
<PAGE>
AUDITORS' REPORT
To the members of TVX Limited
We have audited the financial statements on pages F-48 to F-56 which have
been prepared on the basis of the accounting policies set out on page F-51.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page F-45 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgments made
by the directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the company's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of the company's affairs as at 17th September 1996 and of the company's
loss and cash flows for the period then ended and have been properly prepared
in accordance with the Companies Act 1985.
Binder Hamlyn
Registered Auditors
Chartered Accountants
20 Old Bailey
LONDON
EC4M 7BH
25 January 1997
F-47
<PAGE>
TVX LIMITED
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
(52 WEEKS) (42 WEEKS)
---------- ----------
1995 1996
---------- ----------
NOTES (Pounds) (Pounds)
<S> <C> <C> <C>
Turnover......................................... 2 997,599 659,701
Cost of sales.................................... (962,118) (642,840)
---------- --------
Gross profit..................................... 35,481 16,861
Administrative expenses.......................... (887,427) (573,742)
Profit on sale of fixed asset investment......... 7 -- 1
Provisions for fixed asset investments........... 7 (559,140) (1)
---------- --------
Loss on ordinary activities before taxation...... 3 (1,411,086) (556,881)
Taxation credit.................................. 5 275,920 --
---------- --------
Loss on ordinary activities after taxation
transferred from reserves........................ 12 (1,135,166) (556,881)
---------- --------
</TABLE>
Other than the movements in the profit and loss account shown above there
were no gains or losses recognised in either period. Consequently a Statement
of Total Recognised Gains and Losses has not been produced. All trading results
relate to continuing activities.
F-48
<PAGE>
TVX LIMITED
BALANCE SHEET
<TABLE>
<CAPTION>
1995 1996
---------- ----------
NOTES (Pounds) (Pounds)
<S> <C> <C> <C>
Fixed Assets
Tangible assets................................ 6 39,421 45,578
Investments.................................... 7 -- --
---------- ----------
39,421 45,578
---------- ----------
Current Assets
Stocks......................................... 8 290,948 302,078
Debtors........................................ 9 896,651 149,934
---------- ----------
Net current assets............................. 1,187,599 452,012
Creditors: amounts falling due within one year... 10 (3,386,813) (79,264)
---------- ----------
Net current assets/(liabilities)................. (2,199,214) 372,748
---------- ----------
(2,159,793) 418,326
---------- ----------
Capital and Reserves
Called up share capital........................ 11 2 3,135,002
Profit and loss account........................ 12 (2,159,795) (2,716,676)
---------- ----------
Equity Shareholders' funds....................... 13 (2,159,793) 418,326
---------- ----------
</TABLE>
F-49
<PAGE>
TVX LIMITED
CASH FLOW STATEMENT
<TABLE>
<CAPTION>
1995 1996
(52 WEEKS) (42 WEEKS)
---------- ----------
(Pounds) (Pounds)
<S> <C> <C>
Net cash outflow from operating activities (Note A).... (818,907) (119,080)
Investing activities:
Expenditure on tangible fixed assets................. (28,884) (32,905)
Purchase of shares in subsidiary undertakings........ -- (1)
Purchase of fixed asset investments.................. (232,138) --
Sales of investments................................. -- 1
---------- ----------
Net cash outflow from investing activities............. (261,022) (32,905)
---------- ----------
Financing:
Issue of ordinary shares............................. -- 3,135,000
Amounts owed to previous holding company............. 705,629 (2,600,563)
---------- ----------
Net cash inflow from financing......................... 705,629 534,437
---------- ----------
Increase/decrease in cash and cash equivalents......... (374,300) 382,452
========== ==========
NOTE A
Reconciliation of operating loss to net outflow from operating activities:
<CAPTION>
1995 1996
---------- ----------
(Pounds) (Pounds)
<S> <C> <C>
Operating loss before tax.............................. (1,411,086) (556,881)
Provisions for fixed asset investments................. 559,140 --
Depreciation........................................... 171,709 26,748
Increase in stocks..................................... (144,206) (11,130)
Decrease in debtors.................................... 19,100 358,717
Increase/(decrease) in creditors....................... (13,564) 63,466
---------- ----------
Net cash outflow from operating activities............. (818,907) (119,080)
---------- ----------
</TABLE>
F-50
<PAGE>
TVX LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1 ACCCOUNTING POLICIES
(a) Accounting convention
The financial statements have been prepared under the historical cost
convention, and have been prepared in accordance with applicable accounting
standards.
(b) Fixed assets and depreciation
The fixed assets are depreciated on a straight line basis at the following
annual rates:
Plant, fixtures and fittings--25% to 33.3%
(c) Stocks
Stocks are valued at the lower of cost and net realisable value. Cost for
products manufactured by the group consists of direct materials and labour
costs, together with the appropriate overheads.
(d) Deferred taxation
Deferred taxation is provided on the liability method in respect of timing
differences between profits as computed for taxation purposes and profits as
stated in the financial statements except to the extent that the liability will
not be payable in the foreseeable future. Timing differences are due primarily
to the excess of tax allowances on fixed assets over the corresponding
depreciation charged in the financial statements.
(e) Pensions
During the period the company was a member of the Automated Security
(Holdings) plc ("ASH") group pension plan. The group has a funded, defined
benefit plan for UK employees, based on final pensionable salary, with assets
held in funds administered by the Trustees of the plan. The cost of providing
pensions is spread on a systematic and rational basis over the period during
which the company benefits from the member's services. The pension costs and
any necessary provisions are assessed in accordance with the advice of an
independent qualified actuary. Variations from the regular cost are spread over
the average remaining service lives of current employees.
(f) Development Expenditure
Expenditure on development is written off as it is incurred.
(g) Operating Leases
Rentals paid under operating leases are charged against income on a straight
line basis over the period of the lease.
<TABLE>
<CAPTION>
2 TURNOVER
1995 1996
-------- --------
<S> <C> <C>
(Pounds) (Pounds)
Turnover, net of value added tax, comprises:
Invoiced value of sales of goods and services............. 997,599 659,701
======== ========
</TABLE>
F-51
<PAGE>
TVX LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
3 LOSS ON ORDINARY ACTIVITIES
1995 1996
-------- --------
<S> <C> <C>
(Pounds) (Pounds)
Loss on ordinary activities is stated after
charging/(crediting):
Depreciation............................................. 26,748 171,709
Other operating lease and hire charges................... 32,755 42,160
Audit fee................................................ 9,625 12,000
Provisions for fixed asset investments................... -- 559,140
Development expenditure.................................. 22,669 159,271
Other operating lease and hire charges relate principally
to vehicles.
</TABLE>
Vehicles are hired from the ASH group. There is no commitment under this
arrangement. The company's annual operating lease commitment for the year
following the balance sheet date is (Pounds)936 in respect of operating leases
expiring between two and five years from that date.
4 INFORMATION REGARDING DIRECTORS AND EMPLOYEES
Directors' emoluments
None of the directors received any remuneration for their services during the
year or the previous year.
<TABLE>
<S> <C> <C>
Employee costs during the year:
1995 1996
-------- --------
(Pounds) (Pounds)
Wages and salaries.......................................... 348,917 251,960
Social security costs....................................... 30,601 25,714
Other pension costs......................................... 2,767 2,566
-------- --------
382,285 280,240
======== ========
</TABLE>
During the period the company was a member of the ASH group pension plan, and
contributions to the plan are based on pension costs across the group as a
whole.
The latest actuarial valuation of the plan was carried out as at 1 April
1994, using the Projected Unit Method, to assess the finances of the plan and
to determine the pension cost.
Details of the actuarial valuation are shown in the consolidated financial
statements of ASH.
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Average number of persons employed
Engineers and sales staff......................................... 8 8
Office staff and management....................................... 6 4
--- ---
14 12
=== ===
</TABLE>
F-52
<PAGE>
TVX LIMITED
NOTES TO THE FINANCIAL STATEMENTS
5 TAXATION CREDIT
<TABLE>
<S> <C> <C>
1995 1996
-------- --------
(Pounds) (Pounds)
Corporation tax relief receivable at 33% (1995:33%)
in respect of losses surrendered............................ 234,000 --
Prior year.................................................. 41,920 --
-------- --------
275,920 --
======== ========
</TABLE>
Deferred Taxation
In accordance with the accounting policy 1(d), no provision is required for
deferred taxation. If full provision were made, the amount required, assuming a
rate of corporation tax of 33% (1995 : 33%), would be as follows:
<TABLE>
<S> <C> <C>
1995 1996
-------- --------
Deferred tax asset (Pounds) (Pounds)
Capital allowances........................................ 64,090 57,213
Short term timing differences............................. 21,813 23,444
-------- --------
Total................................................... 85,903 80,657
======== ========
</TABLE>
6 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
PLANT, FIXTURES
AND FITTINGS
---------------
<S> <C>
COST (Pounds)
At 1 December 1995............................................ 105,415
Additions..................................................... 32,905
Disposals..................................................... --
--------
At 17 September 1996.......................................... 138,320
========
DEPRECIATION
At 1 December 1995............................................ 65,994
Additions..................................................... 26,748
Disposals..................................................... --
--------
At 17 September 1996.......................................... 92,742
========
NET BOOK VALUE
At 30 November 1995........................................... 39,421
--------
At 17 September 1996.......................................... 45,578
========
7 FIXED ASSET INVESTMENTS
COST
At 1 December 1995............................................ 952,237
Additions..................................................... 1
Disposals..................................................... (952,237)
--------
At 17 September 1996.......................................... 1
========
</TABLE>
F-53
<PAGE>
TVX LIMITED
NOTES TO THE FINANCIAL STATEMENT--(CONTINUED)
PROVISIONS
<TABLE>
<S> <C>
At 1 December 1995.................................................. 952,237
Charged in year..................................................... 1
Disposals........................................................... (952,237)
--------
At 17 September 1996................................................ 1
========
</TABLE>
NET BOOK VALUE
<TABLE>
<S> <C>
At 30 November 1995................................................... --
-------
At 17 September 1996.................................................. --
=======
</TABLE>
Fixed asset investments previously related to the shares in TVX, Inc., a
company incorporated and operating in the United States which develops and
distributes digital image management systems. The company sold its holding of
the common stock and the preferred stock of TVX, Inc. to ASH for (Pounds)1 on
28 May 1996. On 28 May 1996 the company acquired the whole of the issued
ordinary share capital of Securis Products Limited, a dormant company
incorporated in England, for (Pounds)1.
8 STOCKS
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
(Pounds) (Pounds)
Raw materials............................................. 12,645 146,345
Finished goods............................................ 278,303 155,733
--------- --------
290,948 302,078
--------- --------
If stocks were stated at replacement cost the amount above
would not be materially affected.
9 DEBTORS
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
(Pounds) (Pounds)
Trade debtors............................................. 213,495 105,520
Amounts owed by TVX, Inc. ................................ 98,782 27,247
Other debtors............................................. 82,353 --
Prepayments and accrued income............................ 114,021 17,167
Corporation tax--group relief............................. 388,000 --
--------- --------
896,651 149,934
--------- --------
10 CREDITORS
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
(Pounds) (Pounds)
Bank overdraft............................................ 382,452 --
Amounts owed to previous holding company.................. 2,988,563 --
Accruals.................................................. 15,798 79,264
--------- --------
3,386,813 79,264
--------- --------
</TABLE>
F-54
<PAGE>
TVX LIMITED
NOTES TO THE FINANCIAL STATEMENTS
11 CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
ALLOTTED AND
AUTHORISED FULLY PAID
----------------------------- ---------------------------
1995 1996 1995 1996
----------- ----------------- --------- -----------------
<S> <C> <C> <C> <C>
Ordinary shares of
(Pounds)1 each........ (Pounds)100 (Pounds)5,000,000 (Pounds)2 (Pounds)3,135,002
</TABLE>
During the period the company issued 3,135,000 Ordinary Shares, nominal
value (Pounds)3,135,000, for a consideration of (Pounds)3,135,000.
12 PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
(Pounds)
<S> <C>
At 1 December 1995................................................ (2,159,795)
Loss for the year................................................. (556,881)
----------
At 17 September 1996.............................................. (2,716,676)
----------
</TABLE>
13 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
(Pounds) (Pounds)
Shares issued in the period........................... -- 3,135,000
Loss for the year..................................... (1,135,166) (556,881)
---------- ----------
Net increase/(reduction) in shareholders' funds....... (1,135,166) 2,578,119
Opening shareholders' funds........................... (1,024,627) (2,159,793)
---------- ----------
Closing shareholders' funds........................... (2,159,793) 418,326
========== ==========
</TABLE>
14 ULTIMATE PARENT UNDERTAKING
The company's ultimate parent undertaking is TVX, Inc. (a company
incorporated in United States). The registered office of TVX, Inc. is 14818
West 6th Avenue, Suite 1A, Golden, Colorado 80401, USA. TVX, Inc. acquired the
company on 17 September 1996.
15 APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the Board on 18 December 1996.
16. SUMMARY OF DIFFERENCES BETWEEN UK GAAP AND US GAAP
No significant differences exist between the generally accepted accounting
principles from those in the United States (US) versus those in the United
Kingdom (UK) as these accounting principles relate to the company.
Statement of cash flows
The cash flow statements prepared in accordance with Financial Reporting
Standard No. 1 present substantially the same information as that required
under US GAAP. Under US GAAP however, there are certain differences from UK
GAAP with regards to classification of items within the cash flow statement
and with regards to the definition of cash and cash equivalents.
F-55
<PAGE>
TVX LIMITED
NOTES TO FINANCIAL STATEMENTS
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, investing activities
and financing activities. Under US GAAP however, only three categories of cash
flow are reported, being operating activities, investing activities and
financing activities. Cash flows from taxation and returns on investments and
servicing of finance would, with the exception of dividends paid and costs of
financing be included as operating activities under US GAAP. The payment of
dividends and costs of financing would be included under financing activities
under US GAAP.
Set out below, for illustrative purposes, is a summary statement of cash
flows under US GAAP.
<TABLE>
<CAPTION>
1995 1996
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Net cash used by operating activities....................... (818,907) (119,080)
Net cash used by investing activities....................... (261,022) (32,905)
Net cash provided by financing activities................... 705,629 534,437
-------- --------
Net cash (outflows) inflows................................. (374,300) 382,452
======== ========
</TABLE>
F-56
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURI-
TIES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK BY ANY PERSON IN ANY JURIS-
DICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE INDIVIDUAL MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY INDIVIDUAL TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITA-
TION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THAT DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................................
Risk Factors.............................................................
Use of Proceeds..........................................................
Dividend Policy..........................................................
Pro Forma Capitalization.................................................
Dilution.................................................................
Unaudited Pro Forma Combined Financial Statements........................
Selected Financial Data..................................................
Management's Discussion and Analysis of Financial Condition and Results
of Operations...........................................................
Business.................................................................
The Acquisition..........................................................
Management...............................................................
Principal Stockholders...................................................
Certain Transactions.....................................................
Description of Capital Stock.............................................
Shares Eligible for Future Sale..........................................
Underwriting.............................................................
Legal Matters............................................................
Experts..................................................................
Available Information....................................................
Exchange Rates...........................................................
Index to Financial Statements............................................
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THIS COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,666,667 SHARES
TVX, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
BT SECURITIES CORPORATION
GENESIS MERCHANT GROUP SECURITIES
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered (all amounts are estimated
except the SEC Registration Fee and the NASD Filing Fee).
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 14,869
NASD Filing Fee................................................ 5,407
Nasdaq National Market Listing Fee............................. *
Blue Sky Qualification Fees and Expenses (including legal
fees)......................................................... *
Printing Expenses.............................................. *
Legal Fees and Expenses (other than blue sky).................. *
Auditors' Fees and Expenses.................................... *
Transfer Agent and Registrar Fees.............................. *
Miscellaneous Expenses......................................... *
--------
Total estimated expenses..................................... $800,000
</TABLE>
- --------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws and Certificate of Incorporation provide that the
Company shall, to the full extent permitted by the General Corporation Law of
the State of Delaware, as amended from time to time, indemnify all directors
and officers of the Company. Section 145 of the Delaware General Corporation
Law provides in part that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Similar indemnity is
authorized for such persons against expenses (including attorneys' fees)
actually and reasonably incurred in defense or settlement of any threatened,
pending or completed action or suit by or in the right of the corporation, if
such person acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation, and provided
further that (unless a court of competent jurisdiction otherwise provides)
such person shall not have been adjudged liable to the corporation. Any such
indemnification may be made only as authorized in each specific case upon a
determination by the stockholders or disinterested directors that
indemnification is proper because the indemnitee has met the applicable
standard of conduct. The indemnitee is presumed to be entitled to
indemnification and the Company has the burden of proof to overcome that
presumption. Where an officer or a director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses which such officer or director
actually or reasonably incurred.
The Certificate of Incorporation also provides that directors shall have no
personal liability to the Company or its stockholders for breach of fiduciary
duty as a director. This provision does not eliminate the liability of a
director (i) for a breach of the director's duty of loyalty to the Company or
its stockholders; (ii) for acts or omissions by the director not in good faith
or which involve intentional misconduct or a knowing violation of law; (iii)
for liability arising under Section 174 of the Delaware General Corporation
Law (relating to the
II-1
<PAGE>
declaration of dividends and purchase or redemption of shares in violation of
the Delaware General Corporation Law); or (iv) for any transaction from which
the director derived an improper personal benefit.
Section 8 of the Underwriting Agreement (filed as Exhibit 1.1 hereto)
provides that the Underwriters will indemnify and hold harmless the Company
and each director, officer or controlling person of the Company from and
against any liability caused by any statement or omission in the Registration
Statement or Prospectus based on certain information furnished to the Company
by the Underwriters for use in the Prospectus.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, the Registrant has sold its securities pursuant
to the following transactions, all of which were exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act").
In March and July 1995, CommNet and ASH each purchased an aggregate of
113,038 shares of Common Stock and 30 individuals purchased an aggregate of
138,563 shares of Common Stock at a purchase price of approximately $3.29 per
share. These shares were issued in a private offering pursuant to the
exemption from registration contained in Section 4(2) of the Act.
At various times since the Registrant's inception, it has granted options to
purchase shares of its Common Stock to its employees and directors pursuant to
a 1993 Nonqualified Stock Option Plan, an Omnibus Stock and Incentive Plan and
a 1996 Directors Stock Option Plan at exercise prices ranging from
approximately $.73 to $1.65 per share, all pursuant to private offerings
exempt from registration pursuant to Rule 701 promulgated under the Act.
With respect to sales of the securities in reliance on the provisions of
Section 4(2) of the Act, each such transaction did not involve a public
offering. The purchasers were officers, directors, promoters and publicly held
corporations, all of whom were familiar with the business and financial
affairs of the Registrant. The offerings were not made by means of any general
solicitation, shares were acquired without a view toward distribution thereof,
and all purchasers represented that they were able to bear the economic risk
of their investment. The shares were issued with an investment legend thereon
and stop transfer instructions were noted on the Registrant's transfer ledger
and will be given to the Registrant's transfer agent.
With respect to grants of options in reliance on Rule 701 promulgated under
the Act, each such transaction did not involve a public offering. Each
purchaser further signed a written agreement that the securities will not be
sold without registration under the Act or unless an exemption from the
registration provisions of the Act is available and the availability is
established to the satisfaction of the Company and its counsel.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement between the Company and the
Underwriters.*
1.2 Form of Agreement among Underwriters and Selected Dealer
Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the
Company.
3.2 Amended and Restated Bylaws of the Company.
4.1 Form of Common Stock Certificate.*
5.1 Form of Opinion of Ireland, Stapleton, Pryor & Pascoe, P.C. as
to the legality of issuance of the Company's Common Stock.*
10.1 1993 Nonqualified Stock Option Plan.
