<PAGE>
As filed with the Securities and Exchange Commission on February 5, 1997
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________________
TVX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN
ITS CHARTER)
_____________________________
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 3669 84-1190375
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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, P.C. Cahill Gordon & Reindel
1675 Broadway, 26th Floor Eighty Pine Street
Denver, Colorado 80202 New York, New York 10005
(303) 623-2700 (212) 701-3000
_________________________
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there has been compliance
with General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
Title of Each Class of Amount to be Proposed Maximium Proposed Maximum Amount of
Securities to be Registered Registered(1) Offering Price Per Share(2) Aggregate Offering Price(2) Registration Fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 2,198,380
$.01 per share shares N/A $21,656,141 $6,563
=========================================================================================================================
</TABLE>
(1) Based upon the estimated maximum number of shares of the Registrant's Common
Stock to be issued pursuant to the transaction described herein.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) of the Securities Act of 1933, as amended, based
upon the market value of the securities to be received by the Registrant.
Such market value is based upon the middle market quotation of Active
Imaging plc ordinary shares on January 30, 1997 in the Alternative
Investment Market appendix to the London Stock Exchange Daily Official List
(73.5p) converted to dollars based upon a rate of $1.611:(Pounds)1.00.
____________________________
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.
================================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement relates to shares of TVX, Inc. (the "Registrant")
to be issued in connection with an exchange offer (the "Offer") to be made to
the holders of ordinary shares of Active Imaging plc ("Active Imaging"), a
company headquartered in the United Kingdom and whose ordinary shares are traded
on the Alternative Investment Market of the London Stock Exchange. The Offer
will be made simultaneously with an initial public offering by the Registrant
pursuant to a Registration Statement on Form S-1 (Registration No. 333-21033,
the "Form S-1"). This Registration Statement initially consists of a facing
page, a copy of the Preliminary Prospectus from the Form S-1, the Press
Announcement being issued in the United Kingdom and Part II. On or about the
time of the filing of Amendment No. 1 to the Form S-1, this Registration
Statement will be amended to consist of the Preliminary Prospectus from the
amended Form S-1, the offer documents complying with the City Code on Takeovers
and Mergers and all such additional items and information as are required to be
contained in a registration statement on Form S-4.
-2-
<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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
- --------------------------------------------------------------------------------
Total (3).................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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
<PAGE>
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
36
<PAGE>
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%
37
<PAGE>
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
38
<PAGE>
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.
39
<PAGE>
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
40
<PAGE>
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.
41
<PAGE>
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.
42
<PAGE>
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."
43
<PAGE>
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.
44
<PAGE>
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....................................................... 3
Risk Factors............................................................. 13
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Pro Forma Capitalization................................................. 20
Dilution................................................................. 21
Unaudited Pro Forma Combined Financial Statements........................ 22
Selected Financial Data.................................................. 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business................................................................. 36
The Acquisition.......................................................... 46
Management............................................................... 48
Principal Stockholders................................................... 56
Certain Transactions..................................................... 57
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 61
Underwriting............................................................. 63
Legal Matters............................................................ 64
Experts.................................................................. 64
Available Information.................................................... 64
Exchange Rates........................................................... 65
Index to Financial Statements............................................ F-1
</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>
U.K. Press Announcement
[LETTERHEAD OF BT WOLFENSOHN APPEARS HERE]
4th February 1997
TVX, INC.
("TVX")
RECOMMENDED OFFERS FOR
ACTIVE IMAGING PLC
("ACTIVE IMAGING")
1. INTRODUCTION
The Boards of TVX and Active Imaging announce that agreement has been reached on
the terms of recommended offers (the "Offers"), to be made on behalf of TVX by
BT Wolfensohn, a division of Bankers Trust International PLC, to acquire the
whole of the issued share capital of Active Imaging.
The Offers will be made on the following bases:
. a share for share offer (the "Ordinary Offer") on the basis set out
below, which values each Active Imaging ordinary share ("Ordinary
Share") at a minimum of US$1.68 (approximately 104p); and
x
. 100p in cash (the "A Preference Offer") for each Active Imaging A
preference share ("A Preference Share") and 100p in cash (the "B
Preference Offer") for each Active Imaging B preference share ("B
Preference Share"), in each case together with any accrued dividends
(together the "Preference Offers" and the "Preference Shares").
A-1
<PAGE>
In respect of the Ordinary Offer, TVX will also make available a cash
alternative (the "Cash Alternative") of US$1.68 (currently approximately 104p)
per Ordinary Share, to be paid in sterling, subject to a maximum amount of cash
available of US$10 million less the cash paid to satisfy the Preference Offers.
Both the Ordinary Offer and the Cash Alternative are denominated in US dollars.
The number of shares of new TVX common stock issued to shareholders accepting
the Ordinary Offer, the sterling equivalent of the Ordinary Offer, the sterling
consideration received by shareholders electing for the Cash Alternative and the
amount of cash available to satisfy the Cash Alternative will be dependent on
the prevailing US dollar / sterling exchange rate. The Cash Alternative will be
settled in sterling, translated at the rate effective at 5pm GMT on the day the
Ordinary Offer is declared or becomes unconditional in all respects (the
"Settlement Exchange Rate"). Throughout this announcement, for illustrative
purposes only, an exchange rate of US$1.615: (Pounds)1 has been used, being the
rate prevailing at 5pm GMT on 3rd February 1997, the latest practicable date
prior to this announcement (the "Reference Exchange Rate").
