================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the
Securities Exchange Act of 1934)
Amendment No. 1
n-Vision, Inc.
-------------------------------------------------------------------------------
(Name of Issuer)
n-Vision, Inc.
Advanced Technology Systems, Inc.
ATS Acquisitions, Inc.
Delmar J. Lewis
Claude H. Rumsey, Jr.
-------------------------------------------------------------------------------
(Name of Person(s) Filing Statement)
Common Stock, $.01 par value
-------------------------------------------------------------------------------
(Title of Class of Securities)
62944R 30 7
-------------------------------------------------------------------------------
(CUSIP Number of Class of Securities)
Delmar J. Lewis
n-Vision, Inc.
7680 Old Springhouse Road
Madison Bldg., First Floor
McLean, Virginia 22102
(703) 506-8808
-------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of the Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information
statement subject to Regulation 14A [17 CFR 240.14a-1 to
240.14b-1], Regulation 14C [17 CFR 240.14c-1 to 240.14c-101]
or Rule 13e-3(c) [ss. 240.13e-3(c)] under the Securities
Exchange Act of 1934.
b. [ ] The filing of a registration statement under the
Securities Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [x]
CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------
Transaction Valuation* Amount of filing fee
$1,275,762 $256
- --------------------------------------------------------------------------------
*For purposes of calculating the filing fee only. This assumes the
purchase of 2,551,523 shares of common stock of the Issuer at $0.50
cash per share.
[x] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting
fee was previously paid. Identify the previous filing by
registration statement number or the Form or Schedule and the
date of its filing.
Amount Previously Paid: $256
----
Form or Registration No.: PRE14A
------
Filing Party: n-Vision, Inc.
--------------
Date Filed: November 8, 1999
----------------
================================================================================
<PAGE>
This Rule 13e-3 Transaction Statement is being filed by n-Vision, Inc.,
a Delaware corporation (the "Company" or "Issuer"), Advanced Technology Systems,
Inc. ("ATS"), ATS Acquisitions, Inc. ("ATS Acquisitions"), Delmar J. Lewis and
Claude H. Rumsey, Jr. in connection with the Agreement and Plan of Merger dated
October 15, 1999 (the "Agreement"), a copy of which is attached as Appendix A of
the proxy statement ("Proxy Statement"), filed with the Securities and Exchange
Commission on November 8, 1999 pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended. Pursuant to the Agreement, ATS Acquisitions, a
newly formed Delaware corporation that is wholly-owned by ATS, will be merged
with and into the Company and all outstanding shares of common stock, $0.01 par
value, of the Company (except for 100,000 shares of common stock held by ATS and
shares held by dissenting shareholders) will be cancelled and converted
automatically into the right to receive $0.50 in cash, payable to the holder,
without interest, upon the terms and subject to the conditions set forth in the
Agreement.
The cross-reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement
filed by the Company with the Securities and Exchange Commission concurrently
herewith required to be included in response to the items of this Statement. The
information in such Proxy Statement is hereby expressly incorporated herein by
reference. A copy of such Proxy Statement of the Company is attached hereto as
Exhibit (d)(1).
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item in Location in
Schedule 13E-3 Proxy Statement
-------------- ---------------
<S> <C>
Item 1(a)...................................The Merger Agreement
Item 1(b)...................................Market Prices of Common Stock and Dividends
Item 1(c)...................................Market Prices of Common Stock and Dividends
Item 1(d)...................................Market Prices of Common Stock and Dividends
Item 1(e)...................................*
Item 1(f)...................................*
Item 2(a)...................................The Merger Agreement; Management
Item 2(b)...................................The Merger Agreement; Management
Item 2(c)...................................The Merger Agreement; Management
Item 2(d)...................................The Merger Agreement; Management
Item 2(e)...................................Management
Item 2(f)...................................Management
Item 2(g)...................................Management
Item 3......................................Special Factors; Certain Related Transactions
Item 4(a)...................................Summary; Special Factors; The Merger
Agreement
Item 4(b)...................................Summary; Special Factors
Item 5......................................The Merger Agreement; Conduct of n-Vision's
Business After The Merger
Item 6(a)...................................Special Factors
Item 6(b)...................................The Merger Agreement
Item 6(c)...................................Special Factors
Item 6(d)...................................Special Factors
<PAGE>
Item 7......................................Special Factors
Item 8......................................Special Factors
Item 9......................................Special Factors
Item 10(a)..................................Voting Securities and Principal Holders Thereof
Item 10(b)..................................*
Item 11.....................................*
Item 12(a)..................................Summary; Voting Rights and Proxies; Special Factors
Item 12(b)..................................Special Factors
Item 13(a)..................................Rights of Dissenting Shareholders
Item 13(b)..................................*
Item 13(c)..................................*
Item 14.....................................Financial Statements
Item 15(a)..................................*
Item 15(b)..................................*
Item 16.....................................Proxy Statement
Item 17.....................................Separately included herewith
</TABLE>
- ---------------
* This Item is inapplicable or the answer thereto is in the negative.
1. Issuer and Class of Security Subject to the Transaction.
(a) The name of the Company is n-Vision, Inc. Its principal executive
offices are located at 7680 Old Springhouse Road, Madison Building, First Floor,
McLean, Virginia 22102.
(b) The title of the securities subject to the transaction is the
Company's common stock, $0.01 par value (the "Common Stock"). As of November 4,
1999 there were approximately 2,651,523 shares of Common Stock outstanding. As
of November 4, 1999, there were approximately 26 record holders of Common Stock.
(c)-(d) The principal market in which the securities are being traded
and the high and low bid quotations and information as to dividends paid by the
Company and the effect on the ability to pay future dividends is set forth in
the Proxy Statement under the heading titled "Market Prices of Common Stock and
Dividends," which is incorporated herein by reference pursuant to General
Instruction D of Schedule 13E-3.
(e) No underwritten public offering of the Company's securities has
been made by the persons filing this Statement during the past three years.
(f) None of the Company nor affiliates have purchased any of the
Company's securities since the commencement of the Company's second full fiscal
year preceding the date of this Statement.
<PAGE>
2. Identity and Background.
(a)-(d) This Statement is being filed by the Company, ATS, ATS
Acquisitions Delmar J. Lewis and Claude H. Rumsey, Jr. The Company is the issuer
of the Common Stock subject to the Rule 13e-3 transaction. The information set
forth in the Proxy Statement under the headings "The Merger Agreement--Parties
to the Merger" and "Management" is incorporated herein by reference pursuant to
General Instruction D of Schedule 13E-3.
(e)-(f) None of Delmar J. Lewis, Claude H. Rumsey, Jr., the Company,
ATS, ATS Acquisitions, nor its executive officers, directors or controlling
shareholders has during the last five years (i) been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining further violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation of such
laws.
(g) The information set forth in the Proxy Statement under the heading
"Management" is incorporated herein by reference.
3. Past Contracts, Transactions or Negotiations.
(a)-(b) The information required by this Item is set forth in the Proxy
Statement under the heading "Special Factors--Background of the Merger,"
"--Interests of Certain Persons in the Merger; Conflicts of Interest" and
"Certain Related Transactions."
4. Terms of the Transaction.
(a) The information set forth in the Proxy Statement under the headings
"Summary", "Special Factors" and "The Merger Agreement" is incorporated herein
by reference.
(b) The information set forth in the Proxy Statement under the headings
"Summary--Interests of Certain Persons in the Merger; Conflicts of Interest,"
and "Special Factors--Interests of Certain Persons in the Merger; Conflicts of
Interest" is incorporated herein by reference.
5. Plans or Proposals of the Issuer or Affiliate.
(a) - (g) The information set forth in the Proxy Statement under the
headings "Special Factors--The n-Vision Directors and Executive Officers," "The
Merger Agreement--General" and "Conduct of n-Vision's Business After the Merger"
is incorporated herein by reference.
6. Source and Amount of Funds or Other Consideration.
(a), (c) - (d) The information set forth in the Proxy Statement under
the heading "Special Factors--Source of Funds" is incorporated herein by
reference.
(b) The information set forth in the Proxy Statement under the heading
"The Merger Agreement--Expenses of the Merger" is incorporated herein by
reference.
<PAGE>
7. Purposes, Alternatives, Reasons and Effect.
(a) - (c) The purpose of the Merger, alternative means considered and
the reason for its structure is set forth in the Proxy Statement under the
headings titled "Special Factors--Background of the Merger," "--Recommendation
of the Special Committee and Board of Directors; Reasons for the Merger,"
"--ATS' and ATS Acquisitions' Purpose and Reasons for the Merger" and "--Messrs.
Lewis' and Rumsey's Purpose and Reasons for the Merger" each of which is
incorporated herein by reference.
(d) The information set forth in the Proxy Statement under the headings
"Special Factors--Certain Effects of the Merger", "--Interests of Certain
Persons in the Merger; Conflicts of Interest" and "--Federal Income Tax
Consequences" is incorporated herein by reference.
8. Fairness of the Transaction.
(a) - (f) The information set forth in the Proxy Statement under the
heading "Special Factors--Recommendation of the Special Committee and Board of
Directors; Reasons for the Merger", "--ATS' and ATS Acquisitions' Purpose and
Reasons for the Merger," "--Messrs. Lewis' and Rumsey's Purpose and Reasons for
the Merger" and "--Opinion of Financial Advisor" is incorporated herein by
reference.
9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) - (b) All reports, opinions and appraisals received by the Company
are set forth in the Proxy Statement under the heading titled "Special
Factors--Opinion of Financial Advisor" and are incorporated herein by reference.
(c) The written opinions referred to in Item 9(a) are available for
inspection at the principal executive offices of the Company by any interested
stockholder of the Company or his representative that has been so designated in
writing. Copies of such opinions and materials will be transmitted by the Issuer
to any interested stockholder or his representative that has been so designated
in writing upon the written request and at the expense of the requesting
stockholder.
10. Interest in Securities of the Issuer.
(a) The information set forth in the Proxy Statement under the heading
"Voting Securities and Principal Holders Thereof" is incorporated herein by
reference.
(b) There have been no transactions in the Company's Common Stock
effected during the past 60 days by the Company, ATS, ATS Acquisitions, or any
of their executive officers, directors or controlling shareholders.
11. Contracts, Arrangements or Understandings with Respect to the Issuer's
Securities.
There are no contracts, arrangements, understandings or relationships
(whether or not legally enforceable) in connection with the Rule 13e-3
transaction between the Company, ATS, ATS Acquisitions or any of their executive
officers, directors or controlling shareholders and any person with respect to
any securities of the Company.
<PAGE>
12. Present Intention and Recommendation of Certain Persons with Regard to the
Transaction.
(a) The information set forth in the Proxy Statement under the headings
"Summary--Required Vote", "Voting Rights and Proxies" and "Special
Factors--Recommendation of the Special Committee and Board of Directors; Reasons
for the Merger" is incorporated herein by reference.
(b) Information regarding recommendations with respect to the Merger is
set forth in the Proxy Statement under the headings "Special
Factors--Recommendation of the Special Committee and Board of Directors; Reasons
for the Merger" and "--ATS' and ATS Acquisitions' Purpose and Reasons for the
Merger," each of which is incorporated herein by reference.
13. Other Provisions of the Transactions.
(a) The information set forth in the Proxy Statement under the heading
"Rights of Dissenting Shareholders" is incorporated herein by reference.
(b) No provision has been made in connection with the Merger to allow
unaffiliated stockholders of the Company or any affiliates to obtain access to
the files of the Issuer or affiliates, respectively.
(c) No exchange of debt securities is involved.
14. Financial Information.
(a) - (b) The information is set forth in the Proxy Statement under the
heading "Financial Statements" is incorporated herein by reference.
15. Persons and Assets Employed, Retained or Utilized.
(a) No officer, employee, class of employees or corporate asset of the
Company (excluding corporate assets which are proposed to be used as
consideration for purchases of securities which are disclosed in Item 6 of this
Statement) has been or is proposed to be employed, availed of or utilized by the
Company or affiliate in connection with the Rule 13e-3 transaction.
(b) Not applicable.
16. Additional Information.
All additional information set forth in the Proxy Statement and
appendices thereto which is not otherwise incorporated in this Statement by
reference is hereby incorporated herein by reference.
<PAGE>
17. Material to be filed as Exhibits.
(b)(1) Opinion of RP Financial, L.C. (filed as Appendix B to
Exhibit (d)(1))
(b)(2)* RP Financial, L.C. Report, dated October 6, 1999,
delivered to the Board of Directors and the Special
Committee.
(d)(1) Proxy Statement filed with the Securities and
Exchange Commission by the Company on December 22,
1999.
(e)(1) Section 262 of the Delaware General Corporation Law
(filed as Appendix C to Exhibit (d)(1)).
- ---------------------
* Previously filed.
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: December 22, 1999 n-VISION, INC.
By: /s/ Delmar J. Lewis
----------------------------
Name: Delmar J. Lewis
Title: Chief Executive Officer
Dated: December 22, 1999 ADVANCED TECHNOLOGY SYSTEMS, INC.
By: /s/ Claude H. Rumsey, Jr.
----------------------------
Name: Claude H. Rumsey, Jr.
Title: Vice President
Dated: December 22, 1999 ATS ACQUISITIONS, INC.
By: /s/ Claude H. Rumsey, Jr.
----------------------------
Name: Claude H. Rumsey, Jr.
Title: Vice President
Dated: December 22, 1999
By: /s/ Delmar J. Lewis
----------------------------
Delmar J. Lewis
Dated: December 22, 1999
By: /s/ Claude H. Rumsey, Jr.
----------------------------
Claude H. Rumsey, Jr.
Exhibit 99.D(1)
<PAGE>
n-VISION, INC.
7680 Old Springhouse Road
Madison Building, First Floor
McLean, Virginia 22102
December ___, 1999
To the Shareholders of n-Vision, Inc.:
On behalf of the Board of Directors of n-Vision, Inc. (the "Company"), it
is my pleasure to invite you to attend a Special Meeting of Shareholders of the
Company (the "Special Meeting") to be held on _______, January ___, 2000 at
10:00 a.m., local time, at 7680 Old Springhouse Road, Madison Building, First
Floor, McLean, Virginia 22102.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve an Agreement and Plan of Merger (the "Merger Agreement")
dated as of October 15, 1999, among the Company, Advanced Technology Systems,
Inc. ("ATS") and ATS Acquisitions, Inc. ("ATS Acquisitions"), a wholly owned
subsidiary of ATS, pursuant to which, (i) ATS Acquisitions will be merged with
and into the Company, and (ii) each share of the Company's outstanding common
stock (the "Common Stock") (other than shares owned by ATS and shares held by
dissenting shareholders) will be converted into the right to receive $0.50 in
cash, without interest, (the "Merger"). As of November 4, 1999 ATS and its
majority shareholders, Delmar J. Lewis and Claude H. Rumsey, Jr., beneficially
owned an aggregate of approximately 51.0% of the Company's outstanding common
stock. Mr. Delmar Lewis is also a co-founder, Chairman of the Board and Chief
Executive Officer of ATS and Chairman of the Board and Chief Executive Officer
of the Company. Mr. Claude Rumsey is a co-founder, Executive Vice President and
director of ATS and President, Secretary and a director of the Company. A copy
of the Merger Agreement is included as Appendix A to the accompanying Proxy
Statement. As a result of the Merger, ATS will acquire all of the outstanding
shares of Common Stock not already owned by ATS, and the public shareholders of
the Company will no longer have an equity interest in the Company.