10.2 Omnibus Stock and Incentive Plan.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.3 1996 Directors Stock Option Plan.
10.4 HESA Buried Cable Distribution and License Agreement.
10.5 Employment Agreement dated November 14, 1995, by and between the
Company and Robert C. Mulverhill.
10.6 Services Agreement dated April 18, 1996, by and between Active
Imaging and John Osborne.
10.7 Consultancy Agreement dated April 18, 1996, by and between
Active Imaging and Coinshire Limited.
11.1 Statement re: computation of per share earnings.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Gelfond Hochstadt Pangburn & Co.
23.3 Consent of Coopers & Lybrand.
23.4 Consent of Binder Hamlyn.
23.5 Consent of Ireland, Stapleton, Pryor & Pascoe, P.C. (see Exhibit
5.1).*
25.1 Power of Attorney--See Page II-5.
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable and therefore have been omitted or
the information required by the applicable schedule is included in the notes
to the financial statements.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under
II-3
<PAGE>
the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN DENVER, COLORADO, ON THIS 3RD DAY
OF FEBRUARY, 1997.
TVX, INC.
/S/ Robert C. Mulverhill
By: _________________________________
ROBERT C. MULVERHILL,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
The undersigned directors and/or officers of the Registrant, by virtue of
their signatures to this Registration Statement appearing below, hereby
constitute and appoint Robert C. Mulverhill or Thomas W. Vander Stel, or
either of them, with full power of substitution, as attorney-in-fact in their
names, places and steads to execute any and all amendments to this
Registration Statement in the capacities set forth opposite their names and
hereby ratify all that said attorneys-in-fact may do by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
/S/ Robert C. Mulverhill President, Chief February 3,
- ------------------------------------- Executive Officer 1997
ROBERT C. MULVERHILL and Director
(Principal
Executive Officer)
/S/ Thomas W. Vander Stel Vice President, February 3,
- ------------------------------------- Chief Financial 1997
THOMAS W. VANDER STEL Officer, Secretary
and Treasurer
(Principal
Financial and
Accounting Officer)
/S/ Arnold C. Pohs Director February 3,
- ------------------------------------- 1997
ARNOLD C. POHS
/S/ Daniel P. Dwyer Director February 3,
- ------------------------------------- 1997
DANIEL P. DWYER
/S/ R. Graham Morrison Director February 3,
- ------------------------------------- 1997
R. GRAHAM MORRISON
/S/ William N. Moody Director February 3,
- ------------------------------------- 1997
WILLIAM N. MOODY
II-5
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
TVX, INC.
TVX, Inc., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
1. The name of the corporation is TVX, Inc. TVX, Inc. was
originally incorporated under the name "Securis Products, Inc." pursuant to its
original Certificate of Incorporation filed with the Secretary of the State of
Delaware on January 13, 1992.
2. Pursuant to Sections 242 and 245 of the General Corporation Law
of the State of Delaware, this Restated Certificate of Incorporation restates
and integrates and further amends the provisions of the Certificate of
Incorporation of the Corporation.
3. This Restated Certificate of Incorporation has been duly adopted
pursuant to Section 245 of the General Corporation Law of the State of
Delaware.
4. The text of the Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:
FIRST: The name of the Corporation shall be TVX, Inc.
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of the registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purpose to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
FOURTH: The aggregate number of shares which the Corporation shall
have authority to issue is fifty-five million (55,000,000) shares, consisting of
fifty million (50,000,000) shares of common stock with a par value of $0.01
per share (the "Common Stock"), and five million (5,000,000) shares of preferred
stock with a par value of $0.01 per share (the "Preferred Stock").
I. Preferred Stock. The Board of Directors is authorized, subject to
---------------
limitations prescribed by law and the provisions of
<PAGE>
this Article FOURTH, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
A. The number of shares constituting that series and the
distinctive designation of that series;
B. The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
C. Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
D. Whether that series shall have the conversion privileges, and,
if so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
E. Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
F. Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
G. The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up, or merger,
consolidation, distribution or sale of assets of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series;
H. Any other relative rights, preferences and limitations of that
series. Shares of Preferred Stock may be authorized and issued, in aggregate
amounts not exceeding the total number of shares of Preferred Stock authorized
by the Certificate of Incorporation, from time to time as the Board of Directors
of
-2-
<PAGE>
the Corporation shall determine and for such consideration as shall be fixed by
the Board of Directors.
II. Designation of Series A Preferred Stock. One million (1,000,000)
---------------------------------------
shares of the Corporation's Preferred Stock are hereby designated Series A
Preferred Stock (hereinafter referred to as the "Series A Preferred"), with the
powers, preferences and rights and the qualifications, restrictions, and
limitations thereon specified in this Article FOURTH.
III. Designation of Series B Preferred Stock. Five Hundred Seventy-Seven
---------------------------------------
Thousand, Eight Hundred Twelve (577,812) shares of the Corporation's Preferred
Stock are hereby designated Series B Non-Voting Convertible Preferred Stock
(hereinafter referred to as the "Series B Preferred"), with the powers,
preferences and rights and the qualifications, restrictions, and limitations
thereon specified in this Article FOURTH.
IV. Dividends.
---------
A. Right to Dividends. Dividends on the Series A Preferred shall
------------------
accrue at the rate of $.15 per annum per share. The holders of outstanding
Series A Preferred shall be entitled to receive such accrued dividends only
when, as, and if declared from time to time by the Board of Directors, out of
any assets at the time legally available. No undeclared or declared but unpaid
dividend shall bear or accrue interest.
B. Priority of Dividends. The holders of Series B Preferred shall
---------------------
be entitled to participate ratably with the holders of the Common Stock, in
proportion to the number of shares owned by each such holder, in the declaration
and payment of any dividend on the Common Stock. The Corporation shall make no
Distribution (as defined below) to the holders of Series B Preferred or Common
Stock in any fiscal year unless and until any and all accrued but undeclared or
unpaid dividends shall have been paid upon all Series A Preferred.
"Distribution" in this paragraph means the transfer of cash or property without
consideration, whether by way of dividend of otherwise, or the purchase or
redemption of shares of the Corporation for cash or property; provided, however,
that Distribution does not include (i) a distribution which is part of a
voluntary liquidation, dissolution or winding up of the Corporation or (ii) any
redemption of Series A Preferred pursuant to Section III of this Article FOURTH.
V. Redemption.
----------
A. Methods of Redemption. At any time after January 1, 1995, the
---------------------
Corporation shall have the right, and at any time after May 1, 1996, the holders
of at least 60% of the Series A
-3-
<PAGE>
Preferred then outstanding shall have the right upon the delivery of written
notice to the Corporation (the "Redemption Notice") to require the Corporation:
To redeem in cash out of any funds legally available therefor all
outstanding shares of Series A Preferred, (or, in the case of (i) above, such
lesser amount as such holders may elect), at a price equal to $1.00 per share,
plus, in each case, any accrued but undeclared or unpaid dividends on the Series
A Preferred (the "Redemption Price"). Within 30 days of its receipt of the
Redemption Notice or its decision to exercise its right to redeem, as the case
may be, the Corporation shall give written notice by mail, postage prepaid, to
all the holders of the Series A Preferred. Such notice shall be addressed to
each such stockholder at the address of such holder appearing on the books of
the Corporation or given by such holder to the Corporation for the purpose of
notice. Each such notice shall state the date on which the redemption is to be
made (the "Redemption Date"), which shall be no later than 30 days after the
date of such notice, the Redemption Price, and the number of shares of Series A
Preferred of such holder to be redeemed and shall call upon such holder to
surrender to the Corporation on the Redemption Date at the place designated in
the notice such holder's redeemed Series A Preferred. On or after the
Redemption Date, each holder of shares of the Series A Preferred called for
redemption shall surrender the certificate(s) evidencing such shares to the
Corporation, and shall thereupon be entitled to receive payment of the
Redemption Price. If less than all of the outstanding shares of the Preferred
Stock are to be redeemed, then the Corporation shall redeem a pro rata portion
from each holder of the Series A Preferred according to the respective number of
shares of the Series A Preferred held by such holder.
B. Termination of Holders' Redemption Right. The right of the
----------------------------------------
holders of the Series A Preferred to require the Corporation to redeem the
Series A Preferred under Section III.A of this Article FOURTH shall terminate
upon the closing of a public offering of the Corporation's Common Stock which
results in net proceeds to the Corporation of at least $7,500,000.
C. No Violation. There shall be no redemption of any shares of
------------
Series A Preferred where such redemption would be in violation of applicable
law.
D. Effect of Redemption. Upon redemption, shares of Series A
--------------------
Preferred shall be restored to the status of authorized, undesignated and
unissued shares of Preferred Stock of the Corporation.
E. Series B Preferred. The Series B Preferred shall not be
------------------
redeemable.
-4-
<PAGE>
VI. Conversion.
----------
A. Conversion Rights.
-----------------
1. Optional Conversion. Each share of Series B Preferred shall
-------------------
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share and up to and including the day prior to the closing
of a public offering described in the following paragraph (the "Conversion
Period"), into fully paid and non-assessable shares of Common Stock of the
Corporation, based upon the Conversion Rate then in effect.
2. Automatic Conversion. Each outstanding share of Series B
--------------------
Preferred shall automatically be converted into fully paid and non-assessable
shares of Common Stock of the Corporation, based on the Conversion Rate then in
effect, immediately prior to the closing of an underwritten public offering of
the shares of the Corporation pursuant to a registration statement filed under
the Securities Act of 1933, as amended, at a price of not less than $5.00 per
share (prior to underwriting discounts and expenses and adjusted for stock
splits, stock dividends, reorganizations and the like) and with aggregate
offering proceeds to the Corporation of not less than Ten Million Dollars
($10,000,000) or such lesser per share price and/or aggregate offering proceeds
amount as may be approved in writing by the holders of at least a majority of
the Series B Preferred.
B. Mechanics of Conversion.
-----------------------
1. Optional Conversion. Before any holder of shares of Series
-------------------
B Preferred will be entitled to convert the same into shares of Common Stock
pursuant to paragraph VI.A.1. of this Article FOURTH, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Series B Preferred, and
shall give written notice to the Corporation at such office that the holder
elects to convert the same and will state therein the name or names in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. The Corporation, as soon as practicable thereafter, will issue and
deliver at such office to such holder of Series B Preferred or to its nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
to which such holder will be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series B Preferred to be converted (the
"Conversion Date"), and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holder of such shares of Common Stock on such Conversion
Date.
-5-
<PAGE>
2. Automatic Conversion. Conversion of all the outstanding
--------------------
shares of Series B Preferred into shares of Common Stock pursuant to paragraph
VI.A.2. of this Article FOURTH shall be deemed to have been made automatically
and immediately prior to the closing of the qualifying public offering (the
"Automatic Conversion Date"). Upon such automatic conversion, the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion will be treated for all purposes as the record holder or holders of
such Common Stock on the Automatic Conversion Date whether or not such holder or
holders shall have surrendered certificates for its or their shares of Series B
Preferred to the Corporation. Upon the Automatic Conversion Date, the
certificates representing all the shares of Series B Preferred shall be deemed
to represent those shares of Common Stock receivable upon conversion; as soon as
practicable after the surrender by any holder of its certificates for Series B
Preferred, accompanied by a statement from the holder as to the name or names in
which such holder wishes the certificate or certificates for shares of Common
Stock to be issued, the Corporation shall then issue and deliver, at the office
of the Corporation to such holder or its nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled.
3. Conversion Rate. Each share of Series B Preferred shall be
---------------
convertible into one share of Common Stock, subject to adjustment as provided in
paragraph VI.H. of this Article FOURTH (the "Conversion Rate").
4. New Certificates. Upon conversion of only a portion of the
----------------
number of shares of Series B Preferred represented by a certificate surrendered
for conversion, the Corporation shall issue and deliver upon the written order
of the holder, a new certificate for the number of shares of the Series B
Preferred represented by the unconverted portion of the certificate so
surrendered.
C. No Fractional Shares. The Corporation shall issue no fractional
--------------------
shares of Common Stock or scrip upon conversion of shares of Series B Preferred.
If more than one share of Series B Preferred shall be surrendered for conversion
at any one time by the same holder, the number of full shares of Common Stock
issuable upon their conversion shall be computed on the basis of the aggregate
number of shares of Series B Preferred so surrendered, and the Corporation will
issue one additional share of Common Stock if any fractional shares of Common
Stock would otherwise be issuable upon conversion of any shares of Series B
Preferred.
D. Taxes Incident to Conversion. The Corporation shall pay any
----------------------------
and all issue taxes and other taxes (excluding
-6-
<PAGE>
income taxes) that may be payable in respect to any issue or delivery of shares
of Common Stock on conversion of Series B Preferred. The Corporation shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of shares of Common Stock in a name other
than that in which the Series B Preferred so converted was registered on the
books of the Corporation.
E. Sufficient Reserves of Stock. The Corporation shall at all
----------------------------
times reserve and keep available, out of its authorized but unissued Common
Stock, solely for the purpose of effecting the conversion of the Series B
Preferred, the full number of shares of Common Stock deliverable upon the
conversion of all Series B Preferred from time to time outstanding.
F. Valid Issue for Conversion. All shares of Common Stock
--------------------------
which may be issued upon conversion of the shares of Series B Preferred shall,
upon issuance by the Corporation, be validly issued, fully paid, non-assessable
and free from all taxes, liens and charges with respect to their issuance.
G. Cancellation of Preferred on Conversion. All certificates
---------------------------------------
of the Series B Preferred surrendered for conversion shall be appropriately
cancelled on the books of the Corporation, and the shares so converted
represented by such certificates shall not be reissued, sold or transferred as
shares of Series B Preferred, but shall return to the status of authorized,
undesignated and unissued shares of Preferred Stock of the Corporation.
H. Stock Splits or Stock Dividends. In case the Corporation
-------------------------------
shall at any time subdivide the outstanding shares of Common Stock, or shall
issue a stock dividend on its outstanding Common Stock, without an analogous and
simultaneous subdivision of outstanding shares of Series B Preferred or issuance
of a stock dividend on outstanding shares of Series B Preferred, the Conversion
Rate in effect immediately prior to such subdivision or the issuance of such
dividend shall be proportionately increased. In case the Corporation shall at
any time combine the outstanding shares of Common Stock without an analogous and
simultaneous combination of outstanding shares of Series B Preferred, the
Conversion Rate in effect immediately prior to such combination shall be
proportionately decreased, effective at the close of business on the date of
such subdivision, dividend, or combination.
-7-
<PAGE>
VII. Liquidation Preference.
----------------------
A. Basic Preference Rights. In the event of any voluntary or
-----------------------
involuntary liquidation, dissolution, or winding up of the Corporation (a
"Liquidation"):
1. Payments to Holders of Series A Preferred Stock. Each
-----------------------------------------------
holder of shares of Series A Preferred then outstanding shall be entitled to
receive an amount equal to $1.00 for each share of Series A Preferred, plus all
accrued but undeclared or unpaid dividends thereon to the date fixed for
distribution, before any payment shall be made in respect of the Corporation's
Common Stock. The total payments made under this Section VII.A.1. shall be the
"Total Liquidation Preference."
2. Payments to Holders of Common Stock and Series B Preferred.
-----------------------------------------------------------
After payment has been made to the holders of Series A Preferred of the Total
Liquidation Preference, the holders of Common Stock and Series B Preferred then
outstanding shall be entitled to participate ratably in the distribution of the
remaining assets of the Corporation, if any, in proportion to the number of
shares owned by each such holder.
3. Source of Liquidation Payment. The holders of stock shall
-----------------------------
be paid under this Section VII.A. of Article FOURTH out of the assets of the
Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings.
4. Insufficient Assets. If upon a Liquidation the assets of
-------------------
the Corporation available for distribution to its stockholders are insufficient
to make full payment of the Total Liquidation Preference, then the holders of
Series A Preferred shall share ratably in proportion to the number of shares
owned by each such holder.
5. Merger or Acquisition. Unless otherwise agreed to by the
---------------------
holders of greater than 60% of the shares of the Series A Preferred which is
then outstanding, the following shall be deemed to be a Liquidation: (i) a
merger or consolidation of the Corporation with or into another entity in which
the Corporation is not the surviving entity or pursuant to which shares of the
Corporation's capital stock would be converted into cash, securities or other
property of another entity (other than a
-8-
<PAGE>
merger in which holders of the Corporation's capital stock immediately prior to
the merger have the same proportionate ownership of common stock (or equivalent
securities) of the surviving entity immediately after the merger as immediately
before), (ii) a sale of greater than 80% of the Corporation's outstanding stock,
(iii) any other reorganization or transaction which results in the holders of
the Corporation's outstanding stock immediately prior to such reorganization or
transaction holding less than 80% of the outstanding capital stock of the
surviving entity, or (iv) a sale of all or substantially all of the
Corporation's assets.
B. Non-Cash Distributions on Liquidation. In the event of any
-------------------------------------
Liquidation of the Corporation which will involve the distribution of assets
other than cash, the Corporation shall promptly engage competent independent
appraisers to determine the value of the assets to be distributed. With respect
to the valuation of securities, the Corporation shall engage such appraiser as
shall be approved by the holders of greater than 60% of the Series A Preferred
then outstanding. The Corporation shall, upon receipt of such appraiser's
valuation, give prompt written notice to each holder of shares of Series A
Preferred of the appraisers' valuation.
VIII. No Impairment. The Corporation shall not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance of performance of any of
the terms in this Article FOURTH to be observed or performed by the Corporation.
IX. Voting. Except as otherwise provided in this Article FOURTH or as
------
required by law, the shares of Series A and Series B Preferred shall be non-
voting shares.
X. Amendments and Changes.
----------------------
A. As long as any of the Series A Preferred shall be issued and
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of greater than 60%
of the shares of Series A Preferred then outstanding:
1. Amend or repeal any provision of, or add any provision to
the Corporation's Certificate of Incorporation or Bylaws which would increase
the authorized number of shares of Preferred Stock or which would alter or
change the preferences, rights, privileges, or powers of, or the restrictions
provided for the benefit of, the Series A Preferred.
-9-
<PAGE>
2. Authorize, create, or issue shares of any class of stock,
any bonds, debentures, notes, or other obligations convertible into or
exchangeable for or having option rights to purchase, any shares of stock of the
Corporation having any preference or priority, as to dividends, assets or
otherwise on a parity with or superior to any preferences or priority of the
Series A Preferred.
3. Reclassify any outstanding shares into shares having any
preference or priority as to dividends, assets or otherwise superior to or on a
parity with any such preference or priority of Series A Preferred.
4. Merge, consolidate, reorganize or sell all or substantially
all of the assets of the Corporation.
B. As long as any of the Series B Preferred shall be issued and
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of greater than 50%
of the shares of Series B Preferred then outstanding, amend or repeal any
provision of, or add any provision to the Corporation's Certificate of
Incorporation or Bylaws which would alter or change the preferences, rights,
privileges, or powers of, or the restrictions provided for the benefit of, the
Series B Preferred.
XI. Reverse Stock Split
On the date upon which this Amended and Restated Certificate of
Incorporation becomes effective, each share of Common Stock which is issued and
outstanding as of such date shall be split and converted into .9116 shares of
Common Stock. The Corporation shall issue no fractional shares of Common Stock
or Scrip as a result of such split. The number of full shares of Common Stock
owned by each holder as a result of such split shall be computed on the basis of
the aggregate number of shares of Common Stock owned by such holder immediately
prior to such split, and the Corporation will issue one additional share of
Common Stock to any holder to whom any fractional share of Common Stock would
otherwise be issuable as a result of such split.
FIFTH: The shareholders of the Corporation shall not have cumulative
voting rights in the election of directors.
SIXTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized and empowered:
To make, alter and repeal the Bylaws of the Corporation,
subject to the power of the stockholders of the Corporation to alter or repeal
any Bylaw made by the Board of Directors;
Subject to the laws of the State of Delaware, from time to
time to sell, lease, or otherwise dispose of any part or parts of the properties
of the Corporation and to cease to conduct the business connected therewith or
again to resume the same, as it may deem best; and
In addition to the powers and authorities hereinabove and by
the laws of the State of Delaware conferred upon the Board of Directors, to
exercise all such powers and to do all such acts and things as may be exercised
or done by the Corporation; subject, nevertheless, to the provisions of such
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<PAGE>
laws, the Certificate of Incorporation of the Corporation, as from time to time
amended, and the Corporation's Bylaws.
SEVENTH: The Corporation shall indemnify its directors, officers,
employees and agents in accordance with the provisions of the General
Corporation Law of the State of Delaware, now existing or as hereinafter
amended. A unanimous vote of each class of Common Stock entitled to vote shall
be required to amend this article.
EIGHTH: No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the
compromise or arrangement and the reorganization shall, if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
TENTH: The Corporation reserves the right at any time and from time
to time to amend, alter, change, or repeal any provision contained herein, and
other provisions authorized by the laws of the State of Delaware at the time in
force may be added or inserted, in the manner now or hereafter prescribed by
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<PAGE>
law and as limited herein; and all rights, preferences, and privileges of
whatsoever nature conferred upon stockholders, directors, or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to this reservation.
Dated: February __, 1997
TVX, INC.
By:
--------------------------------------
Robert C. Mulverhill
President
Attest:
- --------------------------------
Thomas W. Vander Stel, Secretary
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<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
TVX, INC.
A DELAWARE CORPORATION
ARTICLE I
Offices
SECTION A. Registered Office. The registered office of the Corporation
-----------------
in the State of Delaware shall be at 1209 Orange Street, Wilmington, Delaware.
The name of the Corporation's registered agent at such address shall be The
Corporation Trust Company.
SECTION B. Other Offices. The Corporation may also have offices at such
-------------
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Stockholders
SECTION A. Annual Meeting. The annual meeting of the stockholders of
--------------
the Corporation shall be held for the purpose of electing Directors and for the
transaction of such other business as may properly be brought before the meeting
on such date and at such time as may be designated by the Board of Directors.
SECTION B. Special Meetings. Special meetings of the stockholders for
----------------
any purpose or purposes may be called by the Board of Directors, by the Chairman
of the Board or by the President. Any special meeting shall be held on such
date (subject to the provisions on notice) and at such time as shall be
designated by the Board of Directors or by the officer calling the meeting. At
a special meeting of the stockholders, no business shall be transacted and no
corporate action shall be taken other than that stated in the notice of the
meeting unless all of the stockholders of the Corporation are present in person
or by proxy, in which case any and all business may be transacted at the meeting
even though not included in the notice of meeting and even though the meeting
itself was held without notice.
SECTION C. Place of Meeting. Every annual meeting of the stockholders
----------------
of the Corporation shall be held at such place within or without the State of
Delaware as may be designated by
<PAGE>
the Board of Directors. Every special meeting of the stockholders of the
Corporation shall be held at such place within or without the State of Delaware
as may be designated by the Board of Directors or the officer calling the
meeting.
SECTION D. Notice of Meetings. It shall be the duty of the Secretary to
------------------
cause notice of each meeting of the stockholders to be mailed to each
stockholder of the Corporation entitled to vote at such meeting at his address
as it appears upon the records of the Corporation not less than ten nor more
than sixty days before the day of the meeting. The notice of the meeting shall
state the place, date, and hour of the meeting and, in case of a special
meeting, also shall state the purpose or purposes for which the meeting is
called.
SECTION E. Quorum.
------
1. At any meeting of the stockholders, the holders of a majority
in number of the total outstanding shares of the Common Stock of the Corporation
that are entitled to vote at such meeting, present in person or otherwise
represented by proxy, shall constitute a quorum of the stockholders for all
purposes, unless the presence or representation of a larger number of shares
shall be required by law, by the Certificate of Incorporation, or by these
Bylaws, and, in that case, the presence or representation of the number of
shares so required shall constitute a quorum.
2. Any meeting may be adjourned (even though a quorum is not
present) by the holders of a majority in number of the shares of Common Stock of
the Corporation present in person and represented by proxy and entitled to vote
at such meeting to another time or place, and notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken and the adjournment is for less than thirty days
and a new record date is not set for the adjourned meeting.
SECTION F. Organization.
------------
1. The Chairman, if he is present at the meeting, or the
President, if the Chairman is not present, shall call the meeting of the
stockholders to order, and shall act as chairman of the meeting. In the absence
of the Chairman and the President, the holders of a majority in number of the
shares of Common Stock of the Corporation present in person and represented by
proxy and entitled to vote at such meeting shall elect a chairman.
2. The Secretary of the Corporation shall act as secretary of all
meetings of the stockholders; but, in the
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<PAGE>
absence of the Secretary, the chairman of the meeting may appoint any person to
act as secretary of the meeting.
3. At least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting shall be
prepared and maintained in accordance with of the Delaware General Corporation
Law.
SECTION G. Voting.
------
1. Except as otherwise provided for in the Certificate of
Incorporation, in these Bylaws, in resolutions of the Board of Directors, or by
law, each stockholder shall be entitled to one vote in person or by proxy for
each share of Common Stock of the Corporation registered in his name upon the
books of the Corporation, but no proxy shall be voted after three years from the
date of its being granted unless the proxy provides for a longer period.
2. Upon the demand of any stockholder, the vote upon any matter
before the meeting shall be by ballot.
3. Shares of the Common Stock of the Corporation owned directly or
indirectly by the Corporation shall not be voted directly or indirectly or
counted in determining whether a quorum is present at any meeting.
4. Each proxy shall submit his power of attorney to the Secretary
or to the Treasurer for examination before the commencement of the meeting at
which the proxy intends to represent a stockholder who has given him a proxy.
The certificate of the Secretary or the Treasurer as to the regularity of any
powers of attorney so submitted, and as to the number of shares held by the
persons who severally and respectively executed the powers of attorney so
submitted, shall be received as prima facie evidence of the number of shares
represented by the holders of the powers of attorney for the purposes of
establishing the presence of a quorum at such meeting, for organizing the same,
for voting, and for all other purposes.
SECTION H. Informal Action. Any action required to be taken at any
----------------
annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the
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<PAGE>
corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing. Any
action taken pursuant to such written consent of the stockholders shall have the
same force and effect as if taken by the stockholders at a meeting thereof.
SECTION I. Inspectors of Election. When required by law or upon the
----------------------
demand of any stockholder or proxy entitled to vote, but not otherwise, the
polls shall be opened and closed, the proxies and ballots shall be received and
taken in charge, and all questions touching the qualification of voters, the
validity of proxies, and the acceptance or rejection of votes shall be decided
at any meeting of the stockholders by two or more Inspectors or Judges of
Elections, who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the chairman of the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment by the chairman of the meeting.
ARTICLE III
Board of Directors
SECTION A. Number and Term of Office. The business and property of the
-------------------------
Corporation shall be managed and controlled by a Board of Directors. The number
of directors shall be established from time to time by resolution of the Board,
but no event shall there be less than three (3) nor greater than eight (8)
directors. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section B of this Article III, and each
director elected shall hold office until the next annual meeting of stockholders
and until a successor is duly elected and qualified or until his or her earlier
death, resignation or removal as hereinafter provided.
SECTION B. Resignation, Removal, and Vacancies.
-----------------------------------
1. Any Director may resign at any time by giving written notice of
his resignation to the Chairman, the President, or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified in the
notice of resignation, or, if the time when it shall become effective shall not
be specified therein, it shall take effect when accepted by action of the Board.
The acceptance of a resignation shall not be necessary to make it effective.
2. Newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled
only by
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<PAGE>
an affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board of Directors. Any director elected
in accordance with the preceding sentence shall hold office for the unexpired
portion of the term of the director whose place he or she has been elected to
fill and until such Director's successor shall have been elected and qualified.
No decrease in the number of Directors constituting the Board of Directors shall
shorten the term of any incumbent Director.
3. Any Director or the entire Board of Directors may be removed at
any time, with or without cause, by the holders of a majority of the shares of
stock of the corporation then entitled to vote at an election of Directors,
except as otherwise provided by law.
SECTION C. Place of Meeting. The Board of Directors may hold its
----------------
meetings at such place or places within or without the State of Delaware as the
Board from time to time shall determine or as shall be designated in the notice
or waiver of notice of the meeting.
SECTION D. Regular Meetings. Regular meetings of the Board of Directors
----------------
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution fixing or changing the
time or place of regular meetings shall be (i) mailed to each Director at least
three days before the first meeting held in pursuance thereof or (ii) delivered
personally or by prepaid commercial delivery or courier service, or sent by
telegram, cable, or wireless, to every Director at least one day before the
first meeting held in pursuance thereof.
SECTION E. Special Meetings.
----------------
1. Special meetings of the Board of Directors shall be held
whenever called by direction of the Chairman, the President, or a majority of
the Directors then in office.
2. The Secretary or an Assistant Secretary shall give notice of the
day, hour, and place of each special meeting (i) by mailing the same to each
Director at least three days before the meeting or (ii) by causing the same to
be delivered personally or by prepaid commercial delivery or courier service, or
to be sent by telegraph, cable or wireless, to each Director at least one day
before the meeting.
3. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at any special meeting; and an amendment of these
Bylaws may be acted upon if
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<PAGE>
the notice of the meeting shall have stated an amendment of the Bylaws to be one
of its purposes. At any meeting at which every Director shall be present and no
Director shall object, any business may be transacted, even though no notice is
given.
SECTION F. Quorum. Except as otherwise provided for herein, a majority
------
of the members of the Board of Directors in office (but in no case less than
one-third of the total number of Directors) shall constitute a quorum for the
transaction of business and the action of the Board of Directors at which a
quorum is present shall be the action of the Board of Directors. If less than a
quorum is present at any meeting of the Board, a majority of those present may
adjourn the meeting from time to time.
SECTION G. Chairman and Secretary of the Meeting. The Chairman of the
-------------------------------------
Board, if any and if present, shall preside at all meetings of the Board of
Directors. Otherwise, the President, if present, or, if not, any other Director
chosen by the Board, shall preside. The Chairman of the Board, the President,
or other presiding Director, as the case may be, may appoint any person to act
as secretary of the meeting.
SECTION H. Committees. The Board of Directors, by resolution passed by
----------
all members of the Board, may designate one or more committees, each committee
to consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, to
replace any absent or disqualified member at any meeting of the committee. Each
committee, to the extent provided for in the resolution of the Board, shall have
and may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers that may require it. In the absence or
disqualification of any member of any committee or committees, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
SECTION I. Action by Consent in Lieu of Meeting. Any action required or
------------------------------------
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing. All consents in lieu
of meetings shall be filed with the minutes of proceedings of the Board or
committee.
SECTION J. Telephone Meetings. Members of the Board of Directors or of
------------------
any committee thereof may participate in a
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<PAGE>
meeting of the Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear, and speak to, each other. Participation in a telephone meeting
pursuant to this Section J shall constitute presence in person at such meeting.
The person designated to be secretary of the meeting by the Director initiating
the telephone meeting shall take minutes of the meeting, and such minutes shall
be filed with the other minutes of proceedings of the Board or committee.
SECTION K. Compensation. Each Director, in consideration of his serving
------------
as a Director, shall be entitled to receive from the Corporation such amount per
annum or such fees for attendance at meetings of the Board or of any committee,
or both, as the Board from time to time shall determine. The Board likewise may
provide that the Corporation shall reimburse each Director or member of a
committee for any expenses incurred by him on account of his attendance at any
such meeting. Nothing contained in this Section shall be construed to preclude
any Director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
Officers
SECTION A. Officers.
--------
1. The officers of the Corporation shall be a President, one or
more Vice Presidents, a Secretary, and a Treasurer. All such officers shall be
elected by the Board of Directors at its first meeting after each annual meeting
of the stockholders and shall hold office until the earlier of their removal or
their respective successors shall have been elected and shall qualify.
2. In addition to the powers and duties of the officers of the
Corporation as set forth in these Bylaws, each shall have such authority and
shall perform such duties as from time to time may be determined by the Board of
Directors or the President.
SECTION B. Resignation, Removal, and Vacancies.
-----------------------------------
1. Any officer may resign at any time by giving written notice of
his resignation to the Board of Directors. Any such resignation shall take
effect at the time specified therein, or, if the time when it shall become
effective shall not be specified therein, the resignation shall take effect when
accepted by action of the Board. Except as aforesaid, the
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<PAGE>
acceptance of such resignation shall not be necessary to make it effective.
2. All officers and agents elected or appointed by the Board shall
be subject to removal with or without cause at any time by the Board.
3. A vacancy in any office may be filled at any time by the Board
of Directors.
SECTION C. Powers and Duties of the President. The President shall be
----------------------------------
the Chief Executive Officer of the Company. Subject to the control and general
supervision of the Board of Directors, the Chief Executive Officer shall have
general charge and control of all its business and affairs and shall perform all
duties incident to the office of Chief Executive Officer.
SECTION D. Powers and Duties of the Vice Presidents. The Board of
----------------------------------------
Directors may appoint one or more Vice Presidents. Each Vice President shall
have such powers and shall perform such duties as the Board of Directors or the
President shall assign to him.
SECTION E. Powers and Duties of the Secretary. Except as otherwise
----------------------------------
provided for in these Bylaws, the Secretary shall keep the minutes of all
meetings of the Board of Directors and the minutes of all meetings of the
stockholders in books provided for that purpose; he shall attend to the giving
or serving of all notices of the Corporation; he shall have custody of the
corporate seal of the Corporation and shall affix the same to such documents and
other papers as the Board of Directors shall authorize and direct; he shall have
charge of the stock certificate books, transfer books, stock ledgers, and such
other books and papers as the Board of Directors or the President shall direct,
all of which shall at all reasonable times be open to the examination of any
Director or officer of the Corporation upon application at the office of the
Corporation during business hours; and he shall perform all other duties
incident to the office of Secretary. The Secretary shall also have such other
powers and shall perform such other duties as may be assigned to him by these
Bylaws, the Board of Directors, or the President.
SECTION F. Powers and Duties of the Treasurer. Unless otherwise
----------------------------------
determined by the Board of Directors, the Treasurer shall have custody of, and,
when proper, may pay out, disburse or otherwise dispose of, all funds and
securities of the Corporation that may have come into his hands; he may endorse
on behalf of the Corporation for collection checks, notes, and other obligations
and deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; he shall
enter or cause to be entered
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<PAGE>
regularly in the books of the Corporation kept for the purpose full and accurate
accounts of all moneys received or paid or otherwise disposed of by him and,
whenever required by the Board of Directors, shall render statements of such
accounts; he shall exhibit his books and accounts to any Director or officer of
the Corporation upon application at the Office of the Corporation during
business hours; and he shall perform all acts incident to the position of
Treasurer and shall also have such powers and shall perform such other or
different duties as may be assigned to him from time to time by these Bylaws or
the Board of Directors or the President.
SECTION G. Additional Officers. The Board of Directors may from time to
-------------------
time appoint such other officers, including Chairman of the Board, Assistant
Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board
may deem advisable. Such officers shall have such powers and duties as usually
pertain to their offices, except as modified by the Board of Directors, and
shall also have such other powers and duties as may from time to time be
conferred upon them by the Board of Directors or the President.
SECTION H. Giving of Bond by Officers. If required to do so by the
--------------------------
Board of Directors, each officer designated by the Board shall furnish a bond to
the Corporation for the faithful performance of his duties with such penalties,
conditions, and security as the Board may require.
SECTION I. Voting of Stock. Unless otherwise ordered by the Board of
---------------
Directors, each officer of the Corporation shall have full power and authority
on behalf of the Corporation to attend and to act and to vote, or in the name of
the Corporation to execute proxies to vote, at any meetings of stockholders of
any corporation in which the Corporation may hold stock, and at any such
meetings, shall possess and may exercise, in person or by proxy, any and all
rights, powers, and privileges incident to the ownership of such stock. The
Board of Directors, by resolution, from time to time, may confer like powers
upon any other person or persons.
SECTION J. Compensation of Officers. The officers of the Corporation
------------------------
shall be entitled to receive such compensation for their services as officers as
the Board of Directors from time to time may determine.
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<PAGE>
ARTICLE V
Indemnification
The Corporation shall indemnify, to the fullest extent permitted by,
and in the manner permissible under, the laws of the State of Delaware in effect
on the date hereof and as amended from time to time, any person who is or was a
director, officer, employee, or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise and
who was or is a party or threatened to be made a party to any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that he is or was
serving in such capacity. The indemnification provided for in or authorized by
this Article shall continue as to any person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such person. The Corporation shall also have
the power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee, or agent of the Corporation or is serving at
the request of the Corporation in said capacity of another Corporation against
any liability asserted against him and incurred by him in any such capacity,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article.
ARTICLE VI
The Corporation's Stock
SECTION A. Stock Certificates. Stock certificates representing all
------------------
shares to which stockholders are entitled shall be in the form determined by the
Board of Directors. Certificates shall be numbered consecutively and shall be
entered in the books of the Corporation as they are issued. They shall be
signed by the Chairman of the Board, the President, or a Vice President and by
the Treasurer, an Assistant Treasurer, the Secretary, or an Assistant Secretary.
If the Board of Directors has designated a transfer agent or registrar and if
any certificate is countersigned by a transfer agent, or an assistant transfer
agent or registered by a registrar (either of which is other than the
Corporation or an employee of the Corporation), the signature of any officer of
the Corporation may be a facsimile.
SECTION B. Lost, Stolen, or Destroyed Certificates. The Corporation or
---------------------------------------
its transfer agent may issue a new certificate of stock of the Corporation in
place of any certificate
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<PAGE>
theretofore issued by it, alleged by its owner, or his legal representative, to
have been lost, stolen, or destroyed, and the Board of Directors or its transfer
agent may require the owner, or his legal representative, to give the
Corporation and its transfer agent a bond sufficient to indemnify the
Corporation and its transfer agent against any claim that may be made against
them on account of the alleged loss, theft, or destruction of any such
certificate or the issuance of any such new certificate.
SECTION C. Transfer of Shares. Upon compliance with provisions
------------------
restricting the transfer or registration of transfer of shares of stock, if any,
and applicable statutory requirements, registration of transfers of shares of
stock of the Corporation shall be made on the books of the Corporation.
SECTION D. Regulations. The Board of Directors shall have power and
-----------
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION E. Closing of Transfer Books; Fixing of Record Dates. For the
-------------------------------------------------
purpose of determining the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or to express consent to or
dissent from any corporate action in writing without a meeting, or for the
purpose of determining stockholders entitled to receive payment of any dividend
or other distribution or the allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion, or exchange of stock, or for
the purpose of any other lawful action, the directors may fix, in advance, a
date as the record date for any such determination of stockholders. Such date
shall not be more than sixty days nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If no record date
is fixed, the record date for the determination of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed; the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. When a
determination of stockholders of record entitled to notice of or to vote at any
meeting of stockholders has been made as provided for in this Section, such
determination shall apply to any adjournment thereof; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting.
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<PAGE>
SECTION F. Registered Stockholders. The Corporation shall be entitled
-----------------------
to treat the holder of record of any share or shares of stock as the holder in
fact thereof; accordingly, the Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it has express or other notice thereof, except
as otherwise provided for by law.
SECTION G. Dividends.
---------
1. Subject to the provisions of the Certificate of Incorporation,
the Board of Directors shall have power to declare and pay dividends upon shares
of stock of the Corporation but only out of funds available for the payment of
dividends as provided for by law.