The Offers value the whole of the issued ordinary and preference share capital
of Active Imaging at a minimum of approximately US$32.9 million (approximately
(Pounds)20.4 million).
The Ordinary Offer, at the Reference Exchange Rate, represents a minimum premium
of 38% over the middle market quotation of 75.5p per Ordinary Share, as derived
from the Alternative Investment Market appendix to the London Stock Exchange
Daily Official List, at the close of business on 9th December 1996, the
business day prior to the announcement that Active Imaging was in talks with a
third party which might lead to an offer, and a minimum premium of approximately
34% over the middle market quotation of 77.5p per Ordinary Share as derived from
the Alternative Investment Market appendix to the London Stock Exchange Daily
Official List at the close of business on 3rd February 1997, the latest
practicable date prior to this announcement.
Concurrently with the Offers, TVX is making an Initial Public Offering (the
"IPO") of its shares of common stock, which is expected to raise US$40 million
for TVX before underwriting discounts and expenses. TVX is also seeking a
quotation for its shares of common stock, including all shares issued pursuant
to the Ordinary Offer on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") system in the United States of America. The
Offers will be conditional on the closing of the IPO, which is expected to take
place in late March or early April 1997. In addition, the completion of the IPO
will be conditional on the Ordinary Offer being declared unconditional in all
respects, except for the closing of the IPO.
The Board of Directors of Active Imaging, which has been so advised by Beeson
Gregory Limited ("Beeson Gregory"), considers the terms of the Offers to be fair
and reasonable and in the best interests of Active Imaging shareholders taken as
a whole, and unanimously recommends Active Imaging shareholders to accept the
Offers.
TVX has received irrevocable undertakings to accept the Ordinary Offer from
Directors of Active Imaging in respect of their personal and family holdings of
2,956,800 Ordinary Shares (representing
A-2
<PAGE>
16.2% of the issued ordinary share capital of Active Imaging) and from certain
other shareholders of Active Imaging in respect of their holdings of 11,211,500
Ordinary Shares (representing 61.3% of the issued ordinary share capital of
Active Imaging). The Ordinary Shares which are the subject of these irrevocable
undertakings represent 77.5% of the issued ordinary share capital of Active
Imaging. In addition, TVX has received irrevocable undertakings to accept the
Preference Offers from holders of 100% of the Preference Shares.
Shareholders who have given irrevocable undertakings in respect of 13,666,786
Ordinary Shares (representing 74.7% of the issued ordinary share capital of
Active Imaging) have also undertaken not to elect for the Cash Alternative.
Irrevocable undertakings over 7,432,200 Ordinary Shares representing 40.6% of
the issued ordinary share capital of Active Imaging may be withdrawn if, prior
to the despatch of the formal TVX offer document, a third party announces a firm
intention to make an offer for Active Imaging which values each Ordinary Share
at more than 130p.
Further details of these irrevocable undertakings are set out in Appendix II.
Holders of options over 530,480 Ordinary Shares have undertaken either to accept
the proposals to be made to optionholders by TVX (as described below) or to
exercise their options, accept the Ordinary Offer and not elect for the Cash
Alternative. In addition, Raymond Fagan, a Director of Active Imaging, has
undertaken to exercise his options over 463,970 Ordinary Shares and accept the
Ordinary Offer, electing for the Cash Alternative in respect of 222,489 shares
but otherwise not electing for the Cash Alternative.
2. THE OFFERS
The Offers, which will be subject to the conditions and principal further terms
set out in Appendix I, are described below.
The Ordinary Offer
The Ordinary Offer will be made on the following basis:
A-3
<PAGE>
FOR EACH ORDINARY SHARE A FRACTION OF A SHARE OF NEW TVX COMMON STOCK WITH A
MINIMUM VALUE AT THE IPO PRICE OF APPROXIMATELY US $1.68 (APPROXIMATELY 104P)
CALCULATED ACCORDING TO THE FOLLOWING FORMULA (ROUNDED TO FOUR DECIMAL PLACES):
X + D
---------
C X P
Where:
X is equal to the greater of (a) US$33,333,333 and (b) one half of Y;
Y is equal to A multiplied by P , minus B;
A is the sum of (a) the number of shares of common stock of TVX outstanding,
currently being 2,707,452, and (b) the number of shares of common stock of
TVX issuable on exercise of currently outstanding TVX options and warrants,
currently being 1,849,636;
B is the aggregate exercise price in US$ of the outstanding TVX options and
warrants, currently being US$1,689,334;
C is the sum of (a) the number of Ordinary Shares outstanding, currently
being 18,289,348, and (b) the number of Ordinary Shares issuable upon
exercise of Active Imaging options and warrants currently outstanding or
conditionally issuable in respect of which the exercise price is less than
the sterling equivalent of the Ordinary Offer price at the Settlement
Exchange Rate, currently being 2,844,450 assuming an Ordinary Offer price
of US$1.68 (approximately 104p at the Reference Exchange Rate);
D is the aggregate exercise price in US$ of Active Imaging options and
warrants currently outstanding or conditionally issuable in respect of
which the exercise price is less than the sterling equivalent of the
Ordinary Offer price at the Settlement Exchange Rate, currently being
US$2,243,184 assuming an Ordinary Offer price of US$1.68 (approximately
104p at the Reference Exchange Rate); and
P is equal to the underwritten price, in US$, of each share of TVX common
stock (the "IPO Price").