A special committee of directors of the Company (the "Special Committee"),
consisting of two directors who are neither employees of the Company nor
employees or directors of ATS or ATS Acquisitions, has reviewed and considered
the terms of the Merger Agreement and the Merger. The Special Committee
unanimously recommended the approval of the Merger Agreement to the Board of
Directors. The Board of Directors has unanimously approved the Merger Agreement
and believes that the terms of the Merger are in the best interests of the
Company and its shareholders and fair to the Company's unaffiliated
shareholders. The Board of Directors recommends that you vote FOR approval of
the Merger Agreement. For a discussion of the interests of directors and
officers in this transaction, see "Special Factors - Interest of Certain Persons
in the Merger; Conflicts of Interest."
Under Delaware law, approval of the Merger at the Special Meeting will
require the affirmative vote of holders of a majority of the outstanding shares
of Common Stock entitled to vote at the Special Meeting. ATS and its majority
shareholders, Delmar J. Lewis and Claude H. Rumsey, Jr., have advised us that
they intend to vote their shares in favor of the Merger Agreement, thus assuring
that the Merger will be approved under Delaware law.
The enclosed Notice of Meeting and Proxy Statement provide you with a
summary of the Merger and additional information about the parties involved and
their interests in the Merger. I encourage you to read and consider carefully
the information contained in the Proxy Statement.
Whether or not you plan to attend the meeting, you are urged to read the
enclosed material carefully and complete, sign and promptly return the enclosed
proxy to assure that your shares will be voted at the Special Meeting. If you
attend the Special Meeting, you may revoke your proxy and vote in person if you
choose, even if you have returned your proxy.
Sincerely,
------------------------
Delmar J. Lewis
Chairman of the Board and
Chief Executive Officer
<PAGE>
n-VISION, INC.
7680 Old Springhouse Road
Madison Building, First Floor
McLean, Virginia 22102
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY ___, 2000
To Our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of n-Vision, Inc., a Delaware corporation (the "Company"),
will be held on ________, January ___, 2000 at 10:00 a.m., local time, at 7680
Old Springhouse Road, Madison Building, First Floor, McLean, Virginia 22102, for
the following purposes:
1. To consider and vote on a proposal to approve an Agreement and Plan of
Merger pursuant to which ATS Acquisitions, Inc., a newly-formed Delaware
corporation that is a wholly owned subsidiary of Advanced Technology
Systems, Inc., a Virginia corporation ("ATS"), will be merged with and
into the Company and each outstanding share of the Company's common stock
(other than shares held by ATS and shares held by shareholders who have
properly perfected their dissenters' rights) will be converted into the
right to receive $0.50 in cash, without interest. A copy of the Agreement
and Plan of Merger dated as of October 15, 1999 is attached as Appendix A
to and is described in the accompanying Proxy Statement.
2. To consider and act upon such other matters as may properly come before
the Special Meeting.
The Board of Directors has determined that only holders of the Company's
common stock of record at the close of business on December ___, 1999, are
entitled to notice of, and to vote at, the Special Meeting and any adjournments
thereof. Any shareholder will be able to examine a list of holders of record for
any purpose related to the Special Meeting during the 10-day period before the
Special Meeting. The list will be available at the offices of n-Vision, Inc.
7680 Old Springhouse Road, Madison Building, First Floor, McLean, Virginia
22102; telephone (703) 506-8808.
By Order of the Board of Directors
----------------------------
Claude H. Rumsey, Jr.
President and Secretary
<PAGE>
YOUR VOTE IS IMPORTANT
If you are unable to attend the meeting, please date, sign and return the
accompanying proxy promptly in the enclosed envelope which requires no postage
if mailed in the United States. Please do not send in any share certificates at
this time. Upon approval of the Merger, you will be sent instructions regarding
the procedures to exchange your share certificates for the consideration to be
paid.
Any shareholder (other than ATS) will have the right to dissent from the
consummation of the transaction contemplated by the Agreement and Plan of Merger
and to receive payment of the "fair value" of his or her shares upon compliance
with the procedures set forth in Section 262 of the Delaware General Corporation
Law. See "Rights of Dissenting Shareholders" in the accompanying Proxy
Statement.
<PAGE>
PROXY STATEMENT
n-VISION, INC.
7680 Old Springhouse Road
Madison Building, First Floor
McLean, Virginia 22102
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY ___, 2000
This Proxy Statement is being furnished to the shareholders of n-Vision,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation by its Board of Directors (the "Board") of proxies to be used at a
Special Meeting of Shareholders (the "Special Meeting") to be held on
__________, January ___, 2000 at 10:00 a.m. (local time) at 7680 Old Springhouse
Road, Madison Building, First Floor, McLean, Virginia 22102, and at any
adjournment or adjournments thereof.
At the Special Meeting, the shareholders of the Company will be asked to
consider and vote on a proposal to approve an Agreement and Plan of Merger (the
"Merger Agreement") dated as of October 15, 1999, among the Company, Advanced
Technology Systems, Inc., a Virginia corporation ("ATS") and ATS Acquisitions,
Inc., a newly formed Delaware corporation and wholly owned subsidiary of ATS
("ATS Acquisitions"), which is attached to this Proxy Statement as Appendix A.
Pursuant to the Merger Agreement, (i) ATS Acquisitions will be merged with and
into the Company and (ii) each outstanding share of common stock, $.01 par
value, of the Company (the "Common Stock"), other than shares held by ATS and
shares held by shareholders who are entitled to and who have perfected their
dissenters' rights, will be canceled and converted automatically into the right
to receive $0.50 in cash, payable to the holder thereof, without interest (the
"Merger"). As a result of the Merger, ATS will acquire, through ATS
Acquisitions, all of the outstanding shares of Common Stock not already owned by
ATS and the Company's other shareholders will no longer have an equity interest
in the Company. On December __, 1999, the closing price of the Common Stock as
reported on the OTC Bulletin Board was $____ per share.
Only holders of Common Stock of record at the close of business on
December ___, 1999 are entitled to notice of and to vote at the Special Meeting
or any adjournment(s) thereof. Under Delaware law, approval of the Merger at the
Special Meeting will require the affirmative vote of holders of a majority of
the outstanding shares of Common Stock entitled to vote at the Special Meeting.
As of November 4, 1999, Delmar J. Lewis beneficially owned 42% of the
outstanding Common Stock and Claude H. Rumsey, Jr. beneficially owned 13% of the
outstanding Common Stock. Messrs. Lewis and Rumsey have advised us that they
intend to vote their shares in favor of the Merger Agreement, thus assuring that
the Merger will be approved under Delaware law.
This Proxy Statement, the Notice of Special Meeting and the enclosed proxy
card, are first being mailed to shareholders of the Company on or about December
___, 1999.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Proxy Statement is December ___, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY..................................................................................................... 4
Time, Date and Place of the Special Meeting.......................................................... 4
Purpose of the Special Meeting....................................................................... 4
Consideration........................................................................................ 4
Required Vote........................................................................................ 4
Recommendation of Board of Directors................................................................. 5
Opinion of Financial Advisor......................................................................... 5
Interests of Certain Persons in the Merger; Conflicts of Interest.................................... 5
Federal Income Tax Consequences to Shareholders...................................................... 6
Conditions to the Merger; Effective Time; Effective Date............................................. 6
Financing the Merger................................................................................. 6
Appraisal Rights..................................................................................... 6
Market Prices........................................................................................ 6
VOTING RIGHTS AND PROXIES................................................................................... 8
SPECIAL FACTORS............................................................................................. 9
Background of the Merger............................................................................. 9
Recommendation of the Special Committee and Board of Directors;
Reasons for the Merger.......................................................................... 12
Opinion of Financial Advisor......................................................................... 15
ATS' and ATS Acquisitions' Purpose and Reasons for the Merger........................................ 19
Messrs. Lewis' and Rumsey's Purpose and Reasons for the Merger....................................... 20
Certain Projections Provided to the Financial Advisor................................................ 21
Certain Effects of the Merger........................................................................ 22
Interests of Certain Persons in the Merger; Conflicts of Interest.................................... 23
The Special Committee................................................................................ 23
The n-Vision Directors and Executive Officers........................................................ 23
Indemnification...................................................................................... 23
Federal Income Tax Consequences...................................................................... 24
Source of Funds...................................................................................... 24
THE MERGER AGREEMENT........................................................................................ 24
Parties to the Merger................................................................................ 24
General.............................................................................................. 25
Effective Time of the Merger and Payment for Shares.................................................. 25
Treatment of n-Vision Stock Options and Warrants..................................................... 26
Conditions........................................................................................... 26
Representations and Warranties....................................................................... 27
Covenants............................................................................................ 27
Indemnification...................................................................................... 28
Termination, Amendment and Waiver.................................................................... 29
Accounting Treatment................................................................................. 30
Pro Forma Financial Information...................................................................... 30
Conduct of the Business of the Company if the Merger is Not Consummated.............................. 30
Conversion of Securities............................................................................. 30
Transfer of Shares................................................................................... 31
Regulatory Approvals................................................................................. 31
Expenses of the Merger............................................................................... 31
RIGHTS OF DISSENTING SHAREHOLDERS........................................................................... 31
CONDUCT OF n-VISION'S BUSINESS AFTER THE MERGER............................................................. 33
BUSINESS OF THE COMPANY..................................................................................... 33
General.............................................................................................. 33
Properties........................................................................................... 35
MARKET PRICES OF COMMON STOCK AND DIVIDENDS................................................................. 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION................................................... 37
Financial Condition.................................................................................. 37
Results of Operations................................................................................ 37
Liquidity and Capital Resources...................................................................... 39
Income Taxes......................................................................................... 40
Year 2000............................................................................................ 40
Seasonality.......................................................................................... 41
MANAGEMENT.................................................................................................. 42
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............................................................. 43
Security Ownership Of Certain Beneficial Owners And Management....................................... 43
CERTAIN RELATED TRANSACTIONS................................................................................ 44
Note payable to ATS.................................................................................. 44
Certain Transactions by Officer and Directors........................................................ 44
EXPERTS..................................................................................................... 44
ADDITIONAL INFORMATION...................................................................................... 45
AVAILABLE INFORMATION....................................................................................... 45
INDEX TO FINANCIAL STATEMENTS............................................................................... F-1
FINANCIAL STATEMENTS........................................................................................ F-2
</TABLE>
APPENDICES
APPENDIX A -- Agreement and Plan of Merger
APPENDIX B -- Opinion of RP Financial, L.C
APPENDIX C -- Text of Section 262 of the Delaware General Corporation Law
3
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this Summary is qualified in its
entirety by, the more detailed information contained elsewhere or incorporated
by reference in this Proxy Statement. Shareholders should read this Proxy
Statement and its appendices in their entirety before voting.
Time, Date and Place of the Special Meeting
The Special Meeting of shareholders of n-Vision, Inc., a Delaware
corporation (the "Company" or "n-Vision"), will be held on __________, January
___, 2000, at 10:00 a.m., at the Company's offices located at 7680 Old
Springhouse Road, Madison Building, First Floor, McLean, Virginia 22102.
Purpose of the Special Meeting
At the Special Meeting, holders of shares of common stock, $.01 par value,
of the Company (the "Common Stock") will be asked to consider and vote upon a
proposal recommended by a Special Committee of the Board of Directors of the
Company (the "Special Committee") and by the Board of Directors to approve and
adopt an Agreement and Plan of Merger dated October 15, 1999 (the "Merger
Agreement") by and among the Company, Advanced Technology Systems, Inc., a
Virginia corporation ("ATS") and ATS Acquisitions, Inc., a newly formed Delaware
corporation and wholly owned subsidiary of ATS ("ATS Acquisitions").
Parties to the Merger
The Company
The Company designs, develops, manufactures, and markets state-of-the-art
3D immersive displays for use in advanced visualization applications, products,
and systems for a variety of commercial, industrial, and military applications.
The Company offers a versatile product line, logical upgrade paths for current
systems, and customization services.
Advanced Technology Systems, Inc.
ATS is a privately held company owned by Delmar Lewis and Claude Rumsey.
ATS and its subsidiaries provide innovative systems engineering and software
development solutions to government and commercial clients worldwide. ATS
supports full life cycle systems development, information systems support, and
integration for the following systems/applications areas: mainframe and client
servers; database and data warehousing; web-enabling systems; desktop
architecture and commercial off-the-shelf integration; workflow and imaging; and
software maintenance and Year 2000 service.
ATS Acquisitions, Inc.
ATS Acquisitions is a newly formed corporation organized at the direction
of ATS for the sole purpose of effecting the Merger and has not conducted any
prior business.
Consideration
If the proposed Merger is consummated, each share of Common Stock
outstanding at that time will be converted into the right to receive $0.50,
without interest (the "Merger Consideration"). See "The Merger Agreement -
General" and "- Effective Time of the Merger and Payment for Shares."
Required Vote
The affirmative vote of the holders of a majority of the shares of Common
Stock outstanding on the December ___, 1999 (the "Record Date") entitled to vote
at the Special Meeting is required for approval of the Merger Agreement and the
related Plan of Merger. ATS and its majority shareholders, Delmar Lewis and
Claude Rumsey, who, as of the Record Date, beneficially owned an aggregate of
51.0% of the outstanding Common Stock, have advised us that they intend to vote
their shares in favor of the Merger Agreement, thus assuring that the Merger
will be approved under Delaware Law. See "Voting Rights and Proxies."
Shareholders that vote in favor of the Merger may later be estopped from
challenging the transaction on fairness grounds.
4
<PAGE>
Recommendation of Board of Directors
The Board of Directors unanimously recommends that shareholders vote in
favor of the proposal concerning the Merger Agreement and the related Plan of
Merger. After receiving the unanimous recommendation of the Special Committee
(consisting of Mr. Ronald Wilgenbusch and Dr. Nelson Merritt), the Board of
Directors determined that the Merger was in the best interests of and fair to
all unaffiliated shareholders and then approved and adopted the Merger
Agreement. The Board's belief is based upon a number of factors which are
described in detail in "Special Factors - Recommendation of the Special
Committee and Board of Directors; Reasons for the Merger."