2. Subject to the provisions of the Certificate of Incorporation,
any dividends declared upon the stock of the Corporation shall be payable on
such date or dates as the Board of Directors shall determine. If the date fixed
for the payment of any dividend shall in any year fall upon a Saturday, Sunday,
or legal holiday, the dividend payable on such date shall be paid on the next
day that is not a Saturday, Sunday, or legal holiday.
ARTICLE VII
Corporate Seal; Fiscal Year; Miscellaneous Provisions
SECTION A. Corporate Seal. The Board of Directors shall provide a
--------------
suitable seal, containing the name of the Corporation, which, unless otherwise
determined by the Board of Directors, shall be in the custody of the Secretary.
If and when so directed by the Board of Directors or the Chief Executive
Officer, a duplicate of the seal may be kept and be used by any officer of the
Corporation designated by the Board.
SECTION B. Fiscal Year. The fiscal year of the Corporation shall be
-----------
determined by resolution of the Board of Directors.
SECTION C. Checks, Notes, etc. All checks, drafts, bills of exchange,
-------------------
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, shall be countersigned
by such officers of the Corporation and/or other persons as the Board of
Directors from time to time shall designate.
SECTION D. Waivers of Notice. Whenever any notice whatever is required
-----------------
to be given under the provisions of these Bylaws or the Certificate of
Incorporation to any person or
-12-
<PAGE>
persons, a waiver thereof in writing, signed by the person or persons entitled
to the notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
SECTION E. Offices Outside of Delaware. Except as otherwise required by
---------------------------
the laws of the State of Delaware, the Corporation may have an office or offices
and keep its books, documents, and papers outside of the State of Delaware at
such place or places as from time to time may be determined by the Board of
Directors.
ARTICLE VIII
Amendment of the Bylaws
Subject to the provisions of the Certificate of Incorporation and the
power of the stockholders to alter or repeal any Bylaw made by the Board, these
Bylaws may be altered or repealed by the vote of a majority of the members of
the Board.
As amended and restated on June 20, 1994
-13-
<PAGE>
EXHIBIT 10.1
TVX, INC.
1993 NONQUALIFIED STOCK OPTION PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
-------------------------------------------------
1.1 Establishment of the Plan. TVX, Inc., a Delaware corporation,
-------------------------
hereby establishes a stock option plan to be known as the "1993 Nonqualified
Stock Option Plan" (hereinafter referred to as the "Plan"), as set forth in this
document. The Plan permits the granting of Nonqualified Stock Options.
The Plan shall become effective as of May 17, 1993 (the "Effective Date"),
and shall remain in effect as provided in Section 1.3 herein.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the
-------------------
long-term and financial success, and enhance the value of the Company by
aligning the personal interests of employees, consultants and directors to those
of Company shareholders and allowing the employees, consultants and directors to
participate in the success of the Company.
1.3 Duration of the Plan. The Plan shall commence on the Effective
--------------------
Date, as described in Section 1.1 herein, and shall remain in effect, subject to
the right of the Board of Directors to terminate the Plan at any time pursuant
to Article 8 herein, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event may an Award
be granted under the Plan on or after the tenth (10th) anniversary of the Plan's
Effective Date.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
----------------------------------------
2.1 Definitions. Whenever used in the Plan, the following terms
-----------
shall have the meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
(a) "Award" means a grant under this Plan of Nonqualified Stock
Options.
(b) "Board" or "Board of Directors" means the Board of Directors
of TVX, Inc.
(c) "Cause" means (i) willful and gross misconduct on the part
of a Participant that is materially and demonstrably
detrimental to the Company; or (ii)
<PAGE>
the commission by a Participant of one or more acts which
constitute an indictable crime under the United States
Federal, state, or local law; either as determined in good
faith by a written resolution duly adopted by the
affirmative vote of not less than two-thirds 2/3 of all the
Directors (excluding the Participant if he or she is a
Director) at a meeting duly called and held for that purpose
after reasonable notice to the Participant and opportunity
for the Participant and his or her legal counsel to be
heard.
(d) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(e) "Company" means TVX, Inc., a Delaware corporation
(including any and all subsidiaries), and any successor
thereto.
(f) "Director" means any individual who is a member of the
Board of Directors of the Company.
(g) "Disability" means a permanent and total disability, within
the meaning of the Code Section 22(e)(3), as determined by
the Board in good faith, upon receipt of sufficient
competent medical advice from one or more individuals,
selected by the Board, who are qualified to give
professional medical advice.
(h) "Employee" means a full-time, nonunion, salaried employee of
the Company.
(i) "Fair Market Value" means the average of the highest and
lowest quoted selling prices for the Shares on the relevant
date, or (if there were no sales on such date) the weighted
average of the means between the highest and the lowest
quoted selling prices on the nearest day before and the
nearest day after the relevant date, as prescribed by
Treasury Regulation 20.2031-2(b)(2), as reported in the Wall
----
Street Journal or similar publication selected by the
--------------
Board, or, if the Shares are not publicly traded, the fair
market value as determined in good faith by the Board.
(j) "Nonqualified Stock Option" means an option to purchase
Shares, granted under Article 6 herein, which is not
intended to meet the requirements of Section 422 of the
Code.
-2-
<PAGE>
(k) "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as
determined by the Board.
(l) "Participant" means an Employee, Director or consultant to
the Company who has outstanding a viable Award granted under
the Plan.
(m) "Retirement" means age 65 or older.
(n) "Shares" means the Common Stock of TVX, Inc., par value
$.01 per share.
2.2 Gender and Number. Except where otherwise indicated by the
-----------------
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
2.3 Severability. In the event any provision of the Plan shall be
------------
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
--------------------------
3.1 Administration. The Plan shall be administered by the Board
--------------
of Directors.
3.2 Authority. The Board shall have full power to select
---------
Employees and Directors to whom Awards are granted; to determine the size of
Awards; to determine the terms and conditions of such Awards in a manner
consistent with the Plan; to construe and interpret the Plan and any agreement
or instrument entered into under the Plan; to establish, amend, or waive rules
and regulations for the Plan's administration; and (subject to the provisions of
Article 8 herein) to amend the terms and conditions of any outstanding Award to
the extent such terms and conditions are within the discretion of the Board as
provided in the Plan. Further, the Board shall have the full power to make all
other determinations which may be necessary or advisable for the administration
of the Plan.
3.3 Decisions Binding. All determinations and decisions made by the
-----------------
Board pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive, and binding on all persons,
including the Company, its stockholders, Participants, and their estates and
beneficiaries.
-3-
<PAGE>
ARTICLE 4. SHARES SUBJECT TO THE PLAN
--------------------------------------
4.1 Number of Shares. Subject to adjustment as provided in Section
----------------
4.3 herein, no more than 625,000 Shares may be granted under the Plan. These
625,000 Shares may be either authorized but unissued or reacquired Shares.
4.2 Lapsed Awards. If any Award granted under this Plan terminates,
-------------
expires, or lapses for any reason, any Shares subject to such Award again shall
be available for the grant of an Award under the Plan.
4.3 Adjustments in Authorized Shares. In the event of any merger,
--------------------------------
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, share combination, or other change in the corporate
structure of the Company affecting the Shares, such adjustment shall be made in
the number and class of Shares which may be delivered under the Plan, and in the
number and class of and/or price of Shares subject to outstanding Options
granted under the Plan, as may be determined to be appropriate and equitable by
the Board, in its sole discretion, to prevent dilution or enlargement of rights;
and provided that the number of Shares subject to any Award shall always be a
whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
-----------------------------------------
5.1 Eligibility. Persons eligible to participate in this Plan
-----------
include all Employees, Directors and consultants to the Company.
5.2 Actual Participation. Subject to the provisions of the Plan, the
--------------------
Board may, from time to time, select from all eligible Employees, Directors and
consultants, those to whom Awards shall be granted and shall determine the
nature and amount of each Award. No Employee, Director or consultant shall have
any right to be granted an Award under this Plan.
ARTICLE 6. STOCK OPTIONS
-------------------------
6.1 Grant of Options. Subject to the terms and provisions of the
----------------
Plan, Nonqualified Stock Options may be granted to Employees, Directors and
consultants at any time and from time to time as shall be determined by the
Board. The Board shall have
-4-
<PAGE>
complete discretion in determining the number of Shares subject to Options
granted to each Participant.
6.2 Option Agreement. Each Option grant shall be evidenced by an
----------------
Option Agreement that shall specify the Option Price, the duration of the
Option, the number of Shares to which the option pertains, and such other
provisions as the Board shall determine.
6.3 Option Price. The purchase price per Share covered by an Option
------------
shall be determined by the Board but shall not be less than 85% of the Fair
Market Value of such Share on the date the Option is granted.
6.4 Duration of Options. Each Option shall expire at such time as
-------------------
the Board shall determine at the time of grant provided, however, that no Option
shall be exercisable later than the tenth (10th) anniversary date of its grant.
6.5 Exercise of Options. Options granted under the Plan shall be
-------------------
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for each
grant or for each Participant.
6.6 Payment. Options shall be exercised by the delivery of a written
-------
notice of exercise to the Secretary of the Company, setting forth the number of
Shares with respect to which the Option is to be exercised, accompanied by full
payment for the Shares.
The Options price upon exercise of any Option shall be payable to the
Company in full either (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having a Fair Market Value at the time of exercise
equal to the total Option Price, or (c) by a combination of (a) and (b). The
proceeds from such a payment shall be added to the general funds of the Company
and shall be used for general corporate purposes.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Options exercised.
6.7 Restrictions on Share Transferability and Registration. The
------------------------------------------------------
Board shall impose such restrictions on any Shares acquired pursuant to the
exercise of an Option under the Plan, as it may deem advisable, including,
without limitation, restrictions under applicable Federal securities laws, under
the requirements of any Stock exchange or market upon which such Shares are then
listed
-5-
<PAGE>
and/or traded, and under any blue sky or state securities laws applicable to
such Shares.
6.8 Termination of Employment Due to Death, Disability, or
------------------------------------------------------
Retirement. In the event the employment of a Participant is terminated by
- ----------
reason of death, any outstanding Options granted to that Participant that are
not exercisable as of the date of termination immediately shall become
exercisable.
Options shall remain exercisable at any time prior to their expiration date
or for one (1) year after the date that employment was terminated, whichever
period is shorter, by such person or persons as shall have been named as the
Participant's beneficiary, or by such persons that have acquired the
Participant's rights under the Option by will or by the laws of descent and
distribution. In the event the Participant names his estate as the beneficiary,
the Option shall be exercisable by the personal representative or executor of
the deceased Participant.
In the event the employment of a Participant is terminated by reason of
Disability, any outstanding Options granted to that Participant that are not
exercisable as of the date of termination immediately shall become exercisable.
Options shall remain exercisable by the Participant or the Participant's
attorney-in-fact, agent, or conservator at any time prior to their expiration
date or for one (1) year after the date that employment was terminated,
whichever period is shorter.
In the event the employment of a Participant is terminated by reason of
Retirement, any outstanding Options granted to that Participant that are not
exercisable as of the date of termination immediately shall become exercisable.
Options shall remain exercisable at any time prior to their expiration date or
for three(3) years after the date that Employment was terminated, whichever
period is shorter.
6.9 Termination of Employment for Other Reasons. If the employment
-------------------------------------------
of the Participant shall terminate for any reason other than for death,
Disability, or Retirement, all Options held by the Participant immediately shall
be forfeited to the Company (and shall once again become available for grant
under the Plan). However, the Board, in its sole discretion, shall have the
right to allow for an exercise period of up to three (3) months after the date
of such termination, however, in no event beyond the expiration date of the
options, and only to the extent that the Options were exercisable by the
Participant at the date of termination.
If the employment of the Participant shall terminate for Cause, all
outstanding Options immediately shall be forfeited to the Company and no
additional exercise period shall be allowed.
-6-
<PAGE>
Except as otherwise provided in the option agreement evidencing such
Option, none of the provisions of this Section 6.9 or Section 6.8 shall apply to
an Option granted to a Director or consultant, which Option shall remain
exercisable at any time prior to its expiration date by the Director, consultant
or his beneficiary regardless of whether he remains as a Director or consultant
to the Company.
6.10 Nontransferability of Options. No Option granted under the Plan
-----------------------------
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, all Options granted to a Participant under the Plan shall be
exercisable during his or her lifetime only by such Participant.
ARTICLE 7. RIGHTS OF EMPLOYEES, DIRECTORS AND CONSULTANTS
----------------------------------------------------------
7.1 Employment. Nothing in the Plan shall interfere with or limit in
----------
any way the right of the Company to terminate any Participant's employment at
any time, or confer upon any Participant any right to continue in the employ of
the Company.
7.2 Participation. No Employee, Director or consultant shall have
-------------
the right to be selected to receive an Award under this Plan, or, having been so
selected, to be selected to receive a future Award.
ARTICLE 8. AMENDMENT, MODIFICATION, AND TERMINATION
----------------------------------------------------
8.1 Amendment, Modification, and Termination. The Board, at any time
----------------------------------------
and from time to time, may terminate, amend, or modify the Plan. The
termination, amendment, or modification of the Plan may be in response to
changes in the Code, Exchange Act, national securities exchange regulations, or
for other reasons deemed appropriate by the Board. However, without the
approval of the stockholders of the Company, no such termination, amendment, or
modification may:
(a) Increase the total amount of Shares which may be issued
under this Plan, except as provided in Section 4.3 herein;
or
(b) Change the class of persons eligible to participate in the
Plan; or
-7-
<PAGE>
(c) Materially increase the cost of the Plan or materially
increase the benefits to Participants; or
(d) Extend the maximum period after the date of grant during
which Options may be exercised; or
(e) Change the provisions of the Plan regarding Option Price.
8.2 Awards Previously Granted. No termination, amendment, or
-------------------------
modification of the Plan shall in any manner adversely affect any Award
previously granted under the Plan, without the written consent of the
Participant.
ARTICLE 9. TAX WITHHOLDING
---------------------------
The Company shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
Federal, state, and local taxes (including the Participant's FICA obligation)
required by law to be withheld with respect to any grant, exercise, or payment
made under or as a result of this Plan.
ARTICLE 10. INDEMNIFICATION
----------------------------
Each Person who is or shall have been a member of the Board shall be
indemnified and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him in
connection with or resulting from any claim, action, suit, or proceeding to
which he may be a party or in which he may be involved by reason of any action
taken or failure to act under the Plan and against and from any and all amounts
paid by him in settlement thereof, with the Company's approval, or paid by him
in satisfaction of any judgment in any such action, suit, or proceeding against
him, provided he shall give the Company an opportunity, at its own expense, to
handle and defend the same before he undertakes to handle and defend it on his
own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such Persons may be entitled under
the Company's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
-8-
<PAGE>
ARTICLE 11. BENEFICIARY DESIGNATION
-------------------------------------
Each Participant under the Plan may name, from time to time, any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his death before he
receives any or all of such benefit. Each designation will revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Board, and will be effective only when filed by the Participant in writing with
the Board during his lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to his estate.
ARTICLE 12. SUCCESSORS
----------------------
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 13. REQUIREMENTS OF LAW
--------------------------------
13.1 Requirements of Law. The granting of Awards and the issuance of
-------------------
Shares under this Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
13.2 Governing Law. To the extent not preempted by Federal law, the
-------------
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
-9-
<PAGE>
EXHIBIT 10.3
TVX, INC.
1996 DIRECTORS' STOCK OPTION PLAN
SECTION 1. PURPOSE
The 1996 Directors' Stock Option Plan (the "Plan") of TVX, Inc., a
Delaware corporation (the "Company"), provides for the grant of Stock Options to
Nonemployee Directors in order to encourage and provide incentives for high
level performance by the Nonemployee Directors of the Company.
SECTION 2. NON-INCENTIVE STOCK OPTIONS
The Stock Options granted under the Plan shall be nonstatutory stock
options ("NSOs") which are intended to be options that do not qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
SECTION 3. ADMINISTRATION
3.1 Committee. The Plan shall be administered by the Board of
---------
Directors of the Company (the "Board") or by a committee consisting of two or
more non-employee members of the Board (the "Committee"). The Committee or the
Board, as the case may be, shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan and any
Stock Options granted thereunder, and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of the Code or in order to conform to any regulation or to any
change in any law or regulation applicable thereto. However, the Committee shall
have no authority, discretion or power to select the Nonemployee Directors who
will receive any Stock Options, determine the number of shares to be issued
hereunder or the time at which such Stock Options are to be granted, establish
the duration of the Stock Options or alter any other terms or conditions
specified in the Plan, except in the sense of administering the Plan pursuant to
the provisions of the Plan. The Board may reserve to itself any of the authority
granted to the Committee as set forth herein, and it may perform and discharge
all of the functions and responsibilities of the Committee at any time that a
duly constituted Committee is not appointed and serving. All references in this
Plan to the "Committee" shall be deemed to refer to the Board whenever the Board
is discharging the powers and responsibilities of the Committee.
<PAGE>
3.2 Actions of Committee. All actions taken and all interpretations
--------------------
and determinations made by the Committee in good faith (including determinations
of Fair Market Value) shall be final and binding upon all Participants, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan, and all members of the Committee shall, in
addition to their rights as directors, be fully protected by the Company with
respect to any such action, determination or interpretation.
SECTION 4. DEFINITIONS
4.1 "Stock Option or Stock Options." A Stock Option is the right
-----------------------------
granted under the Plan to a Nonemployee Director to purchase, at such time or
times and at such price or prices ("Option Price") as are determined pursuant to
the Plan, the number of shares of Common Stock determined pursuant to the Plan.
4.2 "Common Stock." A share of Common Stock means a share of
------------
authorized but unissued Common Stock, par value $.01 per share, of the Company.
4.3 "Fair Market Value." If the Common Stock is not traded publicly,
-----------------
the Fair Market Value of a share of Common Stock on any date shall be
determined, in good faith, by the Board or the Committee after such consultation
with outside legal, accounting and other experts as the Board or the Committee
may deem advisable. If the Common Stock is traded publicly, the Fair Market
Value of a share of Common Stock on any date shall be the average of the
representative closing bid and asked prices, as quoted by the National
Association of Securities Dealers through NASDAQ (its automated system for
reporting quotes), for the date in question or, if the Common Stock is listed on
the Nasdaq National Market or is listed on a national stock exchange, the
officially quoted closing price on the date in question.
4.4 "Nonemployee Director." A Nonemployee Director is a member of
--------------------
the Board of Directors of the Company who is not also an employee of the Company
or any of its subsidiaries.
4.5 "Participant." A Participant is a Nonemployee Director to whom
-----------
Stock Options are granted.
-2-
<PAGE>
SECTION 5. OPTION GRANTS
5.1 Grants. Each Nonemployee Director shall be eligible to be
------
granted Stock Options from time to time during the term of this Plan.
5.2 Price. The purchase price per share of Common Stock for the
-----
shares to be purchased pursuant to the exercise of any Stock Option shall be
100% of the Fair Market Value of a share of Common Stock on the date on which
the Nonemployee Director is granted the Stock Options.
5.3 Other Terms. Except for the limitations set forth in Sections
-----------
5.2 and 7.1, the terms and provisions of Stock Options shall be as determined
from time to time by the Committee, and Stock Options issued may contain terms
and provisions different from other Stock Options granted to the same or other
Stock Option recipients. Stock Options shall be evidenced by a written agreement
("Option Agreement") containing such terms and provisions as the Committee may
determine, subject to the provisions of the Plan.
SECTION 6. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
6.1 Maximum Number. The maximum aggregate number of shares of Common
--------------
Stock that may be made subject to Stock Options shall be 250,000 authorized but
unissued shares. If any shares of Common Stock subject to Stock Options are not
purchased or otherwise paid for before such Stock Options expire, such shares
may again be made subject to Stock Options.