A-4
<PAGE>
The table below illustrates the fraction of a share of new TVX common stock
which would be exchanged for each Ordinary Share and the value per share of the
Ordinary Offer, on the basis of various IPO Prices and based on the Reference
Exchange Rate.
<TABLE>
<CAPTION>
FRACTION OF A SHARE OF NEW TVX EFFECTIVE OFFER PRICE PER
IPO PRICE COMMON STOCK PER ORDINARY SHARE ORDINARY SHARE (P)
- ----------- -------------------------------------------------------- -----------------
<S> <C> <C>
US$12 0.1403 104
US$13 0.1295 104
US$14 0.1202 104
US$15 0.1122 104
US$16 0.1120 111
US$17 0.1117 118
US$18 0.1114 124
</TABLE>
The IPO and the Offers will be interconditional and both will be conditional
on the achievement of an IPO Price of not less than US$11.35.
The Ordinary Offer values the entire issued ordinary share capital of Active
Imaging at a minimum of US$30.8 million (approximately (Pounds)19.1 million).
The Cash Alternative
TVX is providing a Cash Alternative under which Active Imaging shareholders who
validly accept the Ordinary Offer may receive cash instead of some or all of the
shares of new TVX common stock to which they would otherwise be entitled under
the terms of the Ordinary Offer, as set out below.
Holders of Ordinary Shares who validly elect for the Cash Alternative will
receive the following:
FOR EACH ORDINARY SHARE THE STERLING EQUIVALENT AT THE
SETTLEMENT EXCHANGE RATE OF US$1.68
(CURRENTLY APPROXIMATELY 104P) IN CASH
US$1.68 (APPROXIMATELY 104P)
IN CASH
The aggregate amount of cash available for the Cash Alternative will be US$10
million less the aggregate dollar amount at the Settlement Exchange Rate of cash
paid to the holders of Preference Shares under the Preference Offers. Assuming
full acceptance of the Preference Offers and using the Reference Exchange Rate,
the amount of cash available for the Cash Alternative would be approximately
US$7.9 million.
Active Imaging shareholders may elect to receive their consideration under the
Cash Alternative and such elections will be met in full to the extent that
sufficient cash is available. To the extent that aggregate elections by Active
Imaging shareholders to receive consideration under the Cash Alternative exceed
the aggregate amount of cash available, all such elections will be scaled down
pro
A-5
<PAGE>
rata as nearly as practicable and the balance satisfied in accordance with the
terms of the Ordinary Offer.
As a result, Active Imaging shareholders who elect for the Cash Alternative will
not necessarily know the exact amount of cash or number of shares of new TVX
common stock they will receive until they receive settlement under the Offer.
For illustrative purposes, assuming that no options over Ordinary Shares are
exercised (other than those to be exercised by Raymond Fagan as indicated
above), and that all shareholders elect for the Cash Alternative (other than the
extent that they have irrevocably undertaken not to make such an election),
sufficient cash will be available to allow each electing Active Imaging
shareholder to receive the Cash Alternative in respect of approximately 97% of
his Ordinary Shares.
The Cash Alternative will be conditional only on the Ordinary Offer becoming
wholly unconditional in all respects and will close seven days after the
Ordinary Offer becomes or is declared unconditional in all respects.
The consideration payable under the Cash Alternative is to be financed out of
the proceeds of the IPO.
The Preference Offers
The Preference Offers will be made on the following basis:
FOR EACH A PREFERENCE SHARE 100P IN
CASH
FOR EACH B PREFERENCE SHARE 100P IN
CASH
TOGETHER WITH, IN EACH CASE, AN AMOUNT EQUAL TO ANY ACCRUED DIVIDENDS UP TO THE
DATE OF THE PREFERENCE OFFERS BEING DECLARED UNCONDITIONAL IN ALL RESPECTS.
The Preference Offers value the entire issued preference share capital of Active
Imaging at approximately (Pounds)1.3 million.
The CONSIDERATION PAYABLE UNDER THE PREFERENCE OFFERS IS TO BE FINANCED OUT OF
THE PROCEEDS OF THE IPO.
Options, Warrants and other Subscription Rights
The Ordinary Offer will extend to any Ordinary Shares allotted or issued
pursuant to the exercise of options under the Data Cell Executive Share Option
Scheme and the Active Imaging Executive Share Option Scheme, options granted to
Beeson Gregory at the time of Active Imaging's admission to trading on the
Alternative Investment Market ("AIM") of the London Stock Exchange Limited in
April 1996,
A-6
<PAGE>
warrants issuable in respect of the acquisition of assets from Invision Inc.,
and rights relating to the acquisition of Active Vision Systems Inc.