Opinion of Financial Advisor
RP Financial, L.C. ("RP Financial") was retained by the Company on behalf
of the Special Committee to render an opinion as to the fairness of the Merger
Consideration to holders of the Company's Common Stock. RP Financial has
delivered a written opinion to the Special Committee to the effect that, in its
opinion, the Merger Consideration is fair, from a financial point of view, to
holders of the Company's Common Stock (other than ATS and Messrs. Lewis and
Rumsey). See "Special Factors - Opinion of Financial Advisor."
Interests of Certain Persons in the Merger; Conflicts of Interest
In considering the recommendation of the Board of Directors with respect
to the Merger, shareholders should be aware that certain members of management,
some of whom are members of the Board, have certain interests which present them
with conflicts of interest in connection with the Merger, including a continuing
equity interest in the Company (through their investment in ATS) after the
Merger, as well as, in connection with the consummation of the Merger, the right
to receive the Merger Consideration for substantial holdings of Common Stock and
the anticipated payment of cash pursuant to the cancellation of employee stock
options. See "Special Factors--The n-Vision Directors and Executive Officers."
The Special Committee and the Board were aware of these conflicts and
considered them among the other matters described under "Special Factors -
Background of the Merger" and "-Recommendation of the Special Committee and
Board of Directors; Reasons for the Merger."
The Merger Agreement provides that (i) the directors of ATS Acquisitions
immediately prior to the Effective Time (as such term is defined below) will be
the directors of the Company after the Effective Time and (ii) the officers of
ATS Acquisitions immediately prior to the Effective Time will continue as the
officers of the Company after the Effective Time. Certain directors and officers
of the Company are also the directors and officers of ATS Acquisitions and will
therefore remain as officers and directors following the consummation of the
Merger.
In addition, the Merger Agreement provides that from and after the
Effective Time through the sixth anniversary of the Effective Time, ATS and ATS
Acquisitions will indemnify each person made or threatened to be made a party to
any civil or criminal action or proceeding by reason of the fact that such
person was or is at the time of such action a director or officer of the
Company, arising out of or pertaining to any act or omission, whether or not
arising out of or pertaining to the Merger Agreement, occurring prior to the
Effective Time to the fullest extent then permitted under Delaware law or, if
greater, that the Company would have been permitted under its Certificate of
Incorporation or Bylaws in effect on date of the Merger Agreement. See "Special
Factors - Interests of Certain Persons in the Merger; Conflicts of Interest" and
"The Merger Agreement Indemnification." Insofar as indemnification for
liabilities under the Securities Act of 1933, as amended (the "Securities Act")
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company, ATS and ATS Acquisitions have
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
5
<PAGE>
Federal Income Tax Consequences to Shareholders
The receipt of the Merger Consideration in the Merger or cash pursuant to
the exercise of statutory appraisal rights by holders of Common Stock will be
taxable transactions for federal income tax purposes. A holder of Common Stock
will recognize taxable gain or loss for federal income tax purposes equal to the
difference between the shareholder's adjusted basis in his or her shares and the
amount of cash received therefor. Each holder of Common Stock should consult
such holder's own tax advisor as to the specific tax consequences of the Merger
to such holder. See "Special Factors - Federal Income Tax Consequences."
Conditions to the Merger; Effective Time; Effective Date
The respective obligations of the Company, ATS and ATS Acquisitions to
consummate the Merger are conditioned upon, among other things, the approval and
adoption of the Merger Agreement by the holders of a majority of the outstanding
shares of Common Stock entitled to vote at the Special Meeting, and the receipt
of funds to finance the Merger (the "Financing"), including the payment of the
Merger Consideration. See "The Merger Agreement - Conditions", "Special Factors
- - Sources of Funds" and "Rights of Dissenting Shareholders."
The Merger will become effective upon the time (the "Effective Time") of
filing of a Plan of Merger with the Secretary of State of the State of Delaware.
The date on which the Merger becomes effective is herein referred to as the
"Effective Date." Delivery of the Plan of Merger to the Secretary of State for
filing will be made only upon satisfaction or waiver, where permissible, of the
conditions contained in the Merger Agreement. Receipt by the Company of such
portion of the proceeds of the financing as is necessary to consummate the
Merger and related transactions is one of a number of conditions to the parties'
obligations to consummate the Merger. ATS and ATS Acquisitions currently
anticipate being in a position to consummate the financing as promptly as
practicable after the Special Meeting. See "The Merger Agreement - Conditions."
Financing the Merger
In connection with the Merger, it is anticipated that an aggregate of
approximately $1,275,762 will be paid by to shareholders of the Company by ATS
using its available working capital.
Appraisal Rights
Holders of the Company's Common Stock who do not vote to approve and adopt
the Merger Agreement may dissent from the Merger and elect to have the fair
value of their shares, based on all relevant factors and excluding any element
of value arising from the accomplishment or expectation of the Merger,
judicially appraised and paid to them in cash. Such shareholders must deliver a
written demand for such appraisal to the Company prior to the taking of the vote
on the Merger Agreement and comply with the other requirements of Section 262 of
the Delaware General Corporation Law ("DGCL"), the full text of which is
attached to this Proxy Statement as Appendix C. Any deviation from such
requirements may result in a forfeiture of appraisal rights. See "Rights of
Dissenting Shareholders."
Market Prices
The Company's Common Stock is traded on the over-the-counter bulletin
board (the "OTC Bulletin Board") under the symbol "NVSN."
6
<PAGE>
The per share closing sales price of the Company's Common Stock on October
14, 1999, the last full trading day prior to the announcement of the signing of
the Merger Agreement, was $0.30. On December ___, 1999, the last full trading
day for which quotations were available at the time of the printing of this
Proxy Statement, the closing price of the Company's Common Stock was $_____. For
price ranges of the Company's Common Stock since January 1, 1997, see "Market
Prices of Common Stock and Dividends." Shareholders of the Company are urged to
obtain current quotations for the Company Common Stock.
7
<PAGE>
VOTING RIGHTS AND PROXIES
The Board of Directors of the Company has fixed the close of business on
December ___, 1999 as the record date (the "Record Date") for the determination
of shareholders entitled to notice of, and to vote at, the Special Meeting. Each
holder of record of Common Stock at the close of business on the Record Date is
entitled to one vote for each share then held on each matter submitted to a vote
of shareholders. At the close of business on the Record Date, there were
2,651,523 shares of Common Stock outstanding, of which 1,269,148 shares were
held by shareholders of the Company other than ATS, the directors and officers
of the Company and the officers and directors of ATS. The holders of a majority
of the outstanding shares of Common Stock entitled to vote at the Special
Meeting must be present in person or represented by proxy to constitute a quorum
for the transaction of business. Abstentions will be counted as shares present
and entitled to vote for purposes of determining a quorum; however, broker
non-votes will not be counted as shares present and entitled to vote for
purposes of determining a quorum.
Under Delaware law, holders of a majority of the outstanding shares of
Common Stock entitled to vote at the Special Meeting must approve the Merger
Agreement. For purposes of the vote required under Delaware law, a failure to
vote, an abstention and a broker non-vote will have the same legal effect as a
vote cast against approval of the Merger. ATS and its majority shareholders,
Delmar J. Lewis and Claude H. Rumsey, Jr., who, collectively, own 51.0% of the
outstanding Common Stock as of the Record Date, own enough shares of Common
Stock to approve the Merger under Delaware law and intend to vote their shares
in favor of the Merger Agreement.
Under Delaware law, holders of Common Stock who do not vote in favor of
the Merger Agreement and who comply with certain notice requirements and other
procedures will have the right to dissent and to be paid cash for the "fair
value" of their shares as judicially determined in accordance with the
procedures under Delaware law. The "fair value," as judicially determined, may
be more or less than the consideration to be received by other shareholders of
n-Vision under the terms of the Merger Agreement. Failure to follow such
procedures under Delaware law precisely will result in the loss of appraisal
rights. See "Rights of Dissenting Shareholders."
A shareholder giving a proxy has the power to revoke it at any time before
it is exercised by (i) filing with the Secretary of n-Vision an instrument
revoking it, (ii) submitting a duly executed proxy bearing a later date or (iii)
voting in person at the Special Meeting. Subject to such revocation, all shares
represented by each properly executed proxy received by the Secretary of
n-Vision will be voted in accordance with the instructions indicated thereon,
and if no instructions are indicated, will be voted in favor of the proposal to
approve and adopt the Merger Agreement. The shares represented by the
accompanying proxy and entitled to vote will be voted if the proxy is properly
signed and received by the Secretary of the Company prior to the Special
Meeting.
8
<PAGE>
SPECIAL FACTORS
Background of the Merger
The Company was established in 1988 as an operating division of ATS. The
Company was incorporated on September 16, 1994, and acquired all rights, title
and interest in the virtual reality products and systems from ATS. The Company
completed the initial public offering of its common stock on May 28, 1996 and
began trading on the Nasdaq SmallCap Market. On December 6, 1996, the Company's
investment banker and underwriter of its initial public offering was barred from
the national securities exchanges and ceased making a market in the Company's
securities. This event had an adverse effect on the liquidity of the Company's
securities.
The Company predominantly competes in the high-value immersive display
market, which is dominated by emerging commercial uses of head-mounted displays
in large corporations such as the automotive and aerospace industries and the
U.S. Government. However, due to the specialized use and high cost of such
products, the universe of potential customers is limited.
In the first quarter of the 1997 fiscal year, the Company completed an
engineering contract with a subsidiary of The Walt Disney Company to deliver
prototype devices. Completion of that contract led to a $1.25 million order in
the fourth quarter of 1997 by the same customer. However, the new contract was
completed in the second quarter of 1998 and the Company reported to shareholders
that it did not expect any revenues from the contract during the last two
quarters of 1998. After many discussions throughout the first quarter of 1998,
the Board met in April, 1998 to discuss the future direction of the Company and
its product lines. The Board decided that it was necessary for the Company to
expand its line of products and universe of potential customers. In an attempt
to broaden its customer base by expanding its product lines to offer
lower-priced products, the Company introduced new products in 1998. These new
products were focused on bringing n-Vision closer to competition with the
virtual reality products of large consumer electronics companies such as Sony.
Due to a depressed stock price, the Company was informed by the Nasdaq
Stock Market, on July 17, 1998, that its stock price was not in compliance
with the minimum per share price requirement for stock traded on Nasdaq and that
the Company would be delisted from the Nasdaq if it did not trade at or above
$1.00 per share for at least ten consecutive trading days prior to October 19,
1998. The Board of Directors met on August 10, 1998 to discuss the delisting
notification from Nasdaq and its potential effects on the Company's stock and
shareholders. The Board determined that delisting from the Nasdaq SmallCap
Market would result in the Company's securities being traded in the
over-the-counter market which might adversely affect the liquidity of its
securities and depress the price at which its securities might trade. The Board
decided to authorize management to take steps to prevent the delisting of the
Company's securities from the SmallCap Market. First, the Company requested a
hearing from Nasdaq in order to appeal the decision to delist the Company's
securities. In addition, the Board authorized management to discuss with counsel
ways to bring the Company's stock price in compliance with Nasdaq's minimum per
share price requirements.
After several discussions with counsel, management of the Company decided
to propose that the Board approve a reverse stock split in an attempt to satisfy
Nasdaq's minimum per share price requirement. On October 8, 1998, the Board
met and discussed management's proposal. The Board discussed the mechanics and
anticipated effects of a reverse stock split. The Board also questioned the
status of the hearing request. After a full discussion, the Board approved the
reverse stock split and authorized management to call a special meeting of
shareholders and submit the proposal of the reverse stock split to the
shareholders for their approval.
A special meeting of shareholders was held on November 9, 1998, to vote on
an amendment and restatement of the Company's certificate of incorporation to
effect a one-for-two reverse stock split of the issued and outstanding shares of
the Company's Common Stock. The proposal was approved by a majority vote of the
shareholders. As a result, the reverse stock split was effected on November 27,
1998. However, due to the continued decline in the price of the Company's stock,
the Common Stock was delisted from trading on the Nasdaq SmallCap Market on
December 11, 1998 due to the Company's inability to meet the SmallCap Market's
minimum per share price requirement.
9
<PAGE>
In addition, to the reverse stock split, the Board decided to attempt to
enhance the Company's financial performance and stock price by looking for other
technologies to acquire. In March, 1999, an opportunity arose with regard to a
technology involving videoconferencing. In April, 1999, management presented
the opportunity to the Board and the Board authorized management to review the
technology and negotiate terms of an acquisition. Management, with the
assistance of counsel, then began its due diligence on the technology and the
company which owned the technology. After completing its due diligence,
management had concerns with respect to the principals involved, and about the
significant capital that would be required to complete the technology and bring
it to market and, whether or not the technology was actually owned by the other
company. As a result, management did not proceed further with the acquisition of
the technology.
In June, 1999, management began looking into the development of technology
involving high speed video and Internet switching. Management reviewed the
feasibility of the technology and presented its findings to the Board in June,
1999. The Board discussed the matter and the capital required to develop the
technology. After a discussion on the technology and the financial condition of
the Company, the Board authorized management to retain an investment banker to
underwrite a public offering of the Company's securities in order to raise
capital to fund operations of the Company including the possible development of
the high speed video and Internet switching technology. Subsequent to the Board
meeting, management prepared information about the Company and the new
technology, and distributed it to several investment banking firms during the
summer of 1999. While some preliminary discussions were held, there was no
interest from investment banking firms to participate in a public offering of
the Company's securities due to its financial condition and the condition of its
common stock price. However, management continued its efforts to retain an
investment banker through August, 1999.
During the third quarter of 1999, the Board met and evaluated the
Company's efforts to expand its line of products into lower-priced products. The
Board determined that such efforts had not been successful due to the inability
to cost-effectively manufacture such products despite the Company's best efforts
to redesign the products using less expensive parts, and the inability to
generate customer interest and resulting failure to compete with similar,
lower-priced products on the market. Accordingly, the Board decided to cease
manufacturing and production of such lower-priced products.