6.2 Adjustments for Stock Split, Stock Dividend, etc. If the Company
------------------------------------------------
shall at any time increase or decrease the number of its outstanding shares of
Common Stock or change in any way the rights and privileges of such shares by
means of the payment of a stock dividend or any other distribution upon such
shares payable in Common Stock, or through a stock split, subdivision,
consolidation, combination, reclassification or recapitalization involving the
Common Stock, then in relation to the Common Stock that is affected by one or
more of the above events, the numbers, rights and privileges of the following
shall be increased,decreased or changed in like manner as if they had been
issued and outstanding, fully paid and nonassessable at the time of such
occurrence: (i) the shares of Common Stock as to which Stock Options may be
granted under this Plan; and (ii) the shares of Common Stock then included in
outstanding Stock Options granted hereunder.
6.3 Dividend Payable in Stock of Another Corporation, etc. If the
-----------------------------------------------------
Company shall at any time pay or make any dividend
-3-
<PAGE>
or other distribution upon the Common Stock payable in securities of another
corporation or other property (except money or Common Stock), a proportionate
part of such securities or other property shall be set aside and delivered to
any Participant then holding Stock Options for the Common Stock for which the
dividend or other distribution was made, upon exercise thereof. Prior to the
time that any such securities or other property are delivered to a Participant
in accordance with the foregoing, the Company shall be the owner of such
securities or other property and shall have the right to vote the securities,
receive any dividends payable on such securities, and in all other respects
shall be treated as the owner. If securities or other property which have been
set aside by the Company in accordance with this Section 6.3 are not delivered
to a Participant because the Stock Options have not been exercised, then such
securities or other property shall remain the property of the Company and shall
be dealt with by the Company as it shall determine in its sole discretion.
6.4 Other Changes in Capital Stock. In the event there shall be any
------------------------------
change, other than as specified in Sections 6.2 and 6.3, in the number or type
of outstanding shares of Common Stock or of any stock or other securities into
which the Common Stock shall be changed or for which it shall have been
exchanged, and if the Committee shall in its discretion determine that such
change equitably requires an adjustment in the number of shares subject to
outstanding Stock Options or which have been reserved for issuance pursuant to
this Plan but are not then subject to Stock Options, then such adjustments shall
be made by the Committee and shall be effective for all purposes of this Plan
and on all outstanding Stock Options that involve the type of Common Stock for
which a change was effected.
6.5 Rights to Subscribe. If the Company shall at any time grant to
-------------------
the holders of its Common Stock rights to subscribe pro rata for additional
shares thereof or for any other securities of the Company or of any other
corporation, there shall be reserved with respect to the shares of Common Stock
then subject to Stock Options held by any Participant, the Common Stock or other
securities which the Participant would have been entitled to subscribe for if
immediately prior to such grant the Participant had exercised all of his Stock
Options. If, upon exercise of any such Stock Options, the Participant subscribes
for the additional Common Stock or other securities, the Participant shall pay
to the Company the price that is payable by the Participant for such Common
Stock or other securities.
6.6 General Adjustment Rules. If any adjustment or substitution
------------------------
provided for in this Section 6 shall result in the creation of a fractional
share, the Company shall, in lieu of selling or otherwise issuing such
fractional share, pay to the Participant a cash sum in an amount equal to the
product of such
-4-
<PAGE>
fraction multiplied by the Fair Market Value of a share on the date the
fractional Share would otherwise have been issued. In the case of any
substitution or adjustment provided for in this Section 6 affecting Stock
Options, the total purchase price for the shares of Common Stock then subject to
Stock Options shall remain unchanged but the purchase price per share under such
Stock Options shall be equitably adjusted by the Committee to reflect the
greater or lesser number of shares of Common Stock or other securities into
which the Common Stock subject to the Stock Options may have been changed.
6.7 Determination by the Committee. Adjustments under this Section 6
------------------------------
shall be made by the Committee, whose determinations with regard thereto shall
be final and binding upon all parties thereto.
SECTION 7. EXERCISE OF STOCK OPTIONS
7.1 Time of Exercise. Unless otherwise determined by the Committee,
----------------
Stock Options shall become exercisable immediately upon grant. Stock Options
shall expire, to the extent not exercised, ten years after the date on which
they were granted.
7.2 Stock Restriction Agreement. The Committee may provide in the
---------------------------
Option Agreement or any other agreement with the Participant, that shares of
Common Stock issuable upon the exercise of Stock Options shall, under certain
conditions, be subject to restrictions whereby the Company has a right of first
refusal with respect to such shares or a right or obligation to repurchase all
or a portion of such shares, which restrictions may survive a Participant's term
as a director of the Company. The acceleration of time or times at which Stock
Options become exercisable may be conditioned upon the Participant's agreement
to such restrictions.
7.3 Termination of Director Status before Exercise. Unless otherwise
----------------------------------------------
determined by the Committee at the time of grant, if a Participant's term as a
director of the Company shall terminate for any reason other than the
Participant's death or disability, any Stock Options then held by the
Participant, to the extent then exercisable under the applicable Option
Agreement(s), shall remain exercisable after the termination of his director
status. If the Stock Options are not exercised during the applicable period,
they shall be deemed to have been forfeited and of no further force or effect.
7.4 Disposition of Forfeited Stock Options. Any shares of Common
--------------------------------------
Stock subject to Stock Options forfeited by a Participant shall not thereafter
be eligible for purchase by the
-5-
<PAGE>
Participant but may be made subject to Stock Options granted to other
Participants.
7.5 Withholding of Tax. To the extent required by applicable law and
------------------
regulation, each Participant must arrange with the Company for the payment of
any federal, state or local income or other tax applicable to the Stock Option
granted hereunder before the Company shall be required to deliver to the
Participant a certificate for the shares purchased upon exercise of the Stock
Options.
SECTION 8. NO EFFECT UPON STOCKHOLDER RIGHTS
Nothing in this Plan shall interfere in any way with the right of the
stockholders of the Company to remove the Participant from the Board of
Directors pursuant to the General Corporation Law of the State of Delaware and
the Company's Certificate of Incorporation and Bylaws.
SECTION 9. NO RIGHTS AS A STOCKHOLDER
Except as provided for herein, a Participant shall have no rights as a
stockholder with respect to any shares of Common Stock subject to Stock Options.
Except as provided in Section 6.2, no adjustment shall be made in the number of
shares of Common Stock issued to a Participant, or in any other rights of the
Participant upon exercise of Stock Options by reason of any dividend,
distribution or other right granted to stockholders for which the record date is
prior to the date of exercise of the Participant's Stock Options.
SECTION 10. ASSIGNABILITY
Unless otherwise determined by the Committee, no Stock Options granted
under this Plan, nor any other rights acquired by a Participant under this Plan,
shall be assignable or transferable by a Participant, other than by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code, Title I of the Employee Retirement Income Security
Act ("ERISA"), or the rules thereunder. In the event of the Participant's death,
the Stock Options may be exercised to the extent then exercisable under the
applicable Option Agreement by the personal representative of the Participant's
estate or, if no personal representative has been appointed, by the successor or
successors in interest determined under the Participant's will or under the
applicable laws of descent and distribution.
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<PAGE>
SECTION 11. REORGANIZATION OR LIQUIDATION OF THE COMPANY
In the event that the Company is merged or consolidated with another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification,
conversion, exchange or other change of outstanding Shares), or if all or
substantially all of the assets or more than 50% of the outstanding voting stock
of the Company is acquired by any other corporation, business entity or person
(other than a sale or conveyance in which the company continues as a holding
company of an entity or entities that conduct the business or businesses
formerly conducted by the Company), or in case of a reorganization (other than a
reorganization under the United States Bankruptcy Code) or liquidation of the
Company, and if the provisions of Section 12 hereof do not apply, the Board of
Directors shall have the power and discretion to prescribe the terms and
conditions for the exercise of, or modification of, the Stock Options granted
hereunder. By way of illustration, and not by way of limitation, such Board
members may provide for the complete or partial acceleration of the dates of
exercise of the Stock Options, or may provide that such Stock Options will be
exchanged or converted into options to acquire securities of the surviving or
acquiring corporation, or may provide for a payment or distribution in respect
of outstanding Stock Options (or the portion thereof that is currently
exercisable) in cancellation thereof. Such Board members may provide that Stock
Options or other rights granted hereunder must be exercised in connection with
the closing of such transaction, and that if not so exercised that such Stock
Options will expire. Any such determinations by the Board of Directors may be
made generally with respect to all Participants, or may be made on a case-by-
case basis with respect to particular Participants. The provisions of this
Section 11 shall not apply to any transaction undertaken for the purpose of
reincorporating the Company under the laws of another jurisdiction, if such
transaction does not materially affect the beneficial ownership of the Company's
capital stock.
SECTION 12. CHANGE IN CONTROL
12.1 Options. In the event of a change in control of the Company as
-------
defined in Section 12.2, the Board of Directors shall accelerate the exercise
dates of any outstanding Stock Options or make all such options fully vested and
exercisable and may, in their sole discretion, without obtaining stockholder
approval, to the extent permitted by Section 13, take any or all of the
following actions: (a) grant a cash bonus award to any Participant in an amount
necessary to pay the exercise price of all or any portion of the Stock Options
then held by such
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<PAGE>
Participant; (b) pay cash to any or all Participants in exchange for the
cancellation of their outstanding Stock Options (effective as of the date of the
Change of Control) in an amount equal to the difference between the exercise
price of such Stock Options and the greater of the tender offer price for the
underlying Common Stock or the Fair Market Value of the Common Stock on the date
of the cancellation of the Stock Options; and (c) make any other adjustments or
amendments to the outstanding Stock Options.
12.2 Definition. For purposes of this Plan, a "change in control"
----------
shall be deemed to have occurred if (a) any "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), other than (i) CommNet Cellular Inc., or (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of more than 33-1/3% of the then
outstanding voting stock of the Company; or (b) at any time during any period of
three consecutive years (not including any period prior to the Effective Date),
individuals who at the beginning of such period constitute the Board (and any
new director whose election by the Board or whose nomination for election by the
Company stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority thereof; or (c) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 80% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
SECTION 13. AMENDMENT
The Board may from time to time alter, amend, suspend or discontinue
the Plan, including, where applicable, any modifications or amendments as it
shall deem advisable in order to conform to any regulation or to any change in
any law or regulation applicable thereto; provided, however, that no such action
shall adversely affect the rights and obligations with respect to Stock Options
at any time outstanding under the Plan;
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<PAGE>
and provided further that any amendment which, under state or federal law or the
applicable rules of any exchange or trading system on which the Common Stock is
traded, would require stockholder approval shall take effect only upon such
approval.
SECTION 14. REGISTRATION OF OPTIONED SHARES
The Stock Options shall not be exercisable unless the purchase of such
optioned shares is pursuant to an applicable effective registration statement
under the Securities Act of 1933, as amended (the "Act"), or unless, in the
opinion of counsel to the Company, the proposed purchase of such optioned shares
would be exempt from the registration requirements of the Act and from the
registration or qualification requirements of applicable state securities laws.
SECTION 15. BROKERAGE ARRANGEMENTS
The Committee, in its discretion, may enter into arrangements with one
or more banks, brokers or other financial institutions to facilitate the
disposition of shares acquired upon exercise of Stock Options including, without
limitation, arrangements for the simultaneous exercise of Stock Options and sale
of the shares acquired upon such exercise.
SECTION 16. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of
the Plan to stockholders of the Company for approval shall be construed as
creating any limitations on the power or authority of the Board to adopt such
other or additional compensation arrangements of whatever nature as the Board
may deem necessary or desirable or preclude or limit the continuation of any
other plan, practice or arrangement for the payment of compensation or fringe
benefits to Nonemployee Directors, which the Company now has lawfully put into
effect.
SECTION 17. EFFECTIVE DATE
This Plan was adopted by the Board of Directors of the Company and
became effective on September 18, 1996 and was approved by the stockholders of
the Company on the same date.
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<PAGE>
EXHIBIT 10.4
HESA BPS SYSTEM DISTRIBUTION AGREEMENT
AGREEMENT made as of this 12th day of July, 1994, by and between TVX,
Inc., a Delaware corporation having a principal place of business at 660 Compton
Street, Broomfield, Colorado 80020 ("TVX") and HESA S.p.A., a corporation
organized and existing under the laws of the country of Italy, having a
principal place of business at Viale Teodorico 19/1, Milano, Italy ("HESA").
WHEREAS, HESA is the designer and manufacturer of the BPS System (as
defined below); and
WHEREAS, TVX desires to distribute the BPS System and, under certain
circumstances, manufacture or have manufactured the BPS System;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained herein, TVX and HESA agree as follows:
1. Definitions. For the purposes of this Agreement, the following
definitions will be used:
(a) "BPS System" means HESA's buried cable intruder detection system,
as the same may be improved or enhanced from time to time.
(b) "Distributor" means any reseller, dealer or distributor to whom
TVX sells the BPS System for further sale in the Territory to End-Users pursuant
to Section 2(d).
(c) "End-User" means a customer who purchases the BPS System for its
own internal use.
(d) "HESA Information" means any of the following concerning the HESA
Software and/or the BPS System: specifications, drawings, sketches, models,
manuals, samples, tools, computer programs, technical information, manufacturing
processes and information, and information reasonably determined by HESA to be
necessary for the support in the sale of the BPS System.
(e) "HESA Patents" means U.S. Patent No. 4,581,677, Italian Patent
No. 20058 A/89 and any subsequently issued United States or Italian patents
owned by HESA on the HESA Technology, including any continuations, divisionals,
substitutes, reexaminations, and reissues thereof and all corresponding foreign
patents.
<PAGE>
(f) "HESA Software" means the computer programs (in object code
form), documentation, methods and procedures, training materials, and related
information or any portions thereof, incorporated into the BPS System.
(g) "HESA Technology" means the HESA Software and the HESA
Information.
(h) "Installation Software" means the computer programs (in object
code form) used to program and set-up the BPS System, as the same may be updated
and enhanced by HESA.
(i) "Territory" means North America and South America.
2. Distribution.
(a) HESA hereby appoints TVX as the exclusive distributor of the BPS
System within the Territory and agrees that it will not otherwise sell or
distribute the BPS System within the Territory.
(b) TVX may sell the BPS System to Distributors or End Users having
their place of business or their residence in the Territory.
(c) HESA hereby grants TVX a license to use and to sublicense to End
Users and Distributors (who may sublicense to End Users) the Installation
Software. TVX shall obtain, or cause its Distributors to obtain, a software
license agreement with each End User of the Installation Software, in form
acceptable to HESA, who shall be paid a license fee as described in Schedule B
hereto and incorporated herein by this reference, as the same may be amended
from time to time by HESA based on prevailing market conditions and the various
features of the Installation Software.
(d) TVX shall pay to HESA as the purchase price for the BPS Systems
purchased hereunder by TVX the amount set forth in Schedule A attached hereto
and incorporated herein by this reference, as the same may be amended from time
to time by HESA based on prevailing market conditions and the various features
of the BPS Systems.
3. Minimum Quantities Of Systems.
(a) TVX undertakes to realize a minimum sales volume by purchasing a
minimum quantity of BPS Systems from HESA for each year of duration of this
Agreement as follows:
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<PAGE>
(i) a minimum of Fifty (50) BPS Systems during calendar 1994
(including BPS Systems purchased prior to the date hereof);
(ii) a minimum of One Hundred (100) BPS Systems during calendar
1995; and
(iii) a minimum of One Hundred Twenty-Five (125) BPS Systems
during calendar 1996.
(b) In the case that this Agreement is renewed automatically, as
provided for in Section 8 below, TVX and HESA shall agree, in advance of each
such renewal period, upon a new minimum purchase requirement. In absence of any
agreement, due to whatever fact, the minimum amount of sales for each period of
six months (semester) shall be that of the precedent six month period increased
by twenty percent (20%).
(c) TVX undertakes to keep, at his own expense, an inventory of BPS
Systems which will ensure a continuous distribution of them within the
Territory, and to meet the demands of its Distributors and End User purchasers.
TVX shall inform HESA, at least quarterly, of the number of BPS Systems in its
inventory.
4. Promotion.
(a) TVX undertakes to be responsible for the publicity of the BPS
Systems within the Territory and to this sole extent shall have the right to
utilize the HESA trademarks for the promotion, sale and service of the BPS
Systems.
(b) HESA shall participate in TVX's promotion activity by supplying
TVX, free of charge, promotional materials and pamphlets.
(c) Upon termination of the Agreement, TVX shall immediately cease to
promote the BPS Systems and shall return to HESA all information and advertising
material at that time in possession of TVX.
-3-
<PAGE>
5. No Competition.
(a) For all the duration of this Agreement, TVX undertakes not to
sell, service or distribute in any manner whatsoever, directly or indirectly, in
the Territory, any other buried cable intruder detection system.
(b) TVX shall inform HESA of any suspected infringements of HESA's
proprietary rights within the Territory. In the case of an action brought by
HESA in order to protect its rights within the Territory, TVX will provide
reasonable assistance to HESA in enforcing HESA's rights.
6. Right to Manufacture.
(a) HESA grants to TVX an exclusive license to manufacture and have
manufactured the BPS System, in the event that either (i) HESA is unable to
provide sufficient quantities of the BPS System to meet TVX's and its
Distributors' requirements, or (ii) TVX determines in good faith that it can
manufacture, or have manufactured, the BPS System at a lower cost. HESA agrees
that in either of such events, it will deliver to TVX all HESA Technology for
the purpose of enabling TVX (i) to manufacture the BPS System under this Section
6 and (ii) to provide support to End-Users. Thereafter, HESA agrees to sell all
updates, upgrades and enhancements to the HESA Technology and the HESA Software
to TVX at a reasonable price.
(b) If TVX elects pursuant to Section 6(a) to manufacture or have
manufactured the BPS System then TVX shall pay HESA under one of the following
arrangements, as selected by TVX:
(i) Within 30 days of its receipt of the HESA Technology, TVX
shall pay HESA a one-time fee of $250,000 and thereafter
shall pay HESA, within 30 days of the end of each calendar
quarter, a royalty of $50.00 for each BPS System sold by TVX
during such quarter; or
(ii) TVX shall pay HESA, within 30 days of the end of each
calendar quarter, a royalty of $300.00 for each BPS System
sold by TVX during such quarter.
7. Warranty and Indemnification.
(a) HESA warrants and represents that it owns the entire right, title
and interest in and to the HESA Technology
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<PAGE>
and that it has the unencumbered legal right to grant to TVX the distribution
and other rights provided herein.
(b) Neither HESA nor TVX assumes any responsibility whatever with
respect to the manufacture, sale, lease, use, export, or importation of the BPS
System, or any part thereof, other than the licenses, immunities, rights, and
warranties expressly granted herein.
(c) HESA warrants that the BPS Systems manufactured by or for the
benefit of HESA are and will be free from defects in material and workmanship
for a term of one year from the date the BPS System is delivered to TVX
hereunder. HESA's obligation under this warranty shall be to replace or
repair, at its option and expense, any BPS System manufactured by or for the
benefit of HESA.
(d) HESA shall indemnify and hold TVX harmless from any claims,
proceedings, demands, liabilities, actions, suits or proceedings asserted or
alleged by any third party for patent, copyright or trade secret infringement by
the BPS System.
8. Duration. This Agreement shall commence on the Effective Date of
this Agreement, and unless terminated under Section 9, shall continue until
December 31, 1996; provided, however, this Agreement shall be automatically
renewed for successive two year periods unless either party shall have elected
to terminate this Agreement by giving written notice thereof to the other party
at least ninety (90) days prior to the end of any such period.