Appropriate proposals will be made to the holders of any such outstanding
options, warrants and other subscription rights once the Offers become or are
declared unconditional in all respects. Subject to any existing terms and
conditions which apply to such options, warrants and other subscription rights
over Ordinary Shares, these proposals will entail the release of such options,
warrants and other subscription rights in exchange for the grant of equivalent
options, warrants and other subscription rights over shares of TVX common stock.
3. INFORMATION ON TVX
Based in Golden, Colorado, TVX develops and markets products for the management
of digital images. Its products are used in the surveillance industry and for
related applications. TVX's technologies enable images to be captured,
digitised and compressed and then either stored for later transmission or
immediately sent to the end-user for evaluation. Its products consist of
proprietary software combined, in most cases, with integrated hardware
platforms. TVX's products are sold through multiple distribution channels,
including distributors and direct sales, on a world-wide basis.
TVX was founded in early 1992 and includes as two of its principal shareholders
CommNet Cellular Inc., a major provider of cellular telephones services to rural
areas in the United States, and Automated Security Holdings PLC, now a wholly
owned subsidiary of ADT Limited, the largest provider of security alarm systems
and monitoring services in the United States and United Kingdom.
For the year ended 30th September 1996, TVX recorded a net loss of US$3,001,748
(1995: net loss of US$3,035,019) based on revenues of US$1,033,920 (1995:
revenues of US$1,071,019).
TVX's objective is to become a leading provider of digital video and image
management solutions to a number of industries where immediate image capture and
transmission, storage and/or retrieval are valuable assets. Having historically
focused on the research and development of its systems, TVX intends now to
devote greater resources to sales, marketing and distribution in order to expand
the market for its systems.
TVX believes that at this stage of its development, and in the light of the
proposed acquisition of Active Imaging, it is appropriate for it to seek a
public market for its shares of common stock and accordingly it is applying for
a listing on Nasdaq. It is expected that the IPO will raise approximately
A-7
<PAGE>
US$40 million which will be used to satisfy the Cash Alternative and the
Preference Offers, repay existing debt and redeem outstanding TVX stock, and for
general corporate purposes including research and development and marketing
expenses, building or obtaining manufacturing capability, transaction fees and
expenses and integration of the operations following the Offers.
4. INFORMATION ON ACTIVE IMAGING
Active Imaging is a UK public limited company, whose shares are traded on AIM.
Active Imaging and its subsidiaries (the "Active Imaging Group") are engaged in
the development and marketing of its proprietary and jointly owned digital and
imaging products and operate as a value added re-seller, system integrator and
supplier of third party imaging products. The Active Imaging Group is
increasingly focusing its activities in two key areas: the development and
marketing of its own product ranges, with particular emphasis on sectors such as
traffic management, security and surveillance, the Internet, and industrial
imaging and inspection; and as a UK-based value-added reseller and systems
integrator of imaging products. The Active Imaging Group does not undertake
pure research, but applies mainstream computer and imaging technologies to
develop advanced imaging products for commercial use. The Active Imaging Group
has facilities for prototype assembly and testing and the capability, through
its system engineering team, to deliver customised imaging products and
solutions. The assembly and manufacture of Active Imaging Group products is
carried out by specialist manufacturers.
Active Imaging was incorporated in February 1996 and became the holding company
of Data Cell Ltd and its various subsidiaries in March 1996. Active Imaging's
Ordinary Shares were admitted to trading on AIM in April 1996.
Active Imaging today announced its preliminary results for the year ended 31st
December 1996 which showed a loss before tax of (Pounds)3,606,000 (1995: loss
before tax of (Pounds)552,000) on revenues of (Pounds)4,207,000 (1995: revenues
of (Pounds)5,063,000). At 31st December 1996, Active Imaging's shareholders'
funds amounted to (Pounds)3,305,000 and net cash was (Pounds)1,217,000.
5. BACKGROUND TO AND REASONS FOR THE OFFERS
Due to rapid and significant development of new computer hardware and software,
the imaging technology industry is subject to fast technological changes,
frequent new product introductions and enhancements, product obsolescence and
changes in end-user requirements. Therefore, success and the ability to compete
in this sector are largely dependent upon the ability to augment current product
lines and develop, introduce and sell new features and products through the
advancement of core technologies while remaining cost competitive.
A-8
<PAGE>
The Boards of TVX and Active Imaging believe that the combination of the two
companies will provide more product offerings and greater distribution strength
which will help the enlarged group in its mission to become a leading provider
of digital video and image management solutions. Important aspects of the
strategy will be the combination of TVX's and Active Imaging's complementary
technologies, the integration of research and development departments, the
tailoring of the combined product lines for maximum coverage, and a more
effective and efficient sales and marketing team.
6. MANAGEMENT AND EMPLOYEES
The Board of TVX has confirmed to the Board of Active Imaging that the existing
rights, including pension rights, of the employees of Active Imaging will be
fully safeguarded.
On the closing of the IPO, John Osborne, currently the Chief Executive of Active
Imaging, will be invited to become the Executive Vice President of TVX,
primarily responsible for the initiation of new product development. Michael J.
Brooke, currently the Chairman of Active Imaging, will be invited to become a
director of TVX.