Messrs. Lewis and Rumsey, as executive officers, directors and major
shareholders of both ATS and n-Vision, have had daily conversations regarding
the performance and future direction of the two companies. Beginning in August
1999, Messrs. Lewis and Rumsey discussed n-Vision's unsuccessful efforts to
expand its line of products and customer base as well as its inability to raise
capital to fund growth. They also discussed the cash flow requirements of
n-Vision, and the need for sources of long-term capital to continue to fund its
operations. Faced with the inability to finance growth and the deteriorating
financial condition and common stock price, Messrs. Lewis and Rumsey began
discussing the possibility of an acquisition of n-Vision by ATS. They had not
decided to attempt such an acquisition prior to this time because they were
involved in initiating steps to enhance the Company's product offerings and
attempting to raise capital. Messrs. Lewis and Rumsey decided to begin to
initiate an acquisition because they wanted to complete an acquisition while
there was still value in the Company that could be paid to unaffiliated
shareholders. In addition, they wanted to avoid liquidation of the Company
through a bankruptcy proceeding. In August 1999 Messrs. Lewis and Rumsey decided
to speak with n-Vision counsel regarding a potential acquisition by ATS. On
several occasions during August 1999 and early September 1999, Mr. Rumsey spoke
with counsel. Due to the affiliations between ATS and n-Vision, ATS retained its
own counsel on September 9, 1999.
Based on the considerations mentioned above, Messrs. Lewis and Rumsey
presented the other members of n-Vision's Board of Directors with a proposal to
take n-Vision private by acquiring all of the outstanding shares of Common Stock
that ATS did not own (the "Offer"). Other than their prior efforts to expand the
Company's product line, raise capital and acquire other technologies, neither
the Company nor ATS considered other alternatives to the Offer.
10
<PAGE>
On September 7, 1999, the Board of Directors of n-Vision held a special
meeting to discuss the Offer. All members of the Board of Directors were present
at the meeting. The Board determined that because ATS and its majority
shareholders, Messrs. Lewis and Rumsey, owned approximately 51.0% of the
Company's outstanding Common Stock, it was desirable to appoint a special
committee (the "Special Committee"), to act on behalf of, and in the interests
of, the unaffiliated shareholders, to evaluate the merits of the Offer,
including consideration of alternatives to the Offer, if any, and to make a
recommendation to the full Board on whether to approve any such transaction. In
light of the fact that the Board had only one non-employee director (Mr. Ronald
Wilgenbusch), the Board decided to fill a vacancy with another non-employee
director who could also serve on the Special Committee. Due to the timing of the
negotiations between ATS and the Company, the Board recognized that the new
director would need to be familiar with the Company, experienced in acquisitions
and willing to join a board of directors immediately prior to a going private
transaction and its concomitant fiduciary duties. Based on the above, the Board
elected Dr. Nelson Merritt. Despite the fact that Dr. Merritt has a consulting
contract with a subsidiary of ATS, the Board believed that Dr. Merritt's
addition to the Special Committee would be beneficial to unaffiliated
shareholders since he was not an employee of n-Vision, did not have a financial
interest in the transaction separate from that of all shareholders, had served
on boards of directors of companies which had been acquired over the past
several years and was familiar with the Company and the industry. Mr. Ronald
Wilgenbusch and Dr. Nelson Merritt were then appointed by the full Board of
Directors to serve as members of the Special Committee and were authorized to
retain a financial advisor, a legal advisor and any other advisors that they
deemed appropriate to assist them in carrying out their responsibilities.
Further, the Board voted to grant the Special Committee and its advisors access
to all officers and members of management of the Company and to all other
information and materials regarding the Company, including its books, records,
projections and financial statements deemed necessary by the Special Committee
for its review.
The Special Committee, with the assistance of Patton Boggs LLP, its
counsel, contacted RP Financial, L.C., an independent financial advisor.
A meeting of the Special Committee was held by teleconference on September
10, 1999. The Special Committee acknowledged and agreed that the purpose of the
Special Committee was to act in the interest of the public shareholders of the
Company. The Special Committee discussed and approved the retention of RP
Financial, as independent financial advisor to the Company in connection with
the proposed transaction with ATS. The members noted the impressive credentials
of RP Financial and the fact that RP Financial had no prior or current
relationship with ATS and is well qualified to conduct the necessary evaluation
of the fairness of the proposed transaction. The Special Committee discussed the
standard and criteria for the performance of their duties with counsel and
requested that they be provided with all pertinent information regarding the
proposed transaction as the same becomes available to counsel. Counsel agreed to
provide all prior memoranda and further correspondence on subjects relating to
the proposed transaction to the Special Committee in order to facilitate their
deliberations. The Special Committee discussed the draft of the Agreement and
Plan Merger that had previously been provided to them by counsel. They asked
questions regarding the proposed structure and terms and the status of the
negotiations with ATS' counsel. The Special Committee agreed to convene again as
soon as was appropriate in order to evaluate the results of the analysis of RP
Financial and the status of the negotiations with ATS.
A meeting of the Special Committee was held by teleconference on September
24, 1999. The Special Committee discussed the financial condition of the
Company. The Special Committee discussed the comments on the draft merger
agreement provided by counsel to ATS. The Special Committee's counsel was
instructed to convey the Special Committee's issues in subsequent negotiations
and report back to the Special Committee. The Special Committee discussed the
difficulty of continuing to develop the Company's business with limited reserves
and negative cash flow. It was noted that if the Company did not enter into a
transaction, the Company's cash reserves would soon be depleted. The Special
Committee agreed to convene again as soon as was appropriate in order to
evaluate the revised status of the drafting and negotiation of the agreement and
plan of merger.
11
<PAGE>
A meeting of the Special Committee was held by teleconference on October
4, 1999. The Special Committee determined that the analysis of RP Financial,
including analyses of relative value (including tangible book value) was
reasonable and believed that RP Financial's conclusion that the price offered by
ATS to the public shareholders is fair to such shareholders from a financial
point of view based on the facts and analyses presented. The Special Committee
received a briefing on the status of the drafting and negotiation of the
agreement and plan of merger and the determination of all outstanding issues
from counsel. It was agreed that the modifications that had been negotiated were
acceptable and that once the schedules had been finalized, the document would be
appropriate to present to the Board of Directors. The Special Committee
discussed the ATS proposal and weighed the risks of continuing the Company's
business against the benefits of accepting the offer. The Special Committee
discussed the assumptions behind and results of the discounted cash flow
approach, the public multiple approach, the corporate value (balance sheet)
approach and the control premium approach which all validated the consideration
of $0.50 per share. The premium over the Company's stock price and the potential
future performance of the Company were further discussed and analyzed at length.
The Special Committee also noted that ATS had sufficient resources to consummate
the Merger and that the offer was not contingent upon financing. The Special
Committee considered the difficulty of continuing to develop the Company's
business in a situation with limited reserves and negative cash flow. It was
noted that it was important to enter into a transaction as soon as possible in
order to preserve shareholder value because the Company's cash reserves were
being depleted. The Special Committee considered the value of the Company's
assets and recognized that in connection with a liquidation of the Company many
of its assets, particularly its inventories, would likely be sold only at
substantial discounts and that the possible liquidation value per share of
Common Stock would likely be less than the $0.50 per share to be paid in the
Merger. After a careful deliberation, the Special Committee unanimously agreed
that the proposed Merger was in the best interest of the Company and the
unaffiliated shareholders and agreed to recommend the transaction to the
Company's Board of Directors.
On October 6, 1999, RP Financial rendered its opinion to the Special
Committee that the proposal by ATS of $0.50 per share in cash was fair, from a
financial point of view, to the unaffiliated shareholders based on various
factors which are described below under "--Opinion of Financial Advisor." The
full Board of n-Vision then met and heard the report of RP Financial. Upon its
review and evaluation of the report of RP Financial, the Special Committee
recommended to the full n-Vision Board that it accept the ATS proposal.
On October 6, 1999 the Merger Agreement was presented to the full Board of
n-Vision for its approval and, based on the recommendation of the Special
Committee, the Board of n-Vision unanimously voted to approve the Merger
Agreement. In addition, the n-Vision Board confirmed its determination that the
Merger was fair, from a financial point of view, to the unaffiliated
shareholders and voted to recommend to the shareholders that they approve the
Merger. On October 6, 1999, the final proposed Merger Agreement was presented to
the board of directors of ATS, which unanimously approved the Merger Agreement.
On October 15, 1999, the Merger Agreement was duly executed by the parties.
Recommendation of the Special Committee and Board of Directors; Reasons for the
Merger
The Company's purpose in participating in the Merger is to provide the
public holders of the Company's Common Stock with the opportunity to receive a
fair price for their shares of Common Stock. The Board of Directors has
unanimously determined that the terms of the Merger are fair to, and in the best
interests of, the unaffiliated shareholders. The Board has unanimously approved
the Merger Agreement and recommends that shareholders vote for the proposal to
approve and adopt the Merger Agreement.
The Company has been advised by each of its directors and officers that he
or she intends to vote all of his or her shares of Common Stock in favor of the
proposal to approve and adopt the Merger Agreement. See "Voting and Proxies",
"Special Factors--Interests of Certain Persons in the Merger; Conflicts of
Interest" and "Voting Securities and Principal Holders Thereof--Security
Ownership of Certain Beneficial Owners and Management." As of November 4, 1999,
the directors and officers of n-Vision held 53% of the issued and outstanding
shares of Common Stock.
In making its determination that the terms of the Merger are fair to, and
in the best interests of, the unaffiliated shareholders, to approve the Merger
Agreement and to recommend that shareholders approve and adopt the Merger
Agreement, the Board considered:
(i) the opinion of RP Financial that the consideration to be
received in the Merger by the unaffiliated shareholders is
fair, from a financial point of view, to such holders (see
"--Opinion of Financial Advisor");
12
<PAGE>
(ii) the determination by the Special Committee that the terms of
the Merger are fair to, and in the best interests of, the
unaffiliated shareholders and the recommendation by the Special
Committee that the Board approve and adopt the Merger Agreement
and that the Board recommend to the Company's shareholders that
they approve and adopt the Merger Agreement; and
(iii) the factors considered by the Special Committee in its
deliberations described below.
The Special Committee considered the following factors, which constitute
the material factors considered by the Special Committee, in making its
determination that the terms of the Merger are fair to, and in the best
interests of, the unaffiliated shareholders and its decision to recommend that
the Board approve and adopt the Merger Agreement and recommend to the Company's
shareholders that they approve and adopt the Merger Agreement:
o The Company's current operating losses make its situation critical
because it is necessary to enter into a transaction before the
Company's cash reserves are depleted. The Company's current negative
cash flow will probably cause the Company to exhaust its cash resources
by Spring 2000.
o The Company is unable to secure additional debt or equity financing
necessary to sustain its business operations.
o The Company is dependent upon a relatively small number of customers,
particularly a single customer in the past. The Company had a large
portion of its revenue in 1998 derived from this single customer, and
there were only nominal sales to that customer in 1999. Based on
discussions with this customer, an order has been placed and future
orders may be placed, however, it has been communicated to the Company
that such orders will not be placed or finalized unless the Company can
demonstrate that it will have sufficient resources to perform its
obligations under the order and to continue to substantially upgrade
its products. The Company does not have the financial ability to both
finance the manufacture of products to fulfill any significant orders
and finance the continued development and improvement of its product
line.
o The Company's position as a manufacturer of 3D immersive displays for
use in advanced visualization applications, products and systems for a
variety of commercial, industrial and military applications is of
limited significance because of the current limited market for such
products. In addition, the Company has been facing strong competition.
Therefore in August 1999, the Company determined it was necessary to
reduce prices on certain of its products from 10% to 22%, thereby
decreasing profit margins.
o The opinion of RP Financial that the consideration of $0.50 per share
in cash is fair from a financial point of view to the unaffiliated
shareholders. The Special Committee and the Board reviewed the
independent financial analyses performed by RP Financial and found them
to be reasonable and believed that RP Financial's conclusion that the
price offered by ATS was fair from a financial point of view to the
unaffiliated shareholders was a reasonable conclusion based on the
analyses performed. The Special Committee did not perform any
independent analysis of the factors described in the RP Financial
report or of other factors not considered by RP Financial, such as
liquidation value.
o The note payable to ATS for $300,000 (as of June 30, 1999) would
effectively be forgiven as a result of the transaction with ATS. Offers
from third parties would presumably reflect the amount of this
indebtedness and therefore may be lower than the Merger Consideration.
This amount equates to approximately $0.11 per share.
o The Company's lease is currently on extremely favorable terms, but
scheduled to expire on February 29, 2000, and the cost to extend or
find new space is expected to be much higher, at least double. The
Special Committee believed that this fact or supports its conclusion
that the terms of the Merger Agreement are fair to the unaffiliated
shareholders because the anticipated increase in the Company's
operating costs would substantially increase the Company's negative
cash flow after February 2000.
13
<PAGE>
o The Special Committee reviewed current and historical market prices for
the Company's shares, including the effect of the reverse stock split,
the declining per share price of the Common Stock prior to the time of
ATS' proposal, the possibility that the price would remain depressed or
continue to decline and the premium that $0.50 per share offered over
such price.
o A review of the terms of the Merger Agreement, including (a) the
likelihood of satisfying the conditions to the closing of the Merger,
and (b) the fact that the Merger Agreement does not preclude the Board
of Directors in the exercise of its fiduciary duties from accepting a
bona fide offer which is more favorable to the shareholders and the
Company. In addition, the Board of Directors determined that the public
announcement of the Merger with ATS, coupled with the period of time
that would be required between the announcement of the Merger and its
consummation, would permit any unaffiliated parties who wished to make
a competing bid for the Company to do so.
The factors discussed above were all considered to be positive factors in the
Special Committee's decision to recommend that the Board approve the Merger.
The Special Committee considered the value of the Company's assets and the
book value per share of Common Stock. The Special Committee specifically looked
at the book value per share of $0.52 as of September 30, 1999. The Special
Committee recognized that in connection with a liquidation of the Company many
of its assets, particularly its inventories, would likely be sold only at
substantial discounts from their book values. The Special Committee's belief in
this regard was based on the potential erosion in value of the assets of the
Company in the context of an expeditious liquidation and a "forced sale"
atmosphere that would likely prevail. The Special Committee also recognized the
substantial delays and uncertainties inherent in a liquidation of the Company.
Such uncertainties may include the amount of costs and expenses of liquidation
which would increase with the length of time to complete the liquidation, the
potential adverse effects on the salability of business segments that could
result from the probable departure of key employees and the loss of customers
which could result in further losses during the liquidation process, and legal
actions presently unknown to the Company that could be initiated after
commencement of the liquidation. While the Special Committee recognized that the
aggregate fair market value of the Company's assets, on a liquidation basis,
might be more than the aggregate book value of such assets, the Special
Committee concluded that the possible liquidation value per share of Common
Stock would likely be less than the $0.50 per share to be paid in the Merger.