9. Termination. In the event of a material breach of any term in
this Agreement and the failure to remedy any such breach within thirty (30) days
of written notice thereof, the non-breaching party may at its option terminate
any or all of the rights granted herein by notice in writing received by the
breaching party to such effect. Termination of the rights granted herein shall
be effective on the date such notice is given by the non-breaching party. Such
termination shall not affect the rights granted to the non-breaching party
hereunder which rights shall continue in full force and effect. The termination
of this Agreement shall not affect any sublicenses to use the Installation
Software that have been granted to End-Users in connection with sales of BPS
Systems prior to the date of such termination. After the date of such
termination, neither TVX nor any Distributor may sell BPS Systems or grant
sublicenses of the Installation Software.
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<PAGE>
10. Trademarks.
(a) HESA grants TVX a nonexclusive license subject to the
restrictions below to use the HESA trademark and logo and the mark "BPS Buried
Cable Perimeter Systems" (the "HESA Marks") in connection with TVX's advertising
and marketing of the BPS System. This license does not include the right to use
any other HESA trademark or to use the HESA Marks in TVX's business name. TVX
shall use the HESA Marks on all advertising and literature accompanying the
products and devices and include a footnote as follows:
"[Mark] is a trademark of HESA S.p.A."
(b) TVX agrees that the HESA Marks are owned by HESA and remain the
property thereof, and agrees that it will not do anything which might impair
HESA's rights in such trademarks and will not challenge the validity of the
marks or HESA's ownership thereof.
11. No Partnership or Other License. Nothing contained in this
Agreement shall be construed as:
(a) Creating any form of partnership, joint venture, or any form of
mutual undertaking under which the acts of one party hereto are chargeable in
any manner to the other party; or
(b) Creating any form of license to the other party under any rights
not specifically granted herein.
12. Notices. All notices between the parties hereunder shall be in
writing and shall be sent by (i) certified mail or (ii) express courier, to the
address for each respective party specified above, or to such other address of
which one party may provide written notice to the other during the term of this
Agreement. Each such notice shall be deemed properly given when received by the
party to whom it is addressed.
13. Waiver. No waiver of any default, expressed or implied, made by
either party hereto shall be binding upon the party making such waiver in the
event of a subsequent default.
14. Entire Agreement. This Agreement constitutes the entire
understanding between the parties hereto as to the subject matter hereof and
merges all prior discussions between them. Neither of the parties shall be bound
by any conditions, definitions, warranties, understandings, or representations
with
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<PAGE>
respect to such subject matter other than as expressly provided herein. No
variation or modification of this Agreement or waiver of any terms or provisions
hereof shall be deemed valid unless in writing and signed by both parties
hereto.
15. Severability. If any section or subsection of this Agreement
shall be held invalid or unenforceable, it shall be deemed to be severed here
from with the remaining sections and subsections remaining in full force and
effect.
16. Construction. The construction and performance of this Agreement
shall be governed by the laws of Italy and the parties hereby submit to the
exclusive venue and jurisdiction of the courts in and for Milano, Italy for
resolution of any dispute related to this Agreement or the performance
thereunder and hereby waive any other venue or jurisdiction to which they may be
entitled by domicile or otherwise.
17. Confidentiality. HESA and TVX agrees to maintain all terms and
conditions of this Agreement in strictest confidence, except to the extent that
TVX is required to disclose this Agreement and/or the terms and conditions
hereof pursuant to applicable law, including the United States securities laws.
IN WITNESS WHEREOF, each of the parties have caused this Agreement to
be executed in duplicate originals by their duly authorized representatives as
of the date set forth above.
HESA S.p.A. TVX, INC.
By: /s/ Enzo Hruby By:/s/ Theodore A. Waibel
----------------------- ----------------------
Enzo Hruby Theodore A. Waibel
Managing Director President
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<PAGE>
Schedule A
----------
Discounted Prices for HESA Products
-----------------------------------
(manufactured by or for HESA)
-----------------------------
<TABLE>
<S> <C>
BPS Control Unit in metal cabinet (less
24VDC Power Supply) US$ 490.80
PCI Preamplifier in sealed aluminum housing US$ 42.00
PCI-2 Preamplifier with cable termination
input in sealed aluminum housing US$ 50.00
CCI Sealed aluminum housing for cable
termination US$ 16.70
</TABLE>
<PAGE>
Schedule B
----------
Sublicense Fee for Installation Software
----------------------------------------
<TABLE>
<S> <C>
Each Sublicense of the Installation
Software to an End-User US$ 50.00
</TABLE>
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<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 14th day of November, 1995, by
and between TVX, Inc., a Delaware corporation (the "Company" or "TVX") and
Robert C. Mulverhill (the "Executive").
WHEREAS, the Company desires to employ the Executive as an executive
with the Company and the Executive desires to accept such employment.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, and for other good and valuable consideration, it is hereby agreed
as follows:
1. Employment and Term. The Company hereby employs the Executive as
-------------------
Executive Vice President and Chief Operating Officer for the period (the
"Employment Period") commencing as of the date of this Agreement and, unless
sooner terminated as hereinafter provided, ending on May 14, 1997. If the
Company is satisfied with the Executive's performance under this Agreement, the
Company may, on or before the end of the Employment Period, extend the term of
this Agreement for an additional period of up to five (5) years.
2. Duties.
------
(a) The Executive hereby accepts such employment and agrees to
devote his full business time and best efforts during normal business hours to
the affairs of the Company's business, provided that he shall at all times act
and perform his duties in a manner which is consistent with the best interests
of the Company. The Executive shall also perform such other duties,
commensurate with his position, as the Company's Board of Directors shall
assign to him.
(b) The Executive agrees to comply with TVX's policies governing
business conduct and confidential information as approved by the Company's Board
of Directors from time to time provided, that to any extent that this Agreement
is inconsistent therewith, this Agreement shall control.
(c) The Executive agrees that he shall not accept board
positions or other employment without the prior approval of the Company's Board
of Directors which approval will not be unreasonably withheld.
<PAGE>
3. Compensation.
------------
(a) During the Employment Period, the Company shall pay to the
Executive a base salary at the rate of $100,000 per year, payable in accordance
with TVX's payroll practices for executive officers, with future increases as
determined by the Company's Board of Directors.
(b) Executive shall be entitled to a cash bonus of $50,000
payable upon the closing of an initial public offering with gross proceeds of at
least $7.5 million, provided that such closing occurs prior to March 31, 1997 (a
"Qualified Offering").
4. Working Facilities; Expenses. The Company shall furnish or cause
----------------------------
to be furnished to the Executive an office and such other facilities and
services as are suitable to his position and adequate for the performance of his
duties hereunder, including but not limited to an office, personal computer,
printer and a secretary or administrative assistant. Executive agrees to and
shall undertake such travel as the performance of the Executive's duties may
require. The Company shall promptly reimburse the Executive in accordance with
the Company's customary travel and expense reimbursement policies for all
reasonable travel and other expenses paid or incurred by the Executive in
connection with the performance of his duties hereunder.
5. Additional Benefits. In addition to all other rights of the
-------------------
Executive hereunder, the Executive shall be eligible during the Employment
Period to participate in and receive all other benefits from any retirement,
life insurance, disability or pension, profit-sharing, savings, cash or other
plan or plans or arrangements provided by TVX for its executive officers
generally, each such benefit to be made available on the basis applicable to
TVX's similarly situated executive officers, as the same may now or hereafter
exist and under the terms thereof as the same may be amended from time to time.
Other additional benefits may be made available as directed by the Board of
Directors from time to time.
6. Termination.
-----------
(a) If the Company terminates the Executive's employment without
cause prior to the end of the Employment Period, he shall be entitled to a
severance benefit in lieu of all other compensation, bonus, severance or other
payments or benefits arising in connection with his employment, equal to (i) the
base salary he would have received through the end of the Employment Period,
payable in equal monthly installments through the end of the Employment Period,
and (ii) if such termination occurs after a registration statement has been
filed with the
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<PAGE>
Securities and Exchange Commission which results in a Qualified Offering, a
bonus of $50,000 payable in one lump sum upon the closing of such offering. Such
payments shall be in full satisfaction of all claims of the Executive against
the Company other than for his vested benefits under any of the Company's
employee benefit plans in which he is a participant. Executive's resignation or
termination by the Company for cause shall not entitle Executive to a severance
benefit hereunder.
(b) Termination for "cause" shall be made by the Company upon
written notice to the Executive, which notice shall be authorized by the Board
of Directors of the Company. For all purposes hereof, "cause" shall mean: (i)
incapacitation of the Executive as evidenced by his inability to perform his
responsibilities under this Agreement for a period of ninety (90) consecutive
days, (ii) the commission by the Executive of a material act of dishonesty,
(iii) a breach by the Executive of any provision of this Agreement which is not
cured within 15 days after delivery of notice thereof to the Executive, (iv) a
material violation of any governmental law or regulation to which the Company is
subject, (v) a willful failure to use the Executive's best efforts to comply
with a reasonable request of the Board of Directors of the Company which is not
cured within 15 days after delivery of notice thereof to the Executive, or (vi)
evidence, as determined adequate by the Board of Directors in its sole
discretion, of alcohol or drug abuse. Any termination under this Section 6(b)
shall be effective immediately.
(c) In the event this Agreement is terminated as a result of the
death of the Executive, the Company shall pay to the Executive's estate, on a
monthly basis, the Executive's monthly base salary for a period equal to the
lesser of (i) the remainder of the Employment Period, or (ii) three (3) months.
7. Confidential Information.
------------------------
(a) The Company has provided and will provide the Executive with
access to all confidential information, including trade secrets and proprietary
information and processes and financial information (hereinafter referred to as
the "Confidential Information"), necessary for the performance of the
Executive's duties under this Agreement and such Confidential Information will
be held by the Executive as the Company's property. Upon termination of his
employment hereunder the Executive shall return to the Company all of the
Confidential Information and other property of the Company and of any
subsidiary and/or affiliated companies in his possession or control.
(b) The Executive agrees that he will not use for his own
benefit or disclose to any other person or entity at any
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<PAGE>
time (other than in the ordinary course of the business of the Company) any of
the Confidential Information obtained by the Executive while employed by the
Company, other than such Confidential Information as is then in the public
domain.
8. Non-Competition Covenant.
------------------------
(a) Executive agrees that during the term of this Agreement,
including any period Executive is receiving payments under Section 6(a),
Executive shall not directly or indirectly whether as an employer, employee,
officer, director, consultant, shareholder, proprietor, associate, partner,
agent, representative, or otherwise:
(i) become or have an interest in, undertake or join any
planning for or organization of, engage in activities or render services for, or
associate with, any other person, corporation, firm, partnership or other entity
whatsoever engaged in the security industry;
(ii) interfere with the customer relations of the Company
or any of its subsidiaries or affiliates;
(iii) entice, induce or encourage any of the employees,
agents or representatives of the Company or any of its subsidiaries or
affiliates to engage in any activity which, were it done by Executive, would
violate any provision of this Section 8; or
(iv) employ or otherwise contract for the services of any
employee, consultant or agent of the Company or any of its affiliates or
subsidiaries, or in any way influence or solicit any such employee, consultant
or agent to leave the employ of the Company or any of its affiliates or
subsidiaries.
(b) Notwithstanding the provisions of Section 8(a)(i), ownership
of not more than three percent of the outstanding securities of any class of any
corporation that are listed on a national securities exchange or traded in the
Nasdaq National Market shall not be considered a breach of this Section 8.
(c) If any one or more of the provisions contained in this
Section 8 shall for any reason be held to be excessively broad as to duration,
geographical scope, activity or subject, it shall be construed by limiting and
reducing it, so as to be enforceable to the extent compatible with the
applicable law then in effect.
9. Arbitration. Any and all disputes which my arise under or in
-----------
connection with this Agreement shall be submitted to
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<PAGE>
and settled by binding arbitration in Denver, Colorado, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitrator may, in his discretion, award legal fees and expenses to the
prevailing party. Any award shall constitute a final, non-appealable judgment
and may be entered as such by the clerk of any court having jurisdiction.
10. Indemnification. The Company will indemnify the Executive to the
---------------
same extent as it indemnifies its executive officers generally. The executive
shall be entitled to the full protection of any insurance policies which the
Company may elect to maintain generally for the benefit of its executive
officers, against all costs, charges and expenses whatsoever incurred or
sustained by him or his legal representatives in connection with any action,
suit or proceeding to which he may be made a party by reason of his being or
having been at any time an officer of TVX or any of its subsidiaries or
affiliated companies or by reason of any action at any time taken by him on
behalf of TVX or any of its subsidiaries or affiliated companies.
11. Amendment. This Agreement may not be amended, waived, changed,
---------
modified or discharged except by an instrument in writing executed by or on
behalf of the party or parties against whom enforcement of such amendment,
waiver, change, modification or discharge is sought.
12. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, by certified mail, return receipt requested, as follows:
(a) To the Company:
TVX, Inc.
660 Compton Street
Broomfield, Colorado 80020
Attn: President
(b) To the Executive:
Robert C. Mulverhill
9274 South Montrose Way
Highlands Ranch, Colorado 80126
and/or to such other persons and addresses as any party shall have specified in
writing to the other by notice as aforesaid.
13. Assignability. This Agreement may be assigned by the Company to
-------------
any successor to the Company's business, provided that any such successor agrees
to assume all of the Company's obligations hereunder. The Executive may not
assign, pledge or
-5-
<PAGE>
encumber his interest in this Agreement without the written consent of the
Company. This Agreement shall be binding upon, and shall inure to the benefit
of, the Executive's permitted assigns, heirs, executors, administrators and
legal representatives. This Agreement shall be binding upon and inure to the
benefit of the Company, and its respective successors and assigns.
14. Separability. In the event that any provision of this Agreement
------------
would be held to be invalid, prohibited or unenforceable in any jurisdiction for
any reason unless narrowed by construction, this Agreement shall, as to such
jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited or
unenforceable in any jurisdiction for any reason. Such provision, as to such
jurisdiction, shall be ineffective to the extent of such invalidity, prohibition
or unenforceability, without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction.
15. Integration. Except as otherwise expressly provided herein this
-----------
Agreement supersedes all other employment agreements between the Company and
Executive.
16. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Colorado.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TVX, INC.
By ________________________________
Arnold C. Pohs
Chairman of the Board
THE EXECUTIVE:
__________________________________
Robert C. Mulverhill
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<PAGE>
EXHIBIT 10.6
DATED 18 April 1996
ACTIVE IMAGING PLC
and
JOHN OSBORNE
SERVICE AGREEMENT
<PAGE>
DATED 18 APRIL 1996
PARTIES
1 ACTIVE IMAGING PLC (registered number: 3159820) whose registered office
is situate at Hattori House, Vanwall Business Park, Maidenhead,
Berkshire, SL6 4UB ("the Company"); and
2 JOHN OSBORNE of 14 Whiteacres Drive, Holyport, Near Maidenhead,
Berkshire, SL6 2EH ("the Executive").
OPERATIVE PROVISIONS
1. DEFINITIONS
1.1 In this agreement the following words and expressions shall have the
following meanings:
"AII" Active Imaging Inc. a corporation
incorporated in Nevada USA;
"associated company" (a) any company whose equity share
capital (as defined by section 744
of the Companies Act 1985) is, as
to 20% or more but less than 50%
beneficially owned by one or more
Group Company; and
(b) any subsidiary of a company within
(a) above;
"Board" the board of directors of the Company
(or any director or committee of
directors authorised by the Board);
"business day" a day on which the clearing banks in
the City of London are open for
business;
"Commencement Date" the date of this agreement;
"Confidential (a) any trade secrets, customer
lists, trading
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Information" details, information technology,
Intellectual Property or other
information of a confidential
nature relating to any Group
Company (including without
limitation details of activities,
businesses or finances of
any such company);
(b) any other information designated
by any Group Company as confidential;
and
(c) any information in relation to
which any Group Company owes a duty
of confidentiality to any third party;
"Group" the Company, any subsidiaries of the
Company and any associated company of
any of them;
"Group Company" any member of the Group;
"holding company" and the same meanings as are respectively
"subsidiary" attributed to them by section 736
Companies Act 1985;
"Intellectual Property" includes letters patent, trade marks,
service marks, designs, utility
models, copyrights, design rights,
applications for registration of any
of the foregoing and the right to
apply for them in any part of the
world, moral rights, inventions,
confidential information, know-how,
and rights of the like nature arising
or subsisting anywhere in the world
in relation to all of the foregoing,
whether registered or unregistered;
"Model Code" the model code on dealings in
securities by directors and employees
of companies where securities are
admitted to trading on the
Alternative Investment Market of the
Stock Exchange;
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"Review Date" on 1 January 1997 and any anniversary
of such date;
"Salary" the salary referred to at clause 3.1
as varied from time to time;
"Stock Exchange" the London Stock Exchange Limited.
1.2 The headings in this agreement are for convenience only and shall not
affect its construction or interpretation.
1.3 The Schedules shall be deemed to form part of and shall be incorporated
in this agreement.
1.4 References to any enactment shall be construed as extending to any
amendment or re-enactment and to any previous enactment which is
consolidated in that enactment (as amended or re-enacted) and to any
regulation or order made under any of them.
1.5 Words denoting the singular shall include the plural and vice versa;
and words denoting any gender shall include all genders.
2 JOB TITLE AND DUTIES
2.1 The Company shall employ the Executive and the Executive shall serve the
Company as Chief Executive of the Company with specific responsibility
for the US operations of the Group and as an officer of AII.
2.2 The Executive shall during his employment under this agreement:
2.2.1 always subject to the control of the Board and to the
Memorandum and Articles of the Company, have the general
control and management of the business of the Company in the
United States of America and the business of AII and shall
carry out such other duties for any other Group Company as
the Board may from time to time reasonably require including
serving on the board of directors or other executive body or
committee or board of trustees of or relating to such Group
Company as may from time to time be required by the Board;
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2.2.2 well and faithfully serve the Company and use his utmost
endeavours to promote its interests but, so far as
reasonably possible, not in any way which may conflict with
the interests of any other Group Company, which interests
the Executive shall use his best endeavours to promote;
2.2.3 give to the Board, such information regarding the affairs of
any Group Company as it shall require; and
2.2.4 at all times conform to the reasonable directions of the
Board.
2.3 The Executive shall not without the prior consent of the Board:
2.3.1 incur, on behalf of any Group Company, any capital
expenditure in excess of such sum as may be authorised from
time to time by resolution of the Board;
2.3.2 enter into, on behalf of any Group Company any commitment,
contract or arrangement otherwise than in the normal course
of business or outside the scope of his normal duties or of
an unusual, onerous or long term nature;
2.3.3 engage any person on behalf of any Group Company on terms
that he will receive remuneration at an annual rate in
excess of (Pounds)40,000 or the US dollar equivalent or the
termination of whose employment will require more than one
month's notice;
2.3.4 dismiss any employee of any Group Company without giving
proper notice or without following the normal disciplinary
procedure, and in any such case he shall immediately report
the dismissal and the reason for it to the Board.
2.4 The Executive shall during his employment under this agreement devote
himself exclusively to the performance of his duties during normal
working hours at his place of employment and at all other times as may
be necessary for the proper performance of his duties, unless prevented
by ill health from so doing.
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2.5 The Executive shall not directly or indirectly enter into, or be
concerned or interested in or be an employee, director or consultant of
or in respect of, any trade or business or occupation whatsoever other
than the business of the Company and the Group except:
2.5.1 with the prior written consent of the Board, but consent may
be given subject to any terms or conditions which the Board
may require, any breach of which shall be deemed to be a
breach of the terms of this agreement; or
2.5.2 as a holder of not more than 1% of any class of stock,
shares, debentures or other securities in any company which
are listed on the Stock Exchange or traded on the
Alternative Investment Market of the Stock Exchange.