7. GENERAL
In order to accommodate the timetable for the implementation of the IPO, the
Panel on Take-overs and Mergers (the "Panel") has agreed to an extension of the
period within which BT Wolfensohn, on behalf of TVX, is required to despatch
the formal offer document containing the full terms and conditions of the
Offers. It is expected that the formal offer document will be despatched to the
shareholders of Active Imaging in early March 1997.
The Directors of Active Imaging accept responsibility for the information
contained in this announcement relating to Active Imaging. The Directors of TVX
accept responsibility for all other information contained in this announcement.
BT Wolfensohn, which is regulated by The Securities and Futures Authority
Limited, is acting for TVX and for no one else in connection with the Offers and
will not be responsible to anyone other than TVX for providing the protections
afforded to its customers or for providing advice in relation to the Offers.
A-9
<PAGE>
Beeson Gregory, which is regulated by The Securities and Futures Authority
Limited, is acting for Active Imaging and for no one else in connection with the
Offers and will not be responsible to anyone other than Active Imaging for
providing the protections afforded to its customers or for providing advice in
relation to the Offers.
8. ENQUIRIES
TVX Inc. Robert Mulverhill (001 303) 277 9877
BT Wolfensohn Andrew Grabowski (0171) 982 3720
Active Imaging plc Raymond Fagan (01628) 415 444
Beeson Gregory Limited Graham Cole (0171) 488 4040
Tavistock Communications Simon Eaton (0171) 600 2288
A-10
<PAGE>
APPENDIX I
CONDITIONS AND FURTHER TERMS OF THE ORDINARY OFFER
AND THE PREFERENCE OFFERS
The Offers, which will be made by BT Wolfensohn on behalf of TVX, will comply
with The City Code on Take-overs and Mergers (the "City Code").
1. CONDITIONS OF THE ORDINARY OFFER
The Ordinary Offer will be conditional upon:
a) valid acceptances being received (and not, where permitted, withdrawn) by
3.00 p.m. (UK time) on the first closing date of the Ordinary Offer (or
such later time(s) and/or date(s) as TVX may, subject to the rules of the
City Code, decide) in respect of not less than 90 per cent (or such lesser
percentage as TVX may decide) of the Ordinary Shares to which the Ordinary
Offer relates, provided that this condition shall not be satisfied unless
TVX shall have acquired or agreed to acquire, pursuant to the Ordinary
Offer or otherwise, Ordinary Shares carrying more than 50 per cent of the
voting rights then exercisable at general meetings of Active Imaging,
(including, for this purpose, to the extent (if any) required by the Panel,
any such voting rights attaching to any Ordinary Shares that may be
unconditionally allotted or issued before the Ordinary Offer becomes or is
declared unconditional as to acceptances whether pursuant to the exercise
of any outstanding conversion or subscription rights or otherwise); and for
this purpose:
i) the expression "Ordinary Shares to which the Ordinary Offer relates"
shall be construed in accordance with sections 428-430F of the
Companies Act 1985; and
ii) shares which have been unconditionally allotted shall be deemed to
carry the voting rights which they will carry upon issue;
b) the shares of TVX common stock issuable pursuant to the Ordinary Offer
having been approved for listing on Nasdaq and the listing having become
effective upon official notice, given to Nasdaq, of issuance of such TVX
common stock, and registration statements with
A-11
<PAGE>
respect to the IPO and sale of such shares to Active Imaging shareholders
pursuant to the Ordinary Offer having become effective and continuing to
remain effective under the Securities Act of 1933, as amended;
c) the closing of the IPO at a price of not less than US$11.35 per share;
d) all filings having been made and all waiting periods having expired or been
terminated, in each case as may be necessary in connection with the
Ordinary Offer under the laws and regulations of any jurisdiction, and all
necessary statutory and regulatory obligations in connection with the
Ordinary Offer in any jurisdiction having been complied with;
e) no government or governmental, quasi-governmental, supranational, statutory
or regulatory body, trade agency or any court or other body or person in
any jurisdiction having decided to take, instituted, implemented or
threatened any action, proceeding, suit, investigation or enquiry or
enacted, made or proposed or taken any other steps, that would or might:
i) make the Ordinary Offer, its implementation or the acquisition of any
Ordinary Shares by TVX void, unenforceable or illegal or restrict,
prohibit, delay or otherwise materially interfere with the
implementation of, or impose additional material conditions or
obligations with respect to, or otherwise challenge, the Ordinary
Offer or the acquisition of any Ordinary Shares by TVX;
ii) require or prevent the divestiture by TVX or any of its subsidiaries
or any company in which it has a substantial interest (together the
"TVX Group") or by Active Imaging or any of its subsidiaries or any
company in which it has a substantial interest (together the "Active
Imaging Group") of all or any material portion of their respective
businesses, assets or properties or impose any material limitation on
their ability to conduct their businesses or to own any of their
assets or properties;
iii) impose material limitations on the ability of TVX to acquire or hold
or to exercise effectively all rights of ownership of shares in Active
Imaging or on the ability of Active Imaging or any other member of the
Active Imaging Group or TVX to hold or exercise effectively any rights
of ownership of shares in any member of the Active Imaging Group held
or owned by it; or
iv) otherwise adversely affect in any material respect the business of any
member of TVX Group or of the Active Imaging Group;
and all applicable waiting periods during which any such government,
governmental, quasi-governmental, supranational, statutory or regulatory