The Special Committee did not compute a liquidation value per share but reviewed
the component value approach analysis of RP Financial that addressed an
estimated liquidation value adjustment as described under "--Opinion of
Financial Advisor--Component Value Approach."
In connection with its advice with respect to the Proposal, RP Financial
discussed with the Special Committee information it had considered and a number
of statistical analyses performed by it. To assist in the discussion, RP
Financial showed the Special Committee a written report, reflecting a portion of
such information and analyses (the "Report"). The Report was one of a variety of
factors considered by the Special Committee. The Report included statistics
regarding the Company's historical stock prices and operating information of,
and certain selected ratios, multiples and other data with respect to, the
Company and other selected electronic instruments and controls companies;
information regarding certain selected multiples, control premiums and other
characteristics of certain recent mergers and acquisitions of electronic
instruments and controls companies; projections obtained from management of the
Company with respect to the Company's future, results of operations and
financial condition; and information obtained from the Company's management with
respect to the value of the Company's assets. These analyses were based on
various assumptions as to the future performance and financial condition of the
Company as well as various discount rates and multiples. See "Special
Factors--Opinion of Financial Advisor."
The Special Committee recognized that consummation of the Merger will
deprive the unaffiliated shareholders of the opportunity to participate in any
future growth of the Company and, accordingly, gave consideration to the
Company's results of operations and the Company's future prospects in reaching
its determination to recommend approval and adoption of the Merger Agreement.
The Special Committee was also aware that certain directors and executive
officers of the Company have a conflict of interest in connection with the
Merger because they will have a substantial equity investment in ATS and because
they will be members of the management of ATS or the Company, or both, after the
Merger. See "Special Factors--ATS' and ATS Acquisitions' Purpose and Reasons for
the Merger" and "--Interests of Certain Persons in the Merger; Conflicts of
Interest". These factors were considered negative factors in the Special
Committee's decision to recommend that the Board approve the Merger. However, in
the Special Committee's view, these factors were substantially outweighed by the
positive factors discussed above.
14
<PAGE>
Based upon its consideration of all of the factors described above, the
Special Committee arrived at its determination that the terms of the Merger are
fair to, and in the best interests of, the unaffiliated shareholders and that
the Board should recommend that the shareholders of the Company approve and
adopt the Merger Agreement.
In view of the circumstances and the wide variety of factors considered in
connection with its evaluation of the Merger, neither the board nor the Special
Committee found it practicable to assign relative weights to the factors
considered in reaching its decision.
No member of the Special Committee is employed by the Company, ATS or ATS
Acquisitions. However, Dr. Merritt has a consulting contract with a subsidiary
of ATS. No such member has, or is or was previously expected to acquire, any
equity interest in ATS or ATS Acquisitions or, after the Merger, the Company.
Dr. Merritt owns 2,000 shares of Common Stock. Mr. Wilgenbusch does not own any
shares of Common Stock but does own options exercisable for 22,500 shares of
Common Stock. See "Voting Securities and Principal Holders Thereof--Security
Ownership of Certain Beneficial Owners and Management" and "Special
Factors--Interests of Certain Persons in the Merger; Conflicts of Interest."
The Board of Directors believes that the procedures used to approve the
Merger on behalf of the Company were fair to the unaffiliated shareholders. In
reaching this conclusion, the Board of Directors relied on (i) the creation of a
special committee consisting of non-employee directors of n-Vision to negotiate
the terms of the Merger Agreement; (ii) the engagement of RP Financial to render
an opinion to the effect that the consideration to be received by shareholders
in the Merger is fair to such shareholders from a financial point of view, and
(iii) the fact that the Merger Agreement did not preclude the Board of Directors
in the exercise of its fiduciary duties from accepting a bona fide offer which
is superior to the Merger Consideration. In view of the above, neither the Board
nor the Special Committee considered it necessary to retain an unaffiliated
representative to act solely on behalf of the unaffiliated shareholders of the
Company for the purpose of negotiating the terms of the Merger. The affirmative
vote of a majority of the unaffiliated shareholders of the Company is not
required for approval and adoption of the Merger Agreement.
Opinion of Financial Advisor
The Company retained RP Financial on behalf of the Special Committee in
September 1999 to render its opinion with respect to any such transaction from a
financial point of view to n-Vision shareholders in the event n-Vision entered
into an agreement to be acquired. In requesting RP Financial's advice and
opinion, the board of directors of n-Vision did not give any special
instructions to RP Financial, nor did it impose any limitations upon the scope
of the investigation that RP Financial might wish to conduct to enable it to
give its opinion. RP Financial has delivered to n-Vision its written opinion,
dated October 6, 1999, and its updated opinion as of December __, 1999, to the
effect that, based upon and subject to the matters set forth therein, and as of
the date thereof, the consideration to be received by shareholders of n-Vision
in the merger is fair to the holders of n-Vision stock from a financial point of
view. The opinion of RP Financial is directed toward the consideration to be
received by n-Vision shareholders and does not constitute a recommendation to
any n-Vision shareholder to vote in favor of the proposal to approve and adopt
the Merger Agreement. A copy of the RP Financial opinion is set forth as
Appendix B to this Proxy Statement and should be read in its entirety by
shareholders of n-Vision. RP Financial has consented to the inclusion and
description of its written opinion in this Proxy Statement.
15
<PAGE>
RP Financial was selected by n-Vision to act as its financial advisor
because of RP Financial's expertise in the valuation of businesses and their
securities for a variety of purposes, including its expertise in connection with
mergers and acquisitions. RP Financial was engaged by n-Vision on September 9,
1999, pursuant to terms set forth in an engagement letter ("Engagement Letter").
RP Financial estimates that it will receive from n-Vision total professional
fees of approximately $15,000, of which approximately $5,000 has been paid to
date, plus reimbursement of certain out-of-pocket expenses, for its services in
connection with the Merger. In addition, n-Vision has agreed to indemnify and
hold harmless, to the fullest extent permitted by law, RP Financial, any
affiliates of RP Financial, and the respective directors, officers, agents and
employees of RP Financial or their successors and assigns who act for or on
behalf of RP Financial in connection with the services called for under the
Engagement Letter from and against any and all losses, claims, damages and
liabilities, joint or several, that RP Financial may become obligated to pay, to
which RP Financial may become subject or for which RP Financial may become
liable, in connection with any of the services rendered pursuant to or matters
that are the subject or arise out of the services rendered pursuant to the
Engagement Letter. The Company is not under any obligation to indemnify or hold
harmless RP Financial if a court of competent jurisdiction determines by a final
nonappealable judgment that RP Financial was negligent or acted in bad faith
with respect to any actions or omissions of RP Financial related to a matter for
which indemnification is sought under the Engagement Letter. Any time devoted by
employees of RP Financial to situations for which indemnification is provided
under the Engagement Letter is an indemnifiable cost payable by n-Vision at the
normal hourly professional rate chargeable by such employee. The Company is
required to pay for or reimburse the reasonable expenses, including attorney's
fees, incurred by RP Financial in advance of the final disposition of any
proceeding within thirty days of the receipt of such request if RP Financial
furnishes n-Vision: (i) a written statement of RP Financial's good faith belief
that it is entitled to indemnification; and (ii) a written undertaking to repay
the advance if it ultimately is determined in a final adjudication of such
proceeding that it or he is not entitled to such indemnification.
In rendering its opinion, RP Financial reviewed the following materials:
(1) the Merger Agreement, dated October 6, 1999, including exhibits; (2) the
following information for n-Vision: (a) audited financial statements for the
fiscal years ended December 31, 1996 through 1998 included in the annual
reports, (b) shareholder and internal financial and other reports through the
most recent date available, (c) the proxy statement for the Company's annual
meeting of shareholders for each of the last three years, and (d) the prospectus
for the initial public offering in 1996 and Form SB-2 Registration Statement
dated May 29, 1996; (3) discussions with n-Vision's management regarding past
and current business, operations, financial condition, and future prospects; (4)
competitive factors; and (5) the market pricing and financial characteristics of
publicly-traded companies offering similar products as well as those companies
in the electronic instruments and controls industry and the technology sector.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
n-Vision furnished by n-Vision to RP Financial for review for purposes of its
opinion, as well as publicly-available information regarding public companies
and the market and competitive environment for the products offered by n-Vision.
The Company did not restrict RP Financial as to the material it was permitted to
review. RP Financial did not perform or obtain any independent appraisals or
evaluations of the assets and liabilities and potential and/or contingent
liabilities of n-Vision.
RP Financial expresses no opinion on matters of a legal, tax or accounting
nature or the ability of the Merger as set forth in the Merger Agreement to be
consummated.
RP Financial's opinion and updated opinion were based solely upon the
information available to it and the economic, market and other circumstances as
they existed as of October 6, 1999, and December __, 1999, respectively; events
occurring after the most recent date could materially affect the assumptions
used in preparing the opinion.
16
<PAGE>
In connection with rendering its opinion dated October 6, 1999, and
updated as of December __, 1999, RP Financial performed a variety of financial
analyses that are summarized below. Although the evaluation of the fairness,
from a financial point of view, of the Merger Consideration was to some extent
subjective based on the experience and judgment of RP Financial, and not merely
the result of mathematical analyses of financial data, RP Financial relied, in
part, on the financial analyses summarized below in its determinations. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analyses or summary description. RP Financial believes
its analyses must be considered as a whole and that selecting portions of such
analyses and factors considered by RP Financial without considering all such
analyses and factors could create an incomplete view of the process underlying
RP Financial's opinion. In its analyses, RP Financial took into account its
assessment of general business, market, financial and economic conditions,
industry performance and other matters, many of which are beyond the control of
n-Vision, as well as RP Financial's experience in securities valuation and
merger transactions. With respect to the comparable transactions analysis
described below, no public company utilized as a comparison is identical to
n-Vision and such analyses necessarily involve complex considerations and
judgments concerning the differences in financial and operating characteristics
of the companies and other factors that could affect the values of the companies
concerned. The analyses were prepared solely for purposes of RP Financial
providing its opinion as to the fairness of the Merger Consideration and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Any estimates contained in RP Financial's
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than such estimates. None of the
analyses performed by RP Financial was assigned a greater significance by RP
Financial than any other. The Merger Consideration exceeded the per share values
indicated by the Public Multiple Approach, the Component Value Approach and the
Control Premium Approach. The Discounted Cash Flow Analysis was inconclusive.
Discounted Cash Flow Analysis. In applying the discounted cash flow
analysis, RP Financial typically estimates the present value of both future
dividends over a five year period and a terminal value at the end of the fifth
year, reflecting alternative strategies in comparison to a continuation of a
company's recent operating strategy, growth and profitability. Pricing multiples
are then applied to year five per share data, such as price/earnings, price/book
and price/revenues to determine the terminal value range, and such multiples are
typically derived from market data, particularly the pricing multiples of
comparable companies. The cash flows are then discounted to present value based
on an appropriate discount rate, taking into consideration the earnings
capitalization rate of similar companies, the treasury yield curve (i.e., the
risk-free rate) and perceived investment risks in the particular company subject
to valuation, with higher discount rates applied to those companies with a
higher risk profile. The application of the discounted cash flow approach to
n-Vision was not appropriate in view of the expected exhaustion of remaining
cash within the next year, the competitive environment, the limited demand for
n-Vision's virtual reality products and systems, and the current operating
losses resulting from low revenues.
Public Multiple Approach. The public multiple approach was also considered
in determining the value of the Company. In view of n-Vision's operating losses
and expected exhaustion of current cash and stockholders' equity, based on
year-to-date experience, the derivation of value based on earnings and book
value per share was not meaningful. RP Financial considered a derivation of
value based on n-Vision's revenues, reflecting a continuation of year-to-date
average monthly revenues until the current cash position is expected to be
exhausted, or approximately seven months. The multiple was derived from a
comparison to the financial and pricing characteristics of publicly-traded
companies within the electronic instruments and controls industry and the
technology sector. The 50 companies included in the electronics instruments and
controls industry used for comparative purpose were as follows:
<TABLE>
<S> <C> <C>
Advanced Energy Industries Eaton Corp. Sawtek, Inc.
Ametek, Inc. Hadco Corporation SCI Systems, Inc.
American Power Conversion Hutchinson Technology SGL Carbon Group
Amphenol Corporation Hubbell Inc. S3, Inc.
Arrow Electronics Jabil Circuit SLI, Inc.
ASE Test Limited KEMET Corporation Solectron Corp
Artesyn Technologies, Inc. Lernout & Hauspie N.V. Siemens AG
Avnet, Inc. Methode Electronics TDK Corporation
AVX Corporation Marshall Industries Tektronics, Inc.
Anixter International Molex, Inc. Teleflex, Inc.
Baldor Electric Oak Industries, Inc. Thomas & Betts Corp.
Benchmark Electronics Paradyne Networks, Inc. Technitrol, Inc.
Ballard Power Systems, Inc. Premier Farnell PLC. UCAR International, Inc.
Celestica, Inc. Plexus Corp. Vicor Corporation
CTS Corporation Rockwell International Corp Vishay Intertechnology Corp
DII Group, Inc. Rayovac Corp. Wesco International
Electro Scientific Inds. Sanmina Corporation
</TABLE>
17
<PAGE>
In this regard, such comparative groups were much larger in terms of
revenues and total resources, more profitable on average, better capitalized and
had better prospects, leading to their average price/revenue multiple of 2.26
times as of September 2, 1999. For n-Vision, RP Financial considered a
multiplier of 0.58 times the annualized revenues for the first six months of
1999 to be appropriate, given n-Vision's recent revenue trends and negative
operating results and cash flows as well as the less favorable comparison
relative to such comparative group. The 0.58 times revenue multiplier indicates
a per share value of $0.29 for n-Vision.
The price to sales ratios of the industry, sector and S&P 500, as set
forth in RP Financial's analysis, were as follows:
Industry 2.26x
Sector 12.19x
S&P 500 5.42x
RP Financial considered the industry ratios to be most appropriate in the
n-Vision analysis, and provided the sector and S&P 500 ratios as a comparison
for the sector and not as a benchmark for valuation purposes. The sector ratios
are less appropriate as it includes companies not involved in the manufacturing
of electronic instruments and controls. The 0.58 multiplier was arrived at for
n-Vision based on the estimated number of months until the Company's cash
position was exhausted - representing 1 times revenues for the estimated number
of months of solvency. RP Financial considered the use of an industry revenue
multiplier derived from generally profitable going concern entities to be
acceptable provided that the multiplier was risk adjusted downwards for
n-Vision.
The trailing 12 months multiplier was derived in the same fashion as
above, but considered less reliable as the last six months represented a better
picture of the current situation. The trailing 12 months calculation, which did
not produce a materially different valuation, was provided to the Company for
comparative purposes.