In this clause the expression "occupation" shall include
membership of Parliament or of a local authority council or
any other public or private work (whether for profit or
otherwise) which, in the reasonable opinion of the Company,
may hinder or otherwise interfere with the performance by
the Executive of his duties under this agreement.
2.6 The Executive's place of employment from the Commencement Date shall be
at the office of AII in Incline Village, Nevada, USA. The Executive
shall remain in the USA until 30 April 1997 (or such other date agreed
between the Executive and the Board) after which he shall relocate to
the United Kingdom and the Executive's place of employment shall be the
registered office of the Company. At any time the Executive may be
required to be permanently employed on not less than one month's notice
at any other place within the United Kingdom or the USA, as appropriate.
2.7 The Company will reimburse the Executive for all removal expenses
directly and reasonably incurred in connection with his relocation to
the USA and his subsequent relocation to the United Kingdom as provided
in clause 2.6 up to the maximum permitted under any Inland Revenue's
Extra Statutory Concession from time to time relating to such
reimbursement subject to production of appropriate invoices.
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2.8 The Company may suspend the Executive for not more than 30 days on full
pay for the purpose of investigating the substance of any disciplinary
matter involving the Executive and holding any disciplinary hearing.
2.9 The Company shall be entitled to second the Executive to any Group
Company. The Executive agrees and irrevocably undertakes to enter into
such restrictions on his activities during and after the termination of
any such secondment as such company may require.
2.10 The Executive hereby undertakes and agrees:
2.10.1 to be bound by and to observe the provisions of the Model
Code (a copy of which is available from the Company
Secretary); and
2.10.2 to deal in any securities in the capital of the Company only
in accordance with the Model Code; and
2.10.3 immediately to inform in writing the Company Secretary of
any dealings by the Executive or any person connected with
the Executive (within the meaning of Section 346 of the
Companies Act 1985) in any such securities including the
number and nature of the securities involved and the price
paid or received.
3 REMUNERATION
3.1 SALARY
3.1.1 The Executive's Salary while he is resident in the USA shall
be US$105,000 per annum which shall accrue from day to day
and be payable in arrears by equal monthly instalments on
the last business day (or such other business day as the
Board shall nominate) of every month . On relocation to the
United Kingdom the Executive's Salary shall be such sum as
equals (Pounds)65,000 as increased annually on each Review
Date by a percentage equal to the percentage increase in the
retail prices index published by the government to 1 January
in the year in question from 1 January in the previous year
or such other amount as shall be agreed between the Company
and the Executive.
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The Salary shall be inclusive of any director's fees payable
to him under the articles of association of any Group
Company.
3.1.2 The Executive's Salary shall be reviewed by the Board on the
Review Date and may be increased at the Board's discretion
3.1.3 The Company shall be entitled at any time during the
currency of this agreement and in any event on termination
to deduct from the Salary any sum due from the Executive to
the Company including but not limited to any outstanding
loans, advances, excess holiday, over payments and any other
sums owed.
3.2 BONUS
The Executive may be entitled to participate in such bonus scheme as the
Company may operate from time to time.
3.3 PENSION SCHEME
3.3.1 The Company shall during the Executive's employment under
this agreement contribute an amount equal to 5% of the
Salary to such pension scheme as the Executive shall
designate from time to time.
3.3.2 There is no contracting-out certificate in force in respect
of this employment.
3.4 INSURANCE BENEFITS
The Executive shall be entitled to participate at the Company's expense
in the Company's life assurance scheme, the Company's permanent health
insurance scheme and for himself, his spouse and his children under 18
years in the Company's private medical insurance scheme, subject always
to the rules of such schemes which may be varied by the Company from
time to time or while the Executive's place of employment is in the USA,
such other equivalent schemes as the Board may determine from time to
time.
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3.5 COMPANY CAR/ALLOWANCE
3.5.1 While the Executive's place of employment is in the USA the
Company shall pay the Executive business mileage allowance
at a rate to be determined by the Board from time to time,
payable on the last business day of every month (or such
other business day as the Board shall nominate).
3.5.2 While the Executive's place of employment is in the United
Kingdom, the Company shall supply the Executive with a car
for his use in the performance of his duties of a model and
make suitable for the Executive's status. The Company will
pay all running costs of the car including insurance and
maintenance excluding petrol consumed in private use.
3.5.3 The Executive shall take good care of the company car and
ensure that the provisions and conditions of any insurance
policy relating to it are observed.
3.5.4 The Executive shall return the company car together with all
keys and documentation (including copies) to the Company at
its registered office (or any other place the Company may
reasonably nominate) at any time the Company may so request
and, in any event, immediately upon the termination of his
employment (however occurring).
3.6 EXPENSES
The Company shall by way of reimbursement pay or procure to be paid to
the Executive all reasonable expenses wholly exclusively and necessarily
incurred by him in the performance of his duties under this agreement on
production of appropriate vouchers or receipts.
3.7 OTHER BENEFITS
Any benefits provided by the Company to the Executive or his family
which are not expressly referred to in this agreement shall be regarded
as ex-gratia and at the entire
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discretion of the Company and shall not form part of the Executive's
contract of employment.
4 TERM OF EMPLOYMENT
4.1 The Company shall employ the Executive and the Executive shall serve the
Company as from the Commencement Date until the expiration of not less
than 6 months prior written notice to be given by either party to the
other, in either case such notice to expire on or after the first
anniversary of the Commencement Date.
4.2 The Executive's period of continuous employment with the Company began
on 1 January 1989.
4.3 In lieu of giving the notice referred to in clause 4.1 the Company may
terminate this agreement summarily on payment to the Executive of a lump
sum (subject to deduction of tax and national insurance contributions)
equal to the Salary calculated over the unexpired period of this
agreement, such payment being in full and final settlement of any claim
which the Executive may have against all Group Companies.
4.4 If this agreement is terminated on notice the Company may require the
Executive to cease to perform his duties under this agreement and not to
attend at the Company's premises during such notice period or any part
of such notice period as the Company may determine. During any such
period the Company shall continue to pay the Executive the Salary and
any other benefits to which he has an entitlement under this agreement
and the Executive, who shall remain in employment, shall continue to be
bound by all obligations owed to the Company under this agreement.
4.5 The Executive's employment under this agreement shall terminate
automatically on the last day of the month in which the Executive shall
attain the Company's retirement age from time to time. This is currently
60 years.
5 HOLIDAYS
While the Executive's place of employment is in the USA, the Executive
shall (in addition to the usual US public holidays up to a maximum of 8
days) be entitled to 15 working days' holiday in each calendar year to
be taken at times convenient to the Company. While the Executive's place
of employment is in the United Kingdom,
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the Executive shall (in addition to the usual UK public and bank
holidays) be entitled to 25 working days' holiday in each calendar year
to be taken at times convenient to the Company. During the first and
last calendar years of the Executive's employment the Executive shall be
entitled to a pro rata proportion of his annual holiday entitlement. The
Executive may not carry over accrued holiday entitlement from one
calendar year to the next without the written consent of the Board and
the Company shall not make any payment in lieu of any holiday
entitlement not taken. On termination of this agreement (except under
clause 7 below) the Company shall make a payment in lieu of any holiday
entitlement not taken and may deduct from the final payment of Salary
for holiday taken in excess of the Executive's entitlement.
6 INCAPACITY
6.1 The Executive shall continue to be paid during absence due to illness
accident or other such incapacity (such payment to be inclusive of any
statutory sick pay or social security benefits or the US equivalent to
which he may be entitled) for a total of up to 90 working days in any
period of twelve consecutive calendar months. Thereafter the Executive
shall continue to be paid remuneration at the discretion of the Company.
6.2 If the Executive shall be prevented from performing his duties as a
result of illness, accident or other such incapacity, either for a
period or periods aggregating at least 90 working days in any period of
twelve consecutive calendar months or for 90 consecutive working days
the Company may terminate the agreement by giving 30 days' notice in
writing, in which case the Executive shall not be entitled to
compensation.
6.3 If the Executive is at any time prevented by illness accident or such
other incapacity from performing his duties for a period of 30
consecutive days, the Company may appoint a temporary replacement to
undertake all or some of the Executive's duties during any further
period in which the Executive is prevented by illness or accident from
performing his duties.
6.4 If at any time so required by the Board the Executive shall, at the
expense of the Company, undergo a medical examination by such medical
practitioner as the Board
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shall nominate. The Executive shall authorise such medical practitioner
to disclose to and discuss with the Board the results of such
examination.
7 SUMMARY TERMINATION OF EMPLOYMENT
7.1 The employment of the Executive may be terminated by the Company without
notice or payment in lieu of notice if the Executive:
7.1.1 commits any act of gross misconduct or of gross neglect or
any material or repeated breach of any obligation in this
agreement, or is guilty of conduct tending to bring himself
or any member of the Group into disrepute; or
7.1.2 has an interim receiving order made against him, becomes
bankrupt or makes any composition or enters into any deed of
arrangement with his creditors; or
7.1.3 is convicted of any arrestable criminal offence (other than
an offence under road traffic legislation for which a fine
or non-custodial penalty is imposed); or
7.1.4 shall become of unsound mind or become a patient under the
Mental Health Act 1983; or
7.1.5 is convicted of an offence under the Part V of the Criminal
Justice Act 1993 or under any other present or future
statutory enactment or regulations relating to insider
dealing; or
7.1.6 resigns as a director of the Company otherwise than at the
request of the Board; or
7.1.7 is disqualified from being a director of any company by
reason of an order made by any competent court.
7.2 The termination by the Company of the appointment shall be without
prejudice to any claim which the Company may have for damages arising
from breach of this agreement by the Executive.
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8 TERMINATION BY REORGANISATION OR RECONSTRUCTION
If the Executive shall have been offered but shall unreasonably have
refused or unreasonably failed to agree to the transfer of this
agreement by way of novation to a company which as a result of a
reorganisation, amalgamation or reconstruction shall have acquired or
agreed to acquire the whole or substantially the whole of the
undertaking or the whole or not less than 90% of the equity share
capital of the Company the Executive shall have no claim against the
Company in respect of the termination of this agreement by reason of the
subsequent voluntary winding-up of the Company or of the disclaimer or
termination of this agreement by the Company within 3 months after such
unreasonable refusal or unreasonable failure to agree.
9 EXECUTIVE'S OBLIGATIONS ON TERMINATION
Upon the termination of this agreement (howsoever occurring) or in the
event of the Executive serving on the Company notice to terminate his
employment on the Company or in the event of the Company requesting the
Executive to cease performing or exercising any or all of his duties
pursuant to clause 4.4:
9.1 the Executive shall at the request of the Board immediately resign all
his directorships in the Group without claim for compensation and in the
event of his failure to do so any director or the secretary of the
Company is hereby irrevocably authorised in his name and on his behalf
to sign and deliver such resignation or resignations to the appropriate
Group Company;
9.2 the Executive shall immediately deliver to the Company all records,
documents, accounts, letters and papers of every description including
any copies within his possession or control relating to the affairs and
business of any Group Company and any other property belonging to any
Group Company.
10 CAPACITY
The Executive hereby warrants to the Company that he is not at the date
of this agreement and will not become subject to any obligation
(contractual or otherwise) which precludes him from entering into this
agreement or performing his duties under this agreement and shall
indemnify and hold harmless the Company against all claims
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costs and expenses made by any third party in the event of any breach of
this warranty.
11 INVENTIONS
11.1 In accordance with the provisions of the Patents Act 1977, the
Registered Designs Act 1949 and the Copyright, Designs and Patents Act
1988, if at any time in the course of his employment under this
agreement the Executive makes or discovers or participates in the making
or discovery of any Intellectual Property relating to or capable of
being used in the business for the time being carried on by any Group
Company full details of the Intellectual Property shall immediately be
communicated by him to the Company and shall be the absolute property of
the Company. At the request and expense of the Company the Executive
shall give and supply all such information, data, drawings and
assistance as may be requisite to enable the Company to exploit the
Intellectual Property to the best advantage. If so requested, the
Executive will, at the Company's expense but without receiving payment,
execute all documents and do all things necessary to vest the title to
the invention , design or discovery in the Company. The Executive
irrevocably appoints the Company to be his attorney and in his name and
on his behalf to execute any documents and generally to act and to use
his name for the purpose of giving the Company (or its nominee) the full
benefit of the provisions of this clause. A certificate in writing
signed by any director or the secretary of the Company that any
instrument or act falls within the authority conferred by this clause
shall be conclusive evidence in favour of any third party that such is
the case.
11.2 If the Executive makes or discovers or participates in the making or
discovery of any Intellectual Property during his employment under this
agreement but which is not the property of the Company under clause 11.1
the Company shall subject only to the provisions of the Patents Act 1977
have the right to acquire for itself or its nominee the Executive's
rights in the Intellectual Property within 3 months after disclosure
pursuant to clause 11.1 on fair and reasonable terms to be agreed or
settled by a single arbitrator.
11.3 The Executive waives all of his Moral Rights as defined in the
Copyright, Designs and Patents Act 1988 in relation to the Intellectual
Property which is the property of the Company by virtue of clause 11.1
hereof.
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11.4 Notwithstanding the provisions of clauses 11.1 to 11.3 (inclusive), the
Executive shall be entitled to retain ownership and rights attaching to
any inventions that he may make that are not related to or applicable to
the business of either the Company or any Group Company provided that to
claim the benefit of this clause 11.4 the Executive must show that such
inventions have been made by him in his own time and not as a result of
property belonging to the Company and that such inventions are not
related or applicable to the business of the Company or any Group
Company at the date the invention is made. Any ambiguity over ownership
of any invention made by him shall be construed in favour of the
Company.
11.5 Rights and obligations under this clause shall continue in force after
termination of this agreement in respect of Intellectual Property made
or discovered during the Executive's employment under this agreement and
shall be binding upon his representatives.
12 CONFIDENTIALITY AND RESTRICTIONS
12.1 The Executive shall not (except in the proper course of his duties)
during the period of employment under this agreement or thereafter
without the prior consent in writing of the Board divulge to any person
or otherwise make use of Confidential Information and shall during the
period of this agreement use his best endeavours to prevent the
publication or disclosure of any Confidential Information.
12.2 Any Confidential Information as shall be made or received by the
Executive during the continuance of this agreement shall be the property
of the Company and all such property and copies thereof and any other
property of the Group shall be surrendered by the Executive to the
Company at the termination of this agreement (howsoever occasioned) or
at the request of the Board at any time during the course of his
employment.
12.3 The Executive shall be bound by the restrictions set out in the
Schedule.
13 DISCIPLINE AND GRIEVANCES
13.1 The Company's discipline and grievance procedures as set out below do
not form part of the Executive's terms and conditions of employment and
afford him no legal rights.
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13.2 The Executive shall promptly comply with all orders and directions given
to him by the Board and with any orders or regulations for the time
being in force at his place of employment.
13.3 If the Executive is dissatisfied with any disciplinary decision relating
to him or any other grievance about his employment he should apply in
writing to the Chairman whose decision shall be final.
14 NOTICES
All communications between the parties with respect to any of the
provisions of this agreement shall be sent to the addresses set out in
this agreement, or to such other addresses as may be notified by the
parties for the purpose of this clause, by pre-paid registered or
recorded delivery post, or by facsimile transmission or other electronic
means of written communication, with confirmation by letter given by the
close of business on the next following business day. Any communication
to the Company shall be marked "For the attention of the Company
Secretary".
14.1 Communications which are sent or despatched as set out below shall be
deemed to have been received by the addressee as follows:
14.1.1 by post - 2 business days after despatch;
14.1.2 by facsimile transmission or other electronic means of
written communication - on the business day next following
the day on which the communication was sent.
14.2 In proving service by post it shall be necessary only to prove that
the communication was contained in an envelope which was duly addressed,
stamped and posted by registered or recorded delivery post. In proving
service by facsimile transmission or other electronic means of written
communication, proof of service will be accepted on proof of posting of
the confirmatory letter.
14.3 For the purpose this clause a "business day" means a day on which the
clearing banks in the City of London are open for business and "close of
business" means 18.00 hours.
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15 GENERAL
15.1 This agreement shall take effect as from the Commencement Date, from
which date all other agreements or arrangements, whether written or
oral, express or implied, between the Executive and any member of the
Group relating to the services or employment of the Executive shall be
deemed to have been cancelled.
15.2 The expiration or determination of this agreement, however arising,
shall not affect those terms which are expressed to operate or have
effect after the termination of this agreement and shall be without
prejudice to any right of action already accrued to either party in
respect of any breach of this agreement by the other party.
16 LAWS
The construction, validity and performance of this agreement shall be
governed by the laws of England.
Signed as a deed by )
JOHN OSBORNE )
in the presence of: )
Signed by )
a Director duly authorised )
for and on behalf of )
ACTIVE IMAGING PLC )
in the presence of: )
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THE SCHEDULE
RESTRICTIVE COVENANTS
1 DEFINITIONS
1.1 "the Business" the business of the design and build
of Digital Active Camera technology
and of high speed camera interfaces
to host computers or any part thereof
and/or such other business carried on
by the Company as at the Termination
Date or at any time during the 12
month period immediately prior
thereto and the business of any Group
Company at the Termination Date in
respect of which the Executive shall
have been concerned or involved to
any material extent at any time
during the 12 month period
immediately prior to the Termination
Date.
1.2 "Material Interest" (a) the holding of any position as
director, officer, employee,
consultant, partner, principal or
agent ;
(b) the direct or indirect control or
ownership (whether jointly or
alone) of any shares (or any voting
rights attached to them) or
debentures save for the ownership
for investment purposes only of not
more than 1% of the issued ordinary
shares of any company whose shares
are listed on any Recognised
Investment Exchange (as defined in
Section 207 of the Financial
Services Act 1986) or the
Alternative Investment Market of
the Stock Exchange; or
(c) the direct or indirect provision
of any financial assistance.
1.3 "Senior Executive" a person with whom the Executive had
dealings in the course of his
employment and who is or was:
(a) engaged or employed as an employee
director or
17
<PAGE>
consultant of a Group Company;
(b) engaged in a capacity in which he
obtained Confidential Information;
and
(c) so engaged at the Termination Date
or at any time during the 12 month
period immediately prior to the
Termination Date.
1.4 "Termination Date" the date on which this agreement
shall terminate howsoever occurring.
2 The parties hereto agree and acknowledge that:
2.1 it is reasonable and necessary for the protection of goodwill and trade
connections of the Business that the Executive should be restrained in
the terms of the covenants contained herein from making available or
using for the benefit of himself or a competitor or potential competitor
Confidential Information which he has obtained and is likely to obtain
in the course of his employment as an Executive of the Company; and
2.2 after the expiry of these restrictions the making available or use (as
the case may be) of the Confidential Information will be less damaging
to the goodwill and trade connections of the Business by virtue of all
or some parts of the Confidential Information becoming redundant, non-
confidential or out of date.
3 The Executive accordingly covenants with the Company that in view of the
circumstances referred to in paragraph 2.2 above, he will not (other
than for and on behalf of the Company) without the prior written consent
of the Board (such consent to be withheld only in so far as may be
reasonably necessary to protect the legitimate interests of the Group)
directly or indirectly:
3.1 at any time during the period of 12 months from the Termination Date
hold a Material Interest in a business the same as or in competition
with the Business anywhere in United Kingdom or in the USA;
3.2 at any time during the period of 12 months from the Termination
Date:
18
<PAGE>
3.2.1 in relation to a business the same as or in competition with the
Business perform any services or supply goods to any person firm
or company who shall have been a client or customer of the
Company or any Group Company at the Termination Date or at any
time during the 12 months period immediately prior to the
Termination Date and with whom at any time during the same
period the Executive shall have had contact or dealing or have
been aware of in the course of his employment.