body, trade agency, court or other body
A-12
<PAGE>
or person could decide to take, institute, implement or threaten any such
action, proceeding, suit, investigation or enquiry having expired, lapsed
or been terminated;
f) all authorisations, orders, grants, recognitions, confirmations, consents,
clearances, permissions and approvals necessary or appropriate for or in
respect of the Ordinary Offer and the proposed acquisition of shares in or
control of Active Imaging by TVX being obtained in terms and in a form
satisfactory to TVX from appropriate governments, governmental, quasi-
governmental, supranational, statutory or regulatory bodies, courts, trade
agencies, institutions, professional associations or from any persons or
bodies with whom any member of the TVX Group or the Active Imaging Group
has entered into contractual arrangements, and all such authorisations,
orders, recognitions, confirmations, consents, clearances, permissions and
approvals necessary or appropriate for Active Imaging to carry on its
business, remaining in full force and effect and all necessary filings
having been made and all applicable waiting periods under any applicable
legislation and regulations in all relevant jurisdictions having expired or
been terminated and there being no notice of any intention to revoke or not
to renew any of the same and all necessary statutory or regulatory
obligations in all relevant jurisdictions having been complied with;
g) save as publicly disclosed or announced or disclosed in writing to TVX or
its advisers prior to the announcement of the Ordinary Offer there being no
provision of any arrangement, agreement, licence or other instrument to
which any member of the Active Imaging Group or any partnership or company
in which any member of the Active Imaging Group has a substantial interest
(an "associate") is a party or by or to which any such member or associate
or any of their assets may be bound, entitled or be subject which, as a
result of the proposed acquisition by TVX of any shares in or control of
Active Imaging or any part thereof or otherwise, would or might, to an
extent which is material in the context of the Active Imaging Group taken
as a whole, result in:
i) any moneys borrowed by or indebtedness (actual or contingent) of any
such member or associate becoming repayable or being capable of being
declared repayable immediately or earlier than the repayment date
stated in such arrangement, agreement or instrument or the ability of
any such member or associate to borrow or incur indebtedness being
withdrawn or prohibited;
ii) any such arrangement, agreement, licence or instrument being
terminated or materially modified or any onerous obligation arising or
any material action being taken or obligation arising thereunder;
A-13
<PAGE>
iii) the interests or business of any such member or associate in or with
any other person, firm or company (or any arrangements relating to
such interest or business) being materially and adversely affected;
iv) any such member or associate ceasing to be able to carry on business
under any name under which it presently does so;
v) any assets of any such member or associate being disposed of or
charged otherwise than in the ordinary course of business;
vi) the creation of any mortgage, charge or other security interest over
the whole or any part of the business, property or assets of any such
member or associate or any such security becoming enforceable; or
vii) the business, financial or trading position of any such member or
associate being adversely affected;
h) save as publicly announced by Active Imaging on or prior to the
announcement of the Ordinary Offer or save as disclosed in the annual
report and accounts of Active Imaging for the year ended 31st December 1995
or in the Prospectus published by Active Imaging on 19th April 1996 or in
writing to TVX or its advisers prior to the announcement of the Ordinary
Offer, no member of the Active Imaging Group shall since 31st December 1995
have:
i) (save as between Active Imaging and wholly-owned subsidiaries of
Active Imaging or upon the exercise of rights to subscribe for
Ordinary Shares pursuant to the exercise of options granted under the
Data Cell Executive Share Option Scheme and the Active Imaging
Executive Share Option Scheme, upon exercise of the warrants issued to
Invision Inc., upon the issue of further Ordinary Shares under the
agreement for the acquisition of Active Vision Systems Inc., or upon
the exercise of the option granted to Beeson Gregory, or pursuant to
intra-group transactions) issued or authorised or proposed the issue
of additional shares of any class, or securities or securities
convertible into, or rights, warrants or options to subscribe for or
acquire, any such shares or convertible securities;
ii) declared, paid or made any dividend or other distribution in respect
of the share capital of Active Imaging;
iii) undertaken, authorised, proposed or announced an intention to propose
any merger or demerger or acquisition or disposal of assets (other
than in the
A-14
<PAGE>
ordinary course of business) or incurred any indebtedness or
contingent liability which is material in the context of the Active
Imaging Group taken as a whole;
iv) entered into any contract or commitment (whether in respect of
capital expenditure or otherwise) which is of a long term nature or
which involves or could involve an obligation of a nature or
magnitude which is material in the context of the Active Imaging
Group taken as a whole;
vi) entered into or varied the terms of any service agreement with any of
the directors of Active Imaging or paid or approved for payment any
bonus to any director or employee of Active Imaging;
vii) disposed of or transferred, mortgaged or encumbered any material
assets or any right, title or interest in any material assets or
entered into any contract, transaction, reconstruction, amalgamation
or arrangement otherwise than in the ordinary course of business
which is material in the context of the Active Imaging Group taken as
a whole;