No company or transaction used in this composite is identical to the
Company or the merger. Accordingly, an analysis of the results of the foregoing
is not mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies involved and other factors that could affect the public trading values
of the securities of the company or companies to which they are being compared.
Component Value Approach. In view of the pending exhaustion of cash and
equity, RP Financial estimated the Company's value based on the component value
approach, specifically, determining the net asset value of n-Vision based on the
estimated balance sheet as of October 31, 1999, a date shortly preceding the
anticipated merger date. The estimated balance sheet as of October 31, 1999,
prepared internally by n-Vision, requires adjustment to reflect the estimated
liquidation value of inventory and property and equipment, along with the
estimated value of off balance sheet assets, other intangible assets and the
maximum potential value of the net operating loss carryforwards to an acquiror.
The estimated balance sheet took into account certain anticipated cash
flows and expenses and was thus considered to be a more accurate picture of the
Company's financial position at a date near the potential merger date. Some of
these anticipated cash flows included a partial writedown of inventory, the
expected decline in accounts receivable reflecting declining sales and the
continued negative cash flow and operating losses. Accordingly, these
projections reflected a $0.6 million reduction in the Company's equity from June
30, 1999. Based on conversations with the Company, RP Financial made certain
adjustments to the estimated balance sheet in the application of the component
value approach, to reflect estimated liquidation value adjustments for inventory
and property and equipment, which led to a negative adjustment to equity of
$0.365 million. In developing the estimate of net asset value, RP Financial also
considered the value of off balance sheet assets and the maximum potential value
of the estimated $4.5 million net operating loss carryforwards to an acquiror.
In view of no n-Vision product patents or trademarks, low barrier to entry by
competitors, the dependency on a limited number of suppliers for parts and
technology, the intensity of competition, the current financial condition,
limited customer base and the historical dependency on repeat orders from one
large customer, RP Financial attributed no value to off balance sheet items
other than the maximum potential value of the net operating loss carryforwards
to an acquiror through the 2019 expiration of the NOLs. The $148,000 estimated
value of the NOLs was computed as the net present value of the estimated annual
NOL usage until expiration. The estimated annual NOL usage was based on the
following accounting formula: fair market value of the Company (the merger
price) times the long term tax exempt bond rate (5.75% based on prevailing
interest rates) times the effective tax rate (38% federal and state tax rate).
In computing the NOLs value, RP Financial computed the maximum value of the NOLs
available to an acquiror, although there is no guarantee that an acquiror could
realize the full value. The net asset value per share was computed as the sum of
adjusted balance sheet net asset value and the NOLs value, or approximately
$1.212 million in the aggregate and $0.46 per share.
18
<PAGE>
Control Premium Approach. Pursuant to the control premium approach, RP
Financial determined the per share value by applying the average control premium
in sale of control transactions over the last 4 years to the recent per share
price of the Company. For purposes of this approach, per share prices of the
publicly traded companies were determined using the last 5 trading days before
the merger was announced and the Company's per share price was determined using
a 90 day period prior to the date of the Merger Agreement. In view of the
limited trading of n-Vision stock, RP Financial considered the last 5 trading
days to be a poor indicator of value and thus used a longer trading period. Over
the last 4 years, based on information published by Mergerstat, the average
control premium paid over the market price of publicly-traded companies has
ranged from a high of 44.7 percent in 1995 to a low of 32.5 percent in 1998,
averaging 37.85 percent for the four years. Based on this average control
premium and the average price of the Company's Common Stock over the previous 90
day period prior to the date of the Merger Agreement of approximately $0.18 per
share, the indicated control value per share was $0.24 per share.
Given the specialization of n-Vision's products, there are few
comparables. Therefore, RP Financial used a commonly accepted measure of control
premium. The sale of control transactions used in the analysis included
companies in many different industries. RP Financial did not make a downward
adjustment for n-Vision's pending short-term exhaustion of liquidity in applying
this approach.
ATS' and ATS Acquisitions' Purpose and Reasons for the Merger
The purpose of ATS for engaging in the transactions contemplated by the
Merger Agreement is for ATS to acquire all of the outstanding shares of Common
Stock of n-Vision. In determining to acquire such shares of Common Stock at this
time, ATS considered the following factors:
(i) the ability to expand its systems engineering and software offerings
to the Company's client base. Currently only 4% of ATS' revenue comes
from the private sector, ATS recognizes the importance of
diversifying its client base and believes that the Company's clients
will present a marketing opportunity. The private and public sectors
are experiencing a labor shortage of qualified and skilled engineers
and software professionals, ATS has nearly 900 such professionals and
has demonstrated the ability to attract and retain staff. The
Company's clients are experiencing the same labor shortage problems.
However, as these skills are not their main business focus, they
frequently turn to consulting firms to provide the needed engineering
and software skills. ATS is in a position to provide those skills.
(ii) the belief that the Company can be profitable as a private company
that does not have to comply with the typical costs associated with
being a public reporting company. Significant cost savings will
result from no longer having the requirement to file periodic reports
with the SEC, all of which take internal management effort and have
to be reviewed by the Company's legal counsel and independent
accountants. These reporting requirements also have significant
printing costs associated with them. Lastly the costs of auditing the
books and records of the Company will be reduced as a private entity.
(iii) the ability to market the Company's products to the federal
government. ATS' main source of revenue is supplying engineering and
software services to the federal government. Certain product models
of the Company's product line have applications that are and will
continue to be of interest to the federal government, however, to
date the Company has sold its product to the federal government
through prime contractors and not directly to the federal end user
community. ATS has demonstrated an ability to sell directly to the
federal end users, and by selling directly to the federal government
ATS believes that it will be able to generate an increase in revenue.
(iv) ATS' ability to expand its existing business into additional lines of
business. ATS' ability to expand the Company's products to the
federal government will allow ATS to market to areas of the federal
government to which it currently does not have a strong product
offering. The Company's products are particularly attractive to the
training and simulation segment of the federal government, especially
the U.S. Department of Defense. ATS currently has a small but growing
base of revenue with the U.S. Department of Defense, however with the
Company's products as a "door opener" to the training and simulation
segment, it believes that significant increases in U.S. Department of
Defense revenue can be attained.
19
<PAGE>
ATS believes that the above factors could not be achieved for n-Vision as
a public company due to the capital required and the risks of failure which may
not be acceptable for a public company. ATS will be required to provide
additional capital in order to successfully expand the Company's engineering and
software offerings, marketing and research and development of additional
products. As discussed above, the Company has been unable as a stand-alone
public company to raise capital to implement such product and marketing
expansions. In addition, existing capital at n-Vision is being depleted due to
the Company's current cash flow requirements and such expansion programs would
require more capital and time to implement.
After consideration of these various factors, ATS decided to make a
proposal to n-Vision to acquire for cash, through a merger, all of the
outstanding shares of Common Stock that it did not own at a price of $0.50 per
share, which represents a premium of 67% over the closing price of the Common
Stock on the OTC Bulletin Board on October 14, 1999, the date immediately prior
to the public announcement of the signing of the Merger Agreement. ATS proposed
to structure the transaction as a cash merger in order to transfer ownership of
the equity interest in the Company in a single transaction and provide the
shareholders other than ATS with prompt payment in cash in exchange for their
shares.
ATS has reviewed the factors which were considered by the Special
Committee and the Board of Directors of the Company and has concluded that the
terms of the Merger are fair to the unaffiliated shareholders. In reaching such
conclusion ATS believed that the all cash purchase price per share of Common
Stock would be attractive to shareholders in view of historical market prices
and that the requisite working capital was available to ATS to cover such price.
Such conclusion was also based on the review and knowledge of Management in
connection with the transactions and events described under "Special
Factors--Background of the Merger". ATS and ATS Acquisitions did not perform any
independent analysis of the factors considered by the Special Committee and
Board of Directors or of other factors not considered by the Special Committee
and Board of Directors such as liquidation value. ATS did not attach relative
weights to the factors considered in reaching its conclusions.
The unaffiliated shareholders should be aware that certain officers and
directors of ATS and ATS Acquisitions are also officers and directors of the
Company and have certain interests that are in addition to, or different from,
the interests of the unaffiliated shareholders. See "-Interests of Certain
Persons in the Merger; Conflicts of Interest." ATS considered these potential
conflicts of interest and based in part thereon, ATS' proposed offer was
conditioned on, among other things, the approval of the Merger by the Special
Committee and the receipt by the Special Committee of a fairness opinion from an
independent financial advisor.
ATS and ATS Acquisitions believe that the procedures used to approve the
Merger on behalf of the Company were fair to the unaffiliated shareholders. In
reaching this conclusion, ATS and ATS Acquisitions relied on (i) the creation of
a special committee consisting of non-employee directors of n-Vision to
negotiate the terms of the Merger Agreement; (ii) the engagement of RP Financial
to render an opinion to the effect that the consideration to be received by
shareholders in the Merger is fair to such shareholders from a financial point
of view, and (iii) the fact that the Merger Agreement did not preclude the Board
of Directors in the exercise of its fiduciary duties from accepting a bona fide
offer which is superior to the Merger Consideration.
Messrs. Lewis' and Rumsey's Purpose and Reasons for the Merger
Messrs. Lewis' and Rumsey's purpose for proposing the Offer and pursuing
the acquisition of n-Vision by ATS are to protect their business reputation and
that such an acquisition can be done by them in a manner that will provide them
tax advantages which permits them to offer a premium to the Company's market
price that may not be offered by a third party. With regard to their business
reputation, Messrs. Lewis and Rumsey would prefer to effect an acquisition at a
premium to market while the Company is still solvent than to liquidate the
Company in bankruptcy. Messrs. Lewis and Rumsey have reviewed the factors which
were considered by the Special Committee and the Board of Directors of the
Company and have concluded that the terms of the Merger are fair to the
unaffiliated shareholders. Messrs. Lewis and Rumsey, in their individual
capacity, did not perform any independent analysis of the factors considered by
the Special Committee and Board of Directors or of other factors not considered
by the Special Committee and Board of Directors such as liquidation value. In
making their determination, they also considered the fact the Merger
Consideration was based on the financial condition of the Company in October
1999, that the Company's financial condition would deteriorate over the length
of time required to complete the acquisition, and that the Merger Agreement does
not provide a mechanism whereby the Merger Consideration would be reduced as the
financial condition of the Company worsened.
20
<PAGE>
Messrs. Lewis and Rumsey believe that the procedures used to approve the
Merger on behalf of the Company were fair to the unaffiliated shareholders. In
reaching this conclusion, Messrs. Lewis and Rumsey relied on (i) the creation of
a special committee consisting of non-employee directors of n-Vision to
negotiate the terms of the Merger Agreement; (ii) the engagement of RP Financial
to render an opinion to the effect that the consideration to be received by
shareholders in the Merger is fair to such shareholders from a financial point
of view, and (iii) the fact that the Merger Agreement did not preclude the Board
of Directors in the exercise of its fiduciary duties from accepting a bona fide
offer which is superior to the Merger Consideration.
Certain Projections Provided to the Financial Advisor
In the normal course of business, n-Vision's management prepares internal
budgets, plans, estimates, forecasts or projections as to future revenues,
earnings or other financial information in order to be able to anticipate the
financial performance of n-Vision. It does not, as a matter of course, publicly
disclose these internal documents.
The Company provided financial projections to RP Financial in connection
with their review of the terms of the Merger Agreement. These projections
reflected management's best estimates and good faith judgments as to the future
performance of n-Vision and reflected a number of assumptions, including the
following material assumptions:
o a $200,000 writeoff of 75% of LCD parts;
o costs of the transaction were not included;
o includes only orders in hand as of August 31, 1999; and
o no further reduction in costs, etc. prior to closing of the
transaction.
The financial projections were subject to and prepared on the basis of
estimates, limitations, qualifications and assumptions, and involved judgments
with respect to, among other things, future economic, competitive and financial
and market conditions and future business decisions which may not be realized
and are inherently subject to significant business, economic, competitive
uncertainties, all of which are difficult to predict and many of which are
beyond n-Vision's control.
Cash Flow Estimate
Beginning Balance 09/01/1999 $941,521
A/R Collection.......................... $ 86,401
--------------
Open Orders............................. 195,330
A/P Payments............................ (62,000)
Payroll (4 Periods)..................... (55,682)
Payroll Taxes/Processing................ (5,002)
Benefits................................ (7,752)
Rent (Net).............................. (12,200)
Phone/Internet.......................... (2,990)
Eq. Leases.............................. (1,324)
Insurance............................... (2,666)
Mktg/R&D/Misc........................... (35,000)
Direct Costs............................ (90,000)
A/R not collected....................... (97,665)
Transaction Costs....................... (55,000)
Valuation Costs......................... (15,000)
Net Change.............................. $ (160,550)
--------------
Ending Balance 10/31/1999 $780,971
Pro Forma Balance Sheet
As of 10/30/1999
21
<PAGE>
ASSETS
Current Assets
Cash............................... $ 825,000
--------------
Accounts Receivable................ 115,000
Inventories........................ 600,000
Prepaid Expenses................... 60,000
Total Current Assets.................... 1,600,000
--------------
Net Property, Plant & Equipment......... 330,000
Other Assets............................ 4,000
--------------
Total Assets............................ $ 1,934,000
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities-ATS............. $ 120,000
--------------
Accounts Payable................... 75,000
Accrued Salary & Benefits.......... 70,000
Deferred Revenue/Warranty Cost..... 60,000
--------------
Total Current Liabilities............... 325,000
Long Term Liabilities-ATS............... 180,000
Stockholders' Equity
Common Stock-2,651,523 issued...... 26,515
Paid in Capital.................... 10,473,679
Accumulated Deficit................ (9,071,194)
---------------
Total Stockholders' Equity.............. 1,429,000
Total Liabilities Stockholders' Equity.. $ 1,934,000
--------------
Certain Effects of The Merger
As a result of the Merger, the entire equity interest in the Company will
be beneficially owned by ATS; the Company's shareholders will have no further
interest in the Company except their right to receive the Merger Consideration.
22
<PAGE>
In addition, the Common Stock will no longer be traded on the OTC Bulletin
Board and price quotations with respect to sales of shares in the public market
will no longer be available. The registration of the Common Stock under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") will be
terminated, and this termination will eliminate the Company's obligation to file
periodic financial and other information with the Securities and Exchange
Commission and will make most other provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) and the requirements of
furnishing a proxy or information statement in connection with shareholders'
meetings, no longer applicable.
The receipt of cash pursuant to the Merger will be a taxable transaction.
See "--Federal Income Tax Consequences."