3.2.2 in relation to a business the same as or in competition with the
Business canvass solicit or approach or cause to be canvassed
solicited or approached for the purpose of obtaining business
orders or custom any person firm or company who shall have been
a client or customer of the Company or any Group Company at the
Termination Date or at any time during the 12 month period
immediately prior to the Termination Date and with whom at any
time during the same period the Executive shall have had contact
or dealings or have been aware of in the course of his
employment; or
3.2.3 in relation to a business the same as or in competition with the
Business offer employment to or employ or offer or conclude any
contract for services with any Senior Executive or procure or
facilitate the making of such an offer by any person firm or
company;
3.3 at any time solicit or entice or endeavour to solicit or entice or
procure:
3.3.1 an employee of any Group Company to breach his contract of
employment; or
3.3.2 any person to breach his contract for services with any Group
Company;
3.4 at any time:
3.4.1 falsely represent himself as being connected with or interested
in any Group Company or in the Business; or
19
<PAGE>
3.4.2 do or say anything likely or calculated to lead any person firm
or company to withdraw from or cease to continue offering to any
Group Company any rights of purchase, sale, import, distribution
or agency then enjoyed by it.
4 The Executive hereby acknowledges and agrees with the Company that:
4.1 each of the sub-clauses contained in paragraph 3 above constitute an
entirely separate severable and independent covenant and restriction on
him;
4.2 the duration extent and application of each of the restrictions
contained in paragraph 3 are no greater than is necessary for the
protection of the goodwill and trade connections of the Business; and
4.3 in the event that any restriction on him contained in paragraph 3 shall
be found void but would be valid if some part thereof were deleted such
restrictions shall apply with any such deletion as may be necessary to
make it valid and effective.
20
<PAGE>
EXHIBIT 10.7
DATED 18 April 1996
ACTIVE IMAGING PLC
and
COINSHIRE LIMITED
CONSULTANCY AGREEMENT
<PAGE>
DATED 18 April 1996
PARTIES
1 ACTIVE IMAGING PLC (registered number: 3159820) whose registered office
is situate at Hattori House, Vanwall Business Park, Maidenhead,
Berkshire, SL6 4UB ("the Company"); and
2 COINSHIRE LIMITED (registered number: 1701757) whose registered office
is at Horsell Mede, Horsell Park, Woking, Surrey, GU21 4LW
("Coinshire").
RECITALS
(A) The Company wishes to engage Coinshire to provide the Services (as defined
in this Agreement).
(B) Coinshire has agreed to be engaged by the Company to provide the Services
subject to the terms and conditions set out in this Agreement.
OPERATIVE PROVISIONS
1 DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the following words and expressions shall have the
following meanings:
"associated company" (a) any company where equity share
capital (as defined by section 744 of
the Companies Act 1985) is, as to 20%
or more but less than 50%,
beneficially owned by one or more
Group Company; and
(b) any subsidiary of a company
within (a) above;
"the Board" the board of directors of the Company;
"the Business" the business of the design and build of
Digital Active Camera technology and of high
speed camera
1
<PAGE>
interfaces to host computers and such other
business carried on by the Company at the
date of termination of this Agreement or at
any time during the period immediately prior
thereto and the business of any Group Company
at the date of termination of this Agreement
in respect of which Coinshire or the
Executive shall have been concerned or
involved to any material extent at any time
during the 12 month period immediately prior
to the date of termination of this Agreement;
"Confidential (a) any trade secrets, customer
Information" lists, trading details, information
technology, intellectual property or
other information of a confidential
nature relating to any Group Company
(including without limitation details
of activities, businesses or finances
of any such company);
(b) any other information designated
by any Group Company as confidential;
and
(c) any information in relation to
which any Group Company owes a duty
of confidentiality to any third party;
"Executive" Michael John Brooke or such other
person possessing similar
qualifications and experience as the
Company may confirm in writing to be
acceptable to the Company in place of
him should he be unavailable;
"Group" the Company, any subsidiary of the
Company and any associated company of
any of them;
"Group Company" any member of the Group;
2
<PAGE>
"holding company" and the same meanings as are respectively
"subsidiary" attributed to them by section 736
Companies Act 1985;
"Intellectual Property" includes letters patent, trade marks,
service marks, designs, utility
models, copyrights, design rights,
applications for registration of any
of the foregoing and the right to
apply for them in any part of the
world, moral rights, inventions,
confidential information, know-how,
and rights of like nature arising or
subsisting anywhere in the world in
relation to all of the foregoing,
whether registered or unregistered;
"Model Code" the model code on dealings in
securities by directors and employees
of companies where securities are
admitted to trading on the
Alternative Investment Market of the
Stock Exchange;
"the Services" the services described in Schedule 1
to this Agreement and such services
as are incidental or ancillary
thereto and such other services as
are reasonably required by the
Company;
"Stock Exchange" the London Stock Exchange Limited.
2 APPOINTMENT
2.1 Coinshire shall make available to the Company the services of the
Executive for the performance of the Services on the terms of this
Agreement.
2.2 Subject to earlier termination as provided for in this Agreement
such appointment shall commence on the date of this Agreement and shall be
for an initial fixed term of twelve months and shall then continue until
terminated by either party giving to the other not less than six months
notice in writing expiring at any time on or after the expiration of the
initial twelve month period, in which case this Agreement shall terminate
on expiry of such notice.
3
<PAGE>
3 CAPACITY
Coinshire hereby warrants to the Company that it is entitled to enter into
this Agreement and to implement and carry out its terms and by doing so
neither it nor the Executive shall be in breach of any obligation
(contractual or otherwise) to any third party which would entitle that
third party to damages or some other remedy at law.
4 DUTIES
4.1 Coinshire shall procure that the during the continuance of this
Agreement the Executive shall:
4.1.1 render and perform the Services to the best of his skill and
ability and with due care and attention;
4.1.2 devote such time as may be necessary for the provision of the
Services to be at least 9 days per calendar month;
4.1.3 carry out the Services in a proper and efficient manner and use
his utmost endeavours to promote the interests of the Company.
4.2 In the event that the Executive is required to devote in excess of 9
days per calendar month to the provision of the Services, the Company
shall pay the Consultant an additional fee at the rate of (Pounds)333.33
plus VAT for each additional day.
5 DIRECTOR
5.1 During the subsistence of this Agreement Coinshire shall procure
that the Executive shall provide services as a director and the Chairman
of the Company and upon the termination of this Agreement (howsoever
occurring) that the Executive shall at the request of the Board
immediately resign all his directorships in the Group without claim for
compensation.
5.2 Coinshire hereby undertakes and agrees:
5.2.1 to be bound by and to observe the provisions of the Model Code (a
copy of which is available from the Company Secretary); and
4
<PAGE>
5.2.2 to deal in any securities in the capital of the Company only in
accordance with the Model Code; and
5.2.3 immediately to inform in writing the Company Secretary of any
dealings by Coinshire or any person connected with Coinshire
(within the meaning of Section 346 of the Companies Act 1985) in
any such securities including the number and nature of the
securities involved and the price paid or received.
5.3 Coinshire shall at all times inform the Company of all and any
arrangements where it or the Executive is or may become an employee or
director of or a consultant, proprietor or shareholder in, any firm or
company wherever incorporated or established.
6 FEES AND EXPENSES
6.1 The Company shall pay to Coinshire a monthly fee of (Pounds)3,000
plus VAT, such fee to be payable monthly in arrears on the last business
day of each month subject to receipt by the Company of an appropriate
invoice from Coinshire and shall be deemed to accrue rateably as the
Services are rendered.
6.2 The Company shall reimburse Coinshire in respect of all expenses
reasonably and properly incurred by the Executive in the performance of
the Services upon production of appropriate vouchers and receipts.
7 TERMINATION
7.1 The Company shall at any time be entitled to terminate this
Agreement in writing with immediate effect without payment of compensation
(other than in respect of any sums accrued due up to and including the
date of termination) if the Executive:
7.1.1 is guilty of any serious misconduct or is in a serious or
persistent breach of the terms of this Agreement or shall
wilfully refuse or neglect to carry out the Services or to
comply with any instructions given to him by the Board;
5
<PAGE>
7.1.2 has an interim receiving order made against him, becomes
bankrupt or makes any composition or enters into any deed of
arrangement with his creditors generally;
7.1.3 is convicted of any arrestable criminal offence (other than an
offence under road traffic legislation for which a fine or
non-custodial penalty is imposed);
7.1.4 is convicted of an offence under Part V of the Criminal
Justice Act 1993 or under any present or future statutory
enactment or regulation relating to insider dealing;
7.1.5 resigns as a director of the Company otherwise than at the
request of the Board;
7.1.6 is disqualified from being a director of any company by reason
of an order made by any competent court;
7.1.7 acts in any way which may in the opinion of the Board bring
himself or any Group Company into disrepute.
7.1.8 other than Michael John Brooke, provided by Coinshire is for
whatever reason unacceptable to the Company.
7.2 The proper exercise by the Company of its right of termination under
this clause 7 shall be without prejudice to any other rights or remedies
which the Company may have against Coinshire.
7.3 Coinshire shall not and shall procure that the Executive shall not
at any time following termination of this Agreement make any public
statements in relation to any Group Company and shall not after the date
of termination of this Agreement for any reason represent itself or
himself as a consultant to or being connected with, any Group Company.
7.4 All property of a Group Company is and shall remain the property of
such Group Company and all such items in the possession, custody or under
the control of Coinshire or the Executive at the date of termination of
this Agreement shall immediately be delivered to the Company.
6
<PAGE>
8 CONFIDENTIALITY AND RESTRICTIONS
8.1 Coinshire shall not and shall procure that the Executive shall not
disclose and Coinshire shall and shall procure that the Executive shall
use all reasonable efforts to prevent the publication or disclosure in any
way or form and at any time to any person, firm or company of any
Confidential Information obtained by the Executive in the course of the
performance of the Services save to employees of a Group Company whose
duties require such disclosure to be made and Coinshire shall not and
shall procure that the Executive shall not use for its or his own purposes
nor for any purposes other than those of any Group Company, any such
Confidential Information.
8.2 Coinshire shall not and shall procure that the Executive shall not
without the authority of the Board make or keep possession of copies of
any documents, memoranda or other media on which any Confidential
Information is recorded or stored.
8.3 The restrictions contained in this clause 8 shall cease to apply to
any information or knowledge which may come into the public domain
otherwise than by way of breach of this clause 8 or to any publication or
disclosure made by the Executive in the proper performance of the Services
or as required by law.
8.4 In the event that any Group Company shall have obtained any
Confidential Information from any third party under an agreement or
obligation that includes any restriction on disclosure which restriction
shall be made known to Coinshire or the Executive in the course of the
performance of the Services, Coinshire shall not and shall procure that
the Executive shall not without the consent of the Company at any time
infringe such restriction.
8.5 Coinshire shall be bound by and shall procure that the Executive
shall comply with the restrictions set out in Schedule 2.
9 INTELLECTUAL PROPERTY RIGHTS
9.1 Coinshire hereby agrees and acknowledges that all rights in
Intellectual Property to which Coinshire or the Executive may become
entitled in the performance of the services or otherwise pursuant to this
Agreement shall at all times be and remain
7
<PAGE>
vested in the Company and Coinshire agrees that it shall and will procure
that the Executive shall, at the request and expense of the Company, enter
into such documents and do such things as may be necessary to vest such
rights in the Company.
9.2 Coinshire hereby agrees to waive all its moral rights as defined in
the Copyright Designs and Patent Act 1988 in relation to the Intellectual
Property which is the property of the Company by virtue of clause 9.1
9.3 The rights and obligations under this clause 9 shall continue in
force after termination of the Agreement.
10 GENERAL
10.1 The expiration or determination of this Agreement, howsoever
arising, shall not affect those terms which are expressed to operate or
have effect after the termination of this Agreement and shall be without
prejudice to any right of action already accrued to either party in
respect of any breach of this agreement by the other party.
10.2 No variation to this Agreement shall be effective unless made in
writing signed by or on behalf of the parties and expressed to be a
variation to this Agreement.
10.3 The construction, validity and performance of this Agreement shall
governed by the laws of England.
EXECUTED under hand on the date of this Agreement.
8
<PAGE>
SCHEDULE 1
THE SERVICES
The duties of Coinshire under this Agreement shall be to procure that the
Executive will:
1 where the Executive is Michael John Brooke, act as a director and
the Chairman of the Company and, where the Executive is a person other
than Michael John Brooke, act as a director and (if required by the Board)
the Chairman of the Company;
2 attend at any meetings of the Board and meetings of shareholders and
meetings with advisers to the Company at which his presence is reasonably
required and whether or not those meetings are during normal business
hours; and
3 perform such other duties as the Board may from time to time
reasonably delegate to the Executive.
9
<PAGE>
SCHEDULE 2
1.1 "Material Interest" (a) the holding of any position as
director, officer, employee,
consultant, partner, principal or
agent;
(b) the direct or indirect control or ownership
(whether jointly or alone) of any shares (or
any voting rights attached to them) or
debentures save for the ownership for
investment purposes only of not more than 1%
of the issued ordinary shares of any company
whose shares are listed on any Recognised
Investment Exchange (as defined in Section 207
of the Financial Services Act 1986) or on the
Alternative Investment Market of the Stock
Exchange; or
(c) the direct or indirect provision
of any financial assistance.
1.2 "Senior Executive" a person with whom Coinshire or the Executive has
been concerned or involved to any material extent
in the course of the performance of the Services
and who is or was:
(a) engaged or employed as an employee director or
consultant of a Group Company;
(b) engaged in a capacity in which he obtained
Confidential Information; and
(c) so engaged at the Termination Date or at any
time during the 12 month period immediately
prior to the Termination Date.
1.3 "Termination Date" the date on which this agreement shall terminate
howsoever occurring.
10
<PAGE>
2 Coinshire covenants with the Company that it will not and procure that the
Executive will not (other than for and on behalf of the Company) without
the prior written consent of the Board (such consent to be withheld only
in so far as may be reasonably necessary to protect the legitimate
interests of the Group) directly or indirectly:
2.1 at any time during the period of 12 months from the Termination Date
hold a Material Interest in a business in competition with the Business
anywhere in the United Kingdom;
2.2 at any time during the period of 12 months from the Termination Date:
2.2.1 in relation to a business in competition with the Business
perform any services or supply goods in competition with the
Company or any Group Company to any person firm or company who
shall have been a client or customer of the Company or any
Group Company at the Termination Date or at any time during
the 12 months period immediately prior to the Termination Date
and with whom at any time during the same period Coinshire or
the Executive shall have had contact or dealing or have been
aware of in the course of the performance of the Services;
2.2.2 in relation to a business in competition with the Business
canvass solicit or approach or cause to be canvassed solicited
or approached for the purpose of obtaining business orders or
custom in competition with the Company or any Group Company
from any person firm or company who shall have been a client
or customer of the Company or any Group Company at the
Termination Date or at any time during the 12 month period
immediately prior to the Termination Date and with whom at any
time during the same period Coinshire or the Executive shall
have had contact or dealings or have been aware of in the
course of the performance of the Services;
2.2.3 in relation to a business in competition with the Business
offer employment to or employ or offer or conclude any
contract for
11
<PAGE>
services with any Senior Executive or procure or facilitate
the making of such an offer by any person firm or company;
2.3 at any time solicit or entice or endeavour to solicit or entice or
procure:
2.3.1 an employee of any Group Company to breach his contract of
employment; or
2.3.2 any person to breach his contract for services with any Group
Company;
2.4 at any time:
2.4.1 falsely represent Coinshire or the Executive as being
connected with or interested in any Group Company or in the
Business; or
2.4.2 do or say anything likely or calculated to lead any person
firm or company to withdraw from or cease to continue offering
to any Group Company any rights of purchase, sale, import,
distribution or agency then enjoyed by it.
3 Coinshire hereby acknowledges and agrees with the Company and
procures that the Executive will acknowledge and agree with the Company
that:
3.1 each of the sub-clauses contained in paragraph 2 above constitute an
entirely separate severable and independent covenant and restriction on
him;
3.2 the duration extent and application of each of the restrictions
contained in paragraph 2 are no greater than is necessary for the
protection of the goodwill and trade connections of the Business; and
3.3 in the event that any restriction on Coinshire or the Executive
contained in paragraph 2 shall be found void but would be valid if some
part thereof were deleted such restrictions shall apply with any such
deletion as may be necessary to make it valid and effective.
12
<PAGE>
Signed by )
for and on behalf of )
ACTIVE IMAGING PLC )
in the presence of:
Signed by )
Michael John Brooke )
for and on behalf of )
COINSHIRE LIMITED )
in the presence of: )
13
<PAGE>
EXHIBIT 11.1
TVX, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1994 1995 1996
-----------------------------------------------
<S> <C> <C> <C>
Weighted Average Common Shares Outstanding 2,279,000 2,416,063 2,624,879
Net effect of common stock equivalents issued
prior to initial public filing-based on
the treasury stock method using the
projected IPO price of $15.00:
Shares assumed issued for Series B
Convertible Preferred Stock 526,734 526,734 526,734
Shares assumed issued for stock options 365,552 365,552 365,552
Less: Treasury stock assumed purchased (40,300) (40,300) (40,300)
--------- --------- ---------
Total Shares 3,130,986 3,268,049 3,476,865
========= ========= =========
Computation of Treasury stock assumed purchased:
Proceeds from options have an exercise price below the IPO
Price and issued twelve months prior to initial filing $604,500
Divided by: Expected IPO price $ 15
--------
40,300 shares
======
</TABLE>
<PAGE>
EXHIBIT 23.1
------------
Consent of Independent Auditors
We consent to the references to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated January 28, 1997, in the
Registration Statement (Form S1) and related Prospectus of TVX Inc. dated
January 31, 1997.
ERNST & YOUNG LLP
Denver, Colorado
January 31, 1997
<PAGE>
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of our report
dated December 8, 1995, relating to the financial statements of TVX, Inc., as of
September 30, 1995 and for each of the years in the two-year period ended
September 30, 1995, and to the reference to our Firm under the caption "Experts"
in the Prospectus.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
January 30, 1997
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of TVX, Inc. on Form
S-1 of our report dated January 31, 1997, on our audit of the financial
statements of Active Imaging plc. We also consent to the reference to our firm
under the caption "Experts".
/s/ COOPERS & LYBRAND
Coopers & Lybrand
Reading, England
January 31, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in the Registration Statement on Form S-1 of TVX,
Inc. dated January 30, 1997 of our report dated January 25, 1997, on our audit
of the financial statements of TVX Limited as at September 17, 1996.
BINDER HAMLYN
London
January 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1996 TVX, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-START> OCT-01-1995 OCT-01-1994
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 35,101 38,010
<SECURITIES> 0 0
<RECEIVABLES> 488,256 477,952
<ALLOWANCES> 55,881 95,600
<INVENTORY> 1,329,931 1,116,077
<CURRENT-ASSETS> 1,819,078 1,626,027
<PP&E> 355,536 169,325
<DEPRECIATION> 92,237 63,072
<TOTAL-ASSETS> 3,734,810 2,038,987
<CURRENT-LIABILITIES> 1,163,262 834,691
<BONDS> 0 0
0 0
5,778 0
<COMMON> 21,169 26,436
<OTHER-SE> 1,915,893 2,164,404
<TOTAL-LIABILITY-AND-EQUITY> 3,734,810 2,038,987
<SALES> 1,033,920 1,071,019
<TOTAL-REVENUES> 1,033,920 1,071,019
<CGS> 786,660 754,915
<TOTAL-COSTS> 2,818,523 3,097,917
<OTHER-EXPENSES> 1,453 13,671
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 429,032 239,535
<INCOME-PRETAX> (3,001,748) (3,035,019)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,001,748) (3,035,019)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,001,748) (3,035,019)
<EPS-PRIMARY> (0.93) (0.99)
<EPS-DILUTED> 0 0
</TABLE>