viii) entered into any contract or other transaction otherwise than in the
ordinary course of business which is material in the context of the
Active Imaging Group taken as a whole;
ix) in the case of Active Imaging, proposed any voluntary winding up; or
x) entered into any contract, commitment or agreement with respect to
any of the transactions or events referred to in this paragraph;
i) since 31st December 1995, save as publicly announced by Active Imaging on
or prior to the announcement of the Ordinary Offer or save as disclosed in
the annual report and accounts of Active Imaging for the year then ended or
in the Prospectus published by Active Imaging on 19th April 1996 or in
writing to TVX or its advisers prior to the announcement of the Ordinary
Offer:
i) no material adverse change in the business, financial or trading
position or profits or prospects of the Active Imaging Group having
occurred; and
ii) no contingent liability having arisen which is likely materially and
adversely to affect any member of the Active Imaging Group;
A-15
<PAGE>
j) since 31st December 1995, save as disclosed in the Prospectus published by
Active Imaging on 19th April 1996, no material litigation, arbitration
proceedings, prosecution or other legal proceedings having been instituted
by or remaining outstanding against any member of the Active Imaging Group
(whether as plaintiff or defendant or otherwise) and no such proceedings
having been threatened against any member of the Active Imaging Group;
k) TVX not having discovered that:
i) the financial or business information concerning Active Imaging or the
Active Imaging Group publicly disclosed at any time or disclosed in
writing to TVX or its advisers by any member of the Active Imaging
Group either contains a material misrepresentation of fact or omits to
state a fact necessary to make the information contained therein not
materially misleading; or
ii) any partnership or company in which any member of the Active Imaging
Group has a significant economic interest and which is not a
subsidiary of Active Imaging is subject to any liability, contingent
or otherwise, which is not disclosed in the annual report and accounts
of Active Imaging for the financial year ended 31st December 1995 or
in the Prospectus published by Active Imaging on 19th April 1996, and
which is material in the context of the Active Imaging Group taken as
a whole.
TVX reserves the right to waive all or any of conditions (d) to (k) inclusive,
in whole or in part. Conditions (b) to (k) inclusive must be satisfied as at,
or waived (where possible) on or before, the 21st day after the later of the
first closing date of the Ordinary Offer and the date on which condition (a) is
fulfilled (or in each case such later date as the Panel may agree). Unless TVX
is entitled to and does invoke any of the conditions (d) to (k) at or prior to
the time when all of the conditions (a) to (c) are satisfied, TVX will declare
the Ordinary Offer unconditional in all respects upon the satisfaction of
conditions (a) to (c).
If TVX is required by the Panel to make an offer for the Ordinary Shares under
the provisions of Rule 9 of the City Code, TVX may make such alterations to the
above conditions as are necessary to comply with the provisions of that Rule.
2. CONDITIONS OF THE PREFERENCE OFFERS
a) The A Preference Offer will be conditional upon:
i) the Ordinary Offer becoming or being declared unconditional in all
respects; and
A-16
<PAGE>
ii) valid acceptances being received (and not, where permitted, withdrawn)
not later than 3.00 pm on the first closing date (or such later
time(s) and/or date(s) as TVX may, subject to the rules of the City
Code, decide) in respect of not less than 90 per cent of the A
Preference Shares to which the A Preference Offer relate or (as the
case may be) such lesser percentage as TVX may decide.
b) The B Preference Offer will be conditional upon:
i) the Ordinary Offer becoming or being declared unconditional in all
respects; and
ii) valid acceptances being received (and not, where permitted, withdrawn)
not later than 3.00 p.m. on the first closing date (or such later
time(s) and/or date(s) as TVX may, subject to the rules of the City
Code, decide) in respect of not less than 90 per cent of the B
Preference Shares to which the B Preference Offer relate or (as the
case may be) such lesser percentage as TVX may decide.
3. CONDITIONS OF THE CASH ALTERNATIVE
The Cash Alternative will be conditional only on the Ordinary Offer becoming
unconditional in all respects and will close seven days after the Ordinary
Offer becomes or is declared unconditional in all respects.
4. FURTHER TERMS
The Offers will lapse if the Ordinary Offer is referred to the Monopolies and
Mergers Commission or if the European Commission either initiates proceedings
under Article 6(1)(c) of Council Regulations (EEC) 4064/89 or makes a referral
to a competent authority of the United Kingdom under Article 9(1) before (in any
such case) the first closing date of the Ordinary Offer or the date on which the
Ordinary Offer becomes or is declared unconditional as to acceptances, whichever
is the later, and if the Offers so lapse, the Offers will cease to be capable of
further acceptance and accepting Active Imaging shareholders and TVX will cease
to be bound by forms of acceptance submitted before the time when the Offers
lapse.
A-17
<PAGE>
The shares which are the subject of the Offers will be acquired free from all
liens, charges, encumbrances, rights of pre-emption and any other third party
rights of any nature whatsoever and together with all rights now or hereafter
attaching thereto, including the right to receive in full all dividends and
other distributions, if any, declared, made or paid after the date hereof.
The TVX common stock to be issued under the Ordinary Offer will be issued
credited as fully paid and will rank pari passu with the issued TVX common
stock, including the right to receive in full all dividends and other
distributions, if any, declared, made or paid after the date hereof.