Interests of Certain Persons in the Merger; Conflicts of Interest
In considering the recommendation of the Board with respect to the Merger,
shareholders should be aware that certain officers and directors of n-Vision
have interests in connection with the Merger that present them with actual or
potential conflicts of interest. The Special Committee and the Board were aware
of their conflicts and considered them among the other matters described under
"--Recommendation of the Special Committee and Board of Directors; Reasons for
the Merger." The members of the Special Committee will receive an aggregate
amount of $6,000 if the Merger is successfully consummated solely as a result of
their holdings of n-Vision securities. The members will receive no other
consideration upon consummation of the Merger.
The Special Committee
Mr. Ronald Wilgenbusch and Dr. Nelson Merritt, members of the Special
Committee, own zero and 2,000 shares of Common Stock, respectively. In addition,
as of November 4, 1999, Ronald Wilgenbusch holds options to acquire 22,500
shares of Common Stock, with exercise prices ranging from $0.25 to $1.00. Of
these options, options to acquire 20,000 shares are exercisable with an exercise
price of $0.25. The remaining options to acquire 2,500 shares have an exercise
price of $1.00 and will be treated on the same terms as all the other holders of
n-Vision stock options. See "The Merger Agreement - Treatment of n-Vision Stock
Options and Warrants."
The n-Vision Directors and Executive Officers
The members of the Board of Directors, other than the members of the
Special Committee, and executive officers of n-Vision own in the aggregate no
options and 1,256,289 shares of Common Stock and will receive a payment for
their shares of Common Stock in the aggregate amount of $628,144.50 upon
consummation of the Merger. Delmar Lewis and Claude Rumsey also beneficially own
77.7% and 17.3%, respectively of the outstanding shares of common stock of ATS
as of December 16, 1999. Further, Messrs. Lewis and Rumsey hold directorship and
officer positions with ATS and will continue to hold these positions after
consummation of the Merger. See "Management." The directors and officers of ATS
Acquisitions will become the directors and officers of n-Vision upon
consummation of the Merger. Any officers of n-Vision who are retained by ATS
will not be employed pursuant to an employment contract, but will be employed at
will.
Indemnification
The Merger Agreement provides that for a period of six (6) years after the
Effective Time, ATS and ATS Acquisitions will fulfill and honor in all respects
the indemnification obligations of n-Vision, to the fullest extent then
permitted under Delaware law or, if greater, pursuant to n-Vision's Certificate
of Incorporation and Bylaws, each as in effect immediately prior to the date of
the Merger Agreement, to those individuals who were directors, including the
members of the Special Committee, and executive officers of n-Vision at the
Effective Time. After the Merger, n-Vision's Certificate of Incorporation and
Bylaws will contain provisions reflecting such obligations for indemnification
and elimination of liability for monetary and such provisions will not be
amended, repealed or otherwise modified for a period of six (6) years from the
Effective Time in any manner that would adversely affect the rights of those
individuals who were directors and executive officers of n-Vision at the
Effective Time, unless such modification is required by law.
23
<PAGE>
Federal Income Tax Consequences
The following discussion summarizes the principal federal income tax
considerations relevant to the Merger. This discussion is based on currently
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to the holders of Common Stock as described herein. Special tax
consequences not described below may be applicable to particular classes of
taxpayers, including financial institutions, broker-dealers, persons who are not
citizens or residents of the United States or who are foreign corporations,
foreign partnerships or foreign estates or trusts as to the United States and
holders who acquired their stock through the exercise of an employee stock
option or otherwise as compensation.
THIS TAX DISCUSSION IS BASED UPON PRESENT LAW. EACH HOLDER OF COMMON STOCK
SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER TO SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES IN SUCH TAX
LAWS.
The receipt of the Merger Consideration by holders of Common Stock will be
a taxable transaction for federal income tax purposes. Each holder's gain or
loss per share will be equal to the difference between $0.50 and the holder's
basis per share in the Common Stock. Such gain or loss generally will be a
capital gain or loss provided that the holder held the Common Stock as a capital
asset. Capital gain or loss will be treated as long-term capital gain or loss if
the holder held the Common Stock for more than one year, and will be treated as
short-term capital gain or loss if the holder held the Common Stock for one year
or less.
A holder of Common Stock may be subject to backup withholding at the rate
of 31% with respect to the Merger Consideration received, unless the holder: (i)
is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (ii) provides a correct taxpayer
identification number ("TIN"), and otherwise complies with applicable
requirements of the backup withholding rules. To prevent the possibility of
backup federal income tax withholding, each holder must provide the Payment
Agent with his or her correct TIN by completing a Form W-9 or Substitute Form
W-9. A holder of Common Stock who does not provide ATS with his or her correct
TIN may be subject to penalties imposed by the Internal Revenue Service (the
"IRS"), as well as backup withholding. ATS (or its agent) will report to the
holders of Common Stock and the IRS the amount of any "reportable payments," as
defined in Section 3406 of the Code, and the amount of tax, if any, withheld
with respect thereto.
Neither the Company nor ATS will recognize gain or loss for tax purposes
as a result of the Merger.
Source of Funds
The aggregate consideration payable in the Merger is approximately
$1,275,762. ATS intends to finance the Merger by using its existing working
capital.
THE MERGER AGREEMENT
Parties to the Merger
The Company
The Company designs, develops, manufactures, and markets state-of-the-art
3D immersive displays for use in advanced visualization applications, products,
and systems for a variety of commercial, industrial, and military applications.
The Company offers a versatile product line, logical upgrade paths for current
systems, and customization services.
24
<PAGE>
The principal executive offices of the Company are located at 7680 Old
Springhouse Road, Madison Building, First Floor, McLean, Virginia 22102, and its
telephone number is (703) 506-8808. See "Business of the Company."
Advanced Technology Systems, Inc.
ATS, a Virginia corporation, is a privately held Company owned by Delmar
Lewis and Claude Rumsey. ATS and its subsidiaries provide innovative systems
engineering and software development solutions to government and commercial
clients worldwide. ATS supports full life cycle systems development, information
systems support, and integration for the following systems/ applications areas:
mainframe and client servers; database and data warehousing; web-enabling
systems; desktop architecture and commercial off-the-shelf integration; workflow
and imaging; and software maintenance and Year 2000 service.
The principal executive offices of ATS are located at 7915 Jones Branch
Road, 7th Floor, McLean, Virginia 22101, and its telephone number is (703)
506-0088.
ATS Acquisitions, Inc.
ATS Acquisitions is a newly formed Delaware corporation organized at the
direction of ATS for the sole purpose of effecting the Merger and has not
conducted any prior business.
The principal executive offices of ATS Acquisitions are located at 7915
Jones Branch Road, 7th Floor, McLean, Virginia 22101, and its telephone number
is (703) 506-0088.
General
The Merger Agreement provides that, subject to the approval of the Merger
by the shareholders of the Company and satisfaction of certain other conditions,
ATS Acquisitions will be merged with and into n-Vision and n-Vision will be the
surviving company. At the Effective Time, n-Vision's Certificate of
Incorporation and Bylaws will be amended to conform to the Certificate of
Incorporation and Bylaws of ATS Acquisitions in effect immediately prior to the
Effective Time. In addition, the directors and officers of ATS Acquisitions will
become the directors and officers of n-Vision upon consummation of the Merger.
All references and summaries of the Merger Agreement in this Proxy Statement are
qualified in their entirety by reference to the text of the Merger Agreement,
which is attached hereto as APPENDIX A.
Upon consummation of the Merger, the holders of outstanding Common Stock
as of the Record Date will be entitled to receive $0.50 in cash, without
interest, for each share of Common Stock owned by them. Under Delaware law,
appraisal rights are available for shares of any dissenting shareholder who
complies with the provisions of Section 262 of the DGCL. See "Rights of
Dissenting Shareholders." After the Merger, holders of Common Stock will possess
no other interest in or rights as shareholders of n-Vision.
Effective Time of the Merger and Payment for Shares
The Effective Time is currently expected to occur as soon as practicable
after the Special Meeting, subject to approval of the Merger Agreement at the
Special Meeting and satisfaction or waiver of the terms and conditions of the
Merger Agreement. Detailed instructions with regard to the surrender of stock
certificates, together with a letter of transmittal, will be forwarded to
shareholders by the Company's transfer agent, American Stock Transfer & Trust
Company (the "Payment Agent"), promptly following the Effective Time.
Shareholders should not submit their stock certificates to the Payment Agent
until they have received such materials. The Payment Agent will send payment of
the Merger Consideration to shareholders as promptly as practicable following
receipt by the Payment Agent of their stock certificates and other required
documents. No interest will be paid or accrued on the cash payable upon the
surrender of stock certificates. See "The Merger Agreement - Conversion of
Securities." Shareholders should not send any stock certificates to the Company
or the Payment Agent at this time.
25
<PAGE>
Treatment of n-Vision Stock Options and Warrants
Stock Options
ATS shall pay to each holder of an option which has been granted by the
Company to purchase shares of the Company's Common Stock, and which is
outstanding and exercisable but unexercised immediately prior to the Effective
Time, an amount in cash computed by multiplying (i) any positive difference
obtained by subtracting from (x) the per share amount of the Merger
Consideration and (y) the per share exercise price applicable to such option by
(ii) the number of shares of the Company's Common Stock subject to such option,
subject, with respect to each such holder, to the receipt by ATS of an
acknowledgment from such holder that such payment shall constitute consideration
for the termination and cancellation of such option. ATS shall make such
payments on the Effective Date. The Company agrees to take or cause to be taken
all action necessary so that each such option outstanding immediately after the
Effective Time as a result of the failure of the holder thereof to deliver the
acknowledgment described in the preceding sentence shall be converted into a
right to receive the amount described in the preceding sentence. The only person
who holds options with an exercise price that is less than the Merger
Consideration is Ronald Wilgenbusch.
Warrants
In the event that any of the Company's warrants to purchase shares of the
Company's Common Stock, exercise price $11.00 per share, are exercised and paid
for after the Effective Date and prior to their expiration, ATS shall pay to the
holder of such warrants an amount in cash computed by multiplying (x) the per
share amount of the Merger Consideration by (y) the number of shares of Common
Stock to be issued pursuant to such warrants, subject, with respect to each such
holder, to the receipt of or acknowledgement from such holder that such payment
shall constitute consideration for the termination and cancellation of such
warrants. Upon exercise, two warrants may be exchanged for one share of Common
Stock. Since the exercise price greatly exceeds the Merger Consideration, the
Company does not expect any warrants to be exercised.
Conditions
Each party's obligation to effect the Merger is subject to the
satisfaction of each of the following conditions at or prior to the Effective
Time:
(i) the Merger Agreement and the transactions contemplated therein
shall have been approved and adopted by the affirmative vote of
the holders of a majority of the outstanding shares of Common
Stock entitled to vote thereon in accordance with the DGCL; and
(ii) no party to the Merger Agreement shall be subject to any order,
decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the
Merger.
The obligations of n-Vision to effect the Merger are subject to the
satisfaction of each of the following conditions at or prior to the Effective
Time, unless waived by n-Vision (upon approval of the Special Committee):
26
<PAGE>
(i) the representations and warranties of the ATS and ATS
Acquisitions in the Merger Agreement shall be true and correct
on and as of the Effective Time, except as otherwise permitted
by the Merger Agreement;
(ii) ATS and ATS Acquisitions shall have performed or complied in
all material respects with all obligations required by the
Merger Agreement to be performed or complied with by them at or
prior to the Effective Time; and
(iii) ATS shall have delivered to n-Vision a certificate signed by an
officer of each of ATS and ATS Acquisitions certifying to the
effect of above clauses (i) and (ii).
The obligations of ATS and ATS Acquisitions to effect the Merger are
subject to the satisfaction of each of the following conditions at or prior to
the Effective Time, unless waived by ATS:
(i) the representations and warranties of n-Vision in the Merger
Agreement shall be true and correct on and as of the Effective
Time, except as otherwise permitted by the Merger Agreement;
(ii) n-Vision shall have performed or complied in all material
respects with all obligations, agreements and covenants
required by the Merger Agreement to be performed or complied
with by it on or prior to the Effective Time;
(iii) n-Vision shall have delivered to ATS a certificate signed by an
officer of n-Vision certifying to the effect of above clauses
(i) and (ii);
(iv) n-Vision shall have delivered to ATS certified copies of the
resolutions or documents of like import evidencing the
authorization of the Merger Agreement and the consummation of
the transactions contemplated thereby by n-Vision's Board of
Directors and shareholders;
(v) n-Vision shall have furnished ATS with such certificates of
n-Vision's officers or others and such other documents to
evidence the conditions set forth in the Merger Agreement as
ATS may reasonably request; and
(vi) n-Vision shall be responsible for making all filings and/or
submitting all returns with respect to any state and/or local
real estate transfer or gains taxes that are required to be
filed before the Effective Time. n-Vision also agrees to pay
any expenses relating to the preparation or filing of such
returns.
Representations and Warranties
n-Vision has made representations and warranties in the Merger Agreement
regarding, among other things, its organization and good standing, authority to
enter into the transaction, its capitalization, requisite governmental and other
consents and approvals, title to its assets, the content and submission of forms
and reports required to be filed by n-Vision with the Securities and Exchange
Commission, and its receipt of a fairness opinion from RP Financial.
ATS and ATS Acquisitions have made representations and warranties in the
Merger Agreement regarding, among other things, their organization and good
standing, their capitalization, their authority to enter into the transaction,
adequacy of their financial resources to pay the Merger Consideration and the
absence of any pending claims, actions or proceedings that would materially
hinder or delay consummation of the Merger.
The representations and warranties of the parties in the Merger Agreement
will expire upon consummation of the Merger. After such expiration none of the
parties to the Merger Agreement or their respective officers, directors or
principals will have any liability for any such representations or warranties.