No fractions of a share of TVX common stock will be issued. Accepting Active
Imaging shareholders will receive an amount in cash (in sterling) in lieu of any
fractional entitlements to shares of TVX common stock, calculated by reference
to the price of the IPO except that amounts of less than (Pounds)3.00 will not
be distributed but will be retained for the benefit of the enlarged TVX group.
A-18
<PAGE>
APPENDIX II
DETAILS OF IRREVOCABLE ACCEPTANCES RECEIVED
The following have given irrevocable undertakings to accept the Offers and, save
as indicated below, not elect for the Cash Alternative in respect of their
shareholdings as set out below:
<TABLE>
<CAPTION>
THE ORDINARY OFFER
Shareholdings of Directors of Active Imaging Number of Ordinary Shares
<S> <C>
Coinshire Limited (1) 1,581,800
John Osborne 1,250,000
Raymond Fagan 75,000
George Hayter 50,000
---------
2,956,800
---------
Other Shareholdings Number of Ordinary Shares
3i Group plc (2) 3,058,530
Schroder Investment Management Limited (2) 1,981,886
Quester Nominees Limited (2) 1,345,617
Deborah Julie Vann 733,100
Thomas McKinley (2) 672,853
David Slorach (3) 662,900
Adrian Flowerday 630,000
Newton UK Smaller Companies Exempt Fund (2,4) 373,314
Mark Francis Williamson 283,300
Paul Mayeaux & Mrs BA Mayeaux 250,000
Barry Parker 225,000
Gillian McInnes (5) 200,000
Jo Rodgers 135,800
Active Imaging (ESOP) Trustee Ltd 135,050
Robert Dean 95,000
James McInnes (6) 93,200
Chris Read 89,740
Dave Jones 67,800
Graham Service 50,000
Lin Jones 42,700
Simon Baker 25,000
Gavin Button 20,170
Mark Norris 10,000
Mark Woods 10,000
Ian Young 10,000
Paul Overton 4,360
Michael Talianos 2,500
Mark Hindmarsh 2,180
Larry Shapiro 1,500
----------
11,211,500
----------
</TABLE>
Notes: (1) Michael Brooke has an interest in Coinshire Limited
(2) May withdraw irrevocable undertaking in the case of the announcement
of a third party offer of more than 130p per Ordinary Share before the
despatch of the formal offer document
(3) May elect to receive the Cash Alternative in respect of 35,000
Ordinary Shares
(4) May elect to receive the Cash Alternative in respect of entire
shareholding
(5) May elect to receive the Cash Alternative in respect of 50,000
Ordinary Shares
(6) May elect to receive the Cash Alternative in respect of 43,200
Ordinary Shares
A-19
<PAGE>
THE PREFERENCE OFFERS
<TABLE>
<CAPTION>
Shareholders Number of A Preference Shares Number of B Preference Shares
<S> <C> <C>
3i Group plc 980,000
Quester Nominees Limited 166,660 46,667
Thomas McKinley 83,330 23,333
</TABLE>
End
A-20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 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.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
Exhibit
Number Description of Exhibits
------ -----------------------
3.1 Amended and Restated Certificate of Incorporation of the Company.
(1)
3.2 Amended and Restated Bylaws of the Company. (1)
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. (1)
10.2 Omnibus Stock and Incentive Plan.*
10.3 1996 Directors Stock Option Plan. (1)
10.4 HESA Buried Cable Distribution and License Agreement. (1)
10.7 Employment Agreement dated November 14, 1995, by and between the
Company and Robert C. Mulverhill.(1)
10.8 Services Agreement dated April 18, 1996, by and between Active
Imaging and John Osborne. (1)
10.9 Consultancy Agreement dated April 18, 1996, by and between Active
Imaging and Coinshire Limited. (1)
11.1 Statement re: computation of per share earnings. (1)
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 signature page.
_________________
*To be filed by amendment.
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Registration No. 333-21033).
II-2
<PAGE>
(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 22. UNDERTAKINGS.
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) Prior to any public reoffering of the securities registered hereunder
through the use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in conjunction with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of an included in the
registration statement when it became effective.
II-3
<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 4th day of
February, 1997.
TVX, INC.
By: /S/ ROBERT C. MULVERHILL
---------------------------------------
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
---------- ----- ----
<TABLE>
<CAPTION>
<S> <C> <C>
/S/ ROBERT C. MULVERHILL President, Chief Executive February 4, 1997
- ---------------------------- Officer and Director
Robert C. Mulverhill (Principal Executive
Officer)
/S/ THOMAS W. VANDER STEL Vice President, Chief Financial February 4, 1997
- ---------------------------- Officer, Secretary and Treasurer
Thomas W. Vander Stel (Principal Financial and
Accounting Officer)
/S/ ARNOLD C. POHS Director February 4, 1997
- ----------------------------
Arnold C. Pohs
/S/ DANIEL P. DWYER Director February 4, 1997
- ----------------------------
Daniel P. Dwyer
/S/ R. GRAHAM MORRISON Director February 4, 1997
- ----------------------------
R. Graham Morrison
/S/ WILLIAM N. MOODY Director February 4, 1997
- ----------------------------
William N. Moody
</TABLE>
II-4