Covenants
In the merger agreement, among other things, n-Vision has agreed that:
(i) during the period from the date of the Merger Agreement and continuing
until the termination of the Merger Agreement, it will not solicit, initiate or
knowingly encourage or facilitate any inquiries or the making of any proposal
that constitutes or may reasonably be expected to lead to any acquisition
proposal, or enter into any negotiations or discussions in order to obtain or
endorse an acquisition proposal, subject to certain limitations including, but
not limited to, n-Vision's obligation to comply with its fiduciary duties to its
shareholders;
(ii) from the date of the Merger Agreement through the Effective Time, it
will provide ATS with reasonable access to its properties, assets, financial and
operating data and information, books and records and personnel, and it will
agree to keep confidential any confidential information furnished by any other
party to the Merger Agreement;
(iii) it will use reasonable best efforts to exempt or continue to exempt
ATS, the Merger Agreement and the Merger from any antitakeover provisions in its
Certificate of Incorporation and Bylaws and the provisions of any federal or
state antitakeover laws;
27
<PAGE>
(iv) subject to the terms and conditions of the Merger Agreement, it shall
use all reasonable efforts to take all actions necessary, proper and advisable
to consummate the transactions contemplated by the Merger Agreement, including
obtaining all necessary extensions, waivers, consents and approvals from all
applicable governmental entities and regulatory agencies;
(v) it shall issue a joint release with ATS announcing the Merger
Agreement and thereafter consult with ATS in issuing any press releases or
similar public disclosure with respect to the Merger transactions and in making
any filings with any governmental entity, national securities exchange or
association with respect thereto;
(vi) it will give prompt notice to ATS and ATS Acquisitions of (a) any
event or condition that would cause any of its representations or warranties set
forth in the Merger Agreement not to be true and correct in all material
respects as of the date of the Merger Agreement or as of the Effective Time, or
any of its obligations set forth in the Merger Agreement required to be
performed at or prior to the Effective Time not to be performed in all material
respects at or prior to that time; and (b) any action of a third party of which
it receives notice that might reasonably be expected to prevent or materially
delay the consummation of the Merger;
(vii) it will take all action necessary, in accordance with applicable law
and its Certificate of Incorporation and Bylaws, to convene a Special Meeting of
Shareholders to vote on the approval and adoption of the Merger Agreement. In
addition, its Board of Directors, subject to its fiduciary duties to the
shareholders, shall recommend at the Special Meeting that the shareholders
approve and adopt the Merger Agreement and shall use its reasonable best efforts
to solicit such approvals; and
(viii) as soon as practicable after the date of the Merger Agreement, it
will prepare a proxy statement, reasonably acceptable to ATS, to take
shareholder action on the Merger and the Merger Agreement, file the proxy
statement with the SEC, respond to SEC comments and thereafter mail the proxy
statement to shareholders.
In addition, ATS and ATS Acquisitions agree that:
(i) it will give prompt notice to n-Vision of (a) any event or condition
that would cause any of its representations or warranties set forth in the
Merger Agreement not to be true and correct in all material respects as of the
date of the Merger Agreement or as of the Effective Time, or any of its
obligations set forth in the Merger Agreement required to be performed at or
prior to the Effective Time not to be performed in all material respects at or
prior to that time; and (b) any action of a third party of which it receives
notice that might reasonably be expected to prevent or materially delay the
consummation of the Merger; and
(ii) from and after the Effective Time through the sixth anniversary of
the Effective Date, they will on a joint and several basis agree to provide
indemnification for each present and former director of n-Vision; and
(iii) they will furnish n-Vision with all information that n-Vision shall
reasonably request in connection with its preparation of the proxy statement in
connection with the Merger.
Indemnification
From and after the Effective Time through the sixth anniversary of the
Effective Date, ATS and ATS Acquisitions on a joint and several basis will
indemnify and hold harmless each present and former director and officer of
n-Vision (each, an "Indemnified Party"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, and whether or not the Indemnified Party is a party thereto,
arising out of matters existing or occurring at or prior to the Effective Time
(including the transactions contemplated by the Merger Agreement), whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent then permitted under Delaware law or, if greater, that n-Vision would
have been permitted under its Certificate of Incorporation or Bylaws in effect
as of the date of the Merger Agreement. After the Merger, n-Vision's Certificate
of Incorporation and Bylaws will contain provisions reflecting such obligations
for indemnification and elimination of liability for monetary and such
provisions will not be amended, repealed or otherwise modified for a period of
six (6) years from the Effective Time in any manner that would adversely affect
the rights of those individuals who were directors and executive officers of
n-Vision at the Effective Time, unless such modification is required by law.
28
<PAGE>
Termination, Amendment and Waiver
Termination
Notwithstanding any other provision of the Merger Agreement, the Merger
Agreement may be terminated, and the Merger abandoned, prior to the Effective
Time, either before or after its approval by the shareholders of the Company:
(a) by the mutual consent of ATS and the Company in a written instrument
if the Board of Directors of each so determines by vote of a majority of the
members of its respective entire board;
(b) by ATS or the Company (provided that the party seeking termination is
not then in material breach of any representation, warranty, covenant or other
agreement contained in the Merger Agreement), in the event of (i) a failure to
perform or comply by the other party with any covenant or agreement of such
other party contained in the Merger Agreement, which failure or non-compliance
is material in the context of the transactions contemplated by the Merger
Agreement, or (ii) any inaccuracies, omissions or breach in the representations,
warranties, covenants or agreements of the other party contained in the Merger
Agreement the circumstances as to which either individually or in the aggregate
have, or reasonably could be expected to have, a material adverse effect on such
other party; in either case which has not been or cannot be cured within 30
calendar days after written notice thereof is given by the party seeking to
terminate to such other party;
(c) by ATS or the Company by written notice to the other party if either
(i) any approval, consent or waiver of a governmental authority required to
permit consummation of the transactions contemplated hereby shall have been
denied or (ii) any governmental authority of competent jurisdiction shall have
issued a final, unappealable order enjoining or otherwise prohibiting
consummation of the transactions contemplated by the Merger Agreement, provided,
however, that no party shall have the right to terminate the Merger Agreement if
such denial or request or recommendation for withdrawal shall be due to the
failure of the party seeking to terminate the Merger Agreement to perform or
observe the covenants and agreements of such party set forth herein;
(d) by ATS, if the Board of Directors of the Company does not publicly
recommend in the Proxy Statement that the Company's shareholders approve and
adopt the Merger Agreement or if, after recommending in the Proxy Statement that
shareholders approve and adopt the Merger Agreement, the Board of Directors of
the Company shall have withdrawn, modified or amended such recommendation in any
respect materially adverse to ATS, or the Special Meeting is held and the
holders of Common Stock shall fail to approve and adopt the Merger Agreement; or
(e) by ATS by written notice to the Company in the event that there has
occurred since the date of the Merger Agreement an event, condition, change or
occurrence which, individually or in the aggregate, has had or could reasonably
be expected to result in a material adverse effect on the Company; provided that
ATS shall have given the Company thirty (30) calendar days prior written notice
of such termination, and the Company shall not have remedied such event,
condition, change or occurrence by the end of such thirty-day period.
Amendment
The Merger Agreement may be amended by ATS and the Company, by or pursuant
to action taken by their respective boards of directors, at any time before or
after approval of the Merger Agreement by the shareholders of the Company but,
after such approval, no amendment shall be made which reduces the amount or
changes the form of the Merger Consideration or which in any way materially
adversely affects the rights of such shareholders, without the further approval
of such shareholders. The Merger Agreement may not be amended except by an
instrument in writing specifically referring to the Amendment provision of the
Merger Agreement and signed on behalf of each of the Company and ATS.
29
<PAGE>
Waiver
At any time prior to the Effective Date, ATS and ATS Acquisitions, on the
one hand, and the Company, on the other hand, may (i) extend the time for the
performance of any of the obligations or other acts of the other, (ii) waive any
inaccuracies in the representations and warranties of the other contained in the
Merger Agreement or in any documents delivered pursuant to the Merger Agreement
and (iii) waive compliance by the other with any of the agreements or conditions
contained in the Merger Agreement which may legally be waived. Any agreement on
the part of a party to the Merger Agreement to any such extension or waiver
shall be valid only if set forth in an instrument in writing specifically
referring to the Waiver provision in the Merger Agreement and signed on behalf
of such party.
Accounting Treatment
The merger will be accounted for by ATS under the purchase method of
accounting in accordance with generally accepted accounting principles whereby
the value of the consideration paid in the merger will be allocated based on the
estimated fair values of the assets acquired and liabilities assumed at the
Effective Date.
Pro Forma Financial Information
Pro forma financial information has not been included in this proxy
solicitation because the Public Stockholder are receiving cash consideration
only and will not retain or receive a continuing interest in the Company's
business after the merger.
Conduct of the Business of the Company if the Merger is Not Consummated
If the Merger is not consummated, the Board of Directors expects that the
Company's current management may have no alternative other than to liquidate to
Company.
Conversion of Securities
At the Effective Time, subject to the terms, conditions and procedures set
forth in the Merger Agreement, each share of Common Stock issued and outstanding
immediately prior to the Effective Time (other than the Dissenting Shares,
shares held in treasury by n-Vision and shares held by ATS) will, by virtue of
the Merger, be automatically converted into the right to receive the Merger
Consideration. As of the Effective Time, shares held in treasury by n-Vision and
shares held by ATS, by virtue of the Merger and without any action on the part
of the holders, will no longer be outstanding and will be canceled and retired
and will cease to exist. Each holder of a stock certificate formerly
representing any shares (other than the Dissenting Shares, shares held in
treasury by n-Vision and shares held by ATS) will after the Effective Time cease
to have any rights with respect to such shares other than the right to receive
the Merger Consideration for such shares upon surrender of the stock
certificate. Shares of common stock of ATS Acquisitions issued and outstanding
immediately prior to the Effective Time shall become shares of the surviving
Company and shall thereafter constitute all the issued and outstanding shares of
n-Vision.
No interest will be paid or accrued on the amount payable upon the
surrender of any stock certificate. Payment to be made to a person other than
the registered holder of the stock certificate surrendered is conditioned upon
the stock certificate so surrendered being properly endorsed and otherwise in
proper form for transfer, as determined by the Payment Agent. Further, the
person requesting such payment will be required to pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the stock certificate surrendered or establish to the satisfaction of
the Payment Agent that such tax has been paid or is not payable. Eighteen (18)
months following the Effective Time, ATS may require the Payment Agent to
deliver to it any funds (including any interest received with respect thereto)
made available to the Payment Agent which have not been disbursed to holders of
stock certificates formerly representing shares outstanding prior to the
Effective Time. After such time holders of n-Vision stock certificates will be
entitled to look to ATS only as general creditors with respect to cash payable
upon due surrender of their stock certificates. Notwithstanding the foregoing,
neither the Payment Agent nor any party to the Merger Agreement will be liable
to any holder of stock certificates formerly representing shares for any amount
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law.
30
<PAGE>
Transfer of Shares
Shares of Common Stock will not be transferred on the stock transfer books
at or after the Effective Time. If certificates representing such shares are
presented to n-Vision after the Effective Time, such shares will be canceled and
exchanged for the Merger Consideration.
Regulatory Approvals
No federal or state regulatory approvals are required to be obtained that
have not already been obtained, nor any regulatory requirements complied with,
in connection with the consummation of the Merger by any party to the Merger
Agreement, except for (i) the requirements of the DGCL in connection with
shareholder approvals and consummation of the Merger and (ii) the requirements
of the federal securities laws.
Expenses of the Merger
The parties have agreed to pay their own costs and expenses in connection
with the Merger Agreement and the transactions contemplated thereby. Assuming
the Merger is consummated, the estimated costs and fees in connection with the
Merger and the related transactions, which will be paid by n-Vision are as
follows:
Cost or Fee Estimated Amount
----------- ----------------
Financial advisory fees........................ $ 15,000
Legal fees..................................... 85,000
Accounting fees................................ 15,000
Printing and mailing fees...................... 15,000
Commission filing fees......................... 256
Miscellaneous.................................. 2,500
----------
$ 132,756
RIGHTS OF DISSENTING SHAREHOLDERS
Under the DGCL, record holders of shares of Common Stock who follow the
procedures set forth in Section 262 and who have not voted in favor of the
Merger Agreement will be entitled to have their shares of Common Stock appraised
by the Court of Chancery of the State of Delaware and to receive payment of the
"fair value" of such shares together with a fair rate of interest, if any, as
determined by such court. The "fair value" as determined by the Delaware court
is exclusive of any element of value arising from the accomplishment or
expectation of the Merger. The following is a summary of certain of the
provisions of Section 262 of the DGCL and is qualified in its entirety by
reference to the full text of Section 262, a copy of which is attached hereto as
Appendix C.
Under Section 262, where a merger agreement is to be submitted for
approval and adoption at a meeting of shareholders, as in the case of the
Special Meeting, not less than 20 calendar days prior to the meeting, the
Company must notify each of the holders of Common Stock at the close of business
on the Record Date that such appraisal rights are available and include in each
such notice a copy of Section 262. This Proxy Statement constitutes such notice.
Any shareholder wishing to exercise appraisal rights should review the following
discussion and Appendix C carefully because failure to timely and properly
comply with the procedures specified in Section 262 will result in the loss of
appraisal rights under the DGCL.
A holder of shares of Common Stock wishing to exercise appraisal rights
must deliver to the Company, before the vote on the approval and adoption of the
Merger Agreement at the Special Meeting, a written demand for appraisal of such
holder's shares of Common Stock. Such demand will be sufficient if it reasonably
informs the Company of the identity of the shareholder and that the shareholder
intends thereby to demand the appraisal of his shares. A proxy or vote against
the Merger Agreement will not constitute such a demand. In addition, a holder of
shares of Common Stock wishing to exercise appraisal rights must hold of record
such shares on the date the written demand for appraisal is made and must
continue to hold such shares through the Effective Time.
31
<PAGE>
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record fully and correctly, as the holder's name appears on the stock
certificates. Holders of Common Stock who hold their shares in brokerage
accounts or other nominee forms and wish to exercise appraisal rights should
consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by such nominee. All written demands for
appraisal of Common Stock should be sent or delivered to Claude H. Rumsey, Jr.,
Secretary, n-Vision, Inc., 7680 Old Springhouse Road, First Floor, McLean,
Virginia 22102, so as to be received before the vote on the approval and
adoption of the Merger Agreement at the Special Meeting.
If the shares of Common Stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the demand should be
made in that capacity, and if the shares of Common Stock are owned of record by
more than one person, as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of a holder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the agent
is agent for such owner or owners. A record holder such as a broker holding
Common Stock as nominee for several beneficial owners may exercise appraisal
rights with respect to the Common Stock held for one or more beneficial owners
while not exercising such rights with respect to the Common Stock held for other
beneficial owners; in such case, the written demand should set forth the number
of shares as to which appraisal is sought and where no number of shares is
expressly mentioned the demand will be presumed to cover all Common Stock held
in the name of the record owner.
Within 10 calendar days after the Effective Time, the Company, as the
Surviving Company in the Merger, must send a notice as to the effectiveness of
the Merger to each person who has satisfied the appropriate provisions of
Section 262 and who has not voted in favor of the Merger Agreement. Within 120
calendar days after the Effective Time, the Company, or any shareholder entitled
to appraisal rights under Section 262 and who has complied with the foregoing
procedures, may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares of all such shareholders. The
Company is not under any obligation, and has no present intention, to file a
petition with respect to the appraisal of the fair value of the shares of Common
Stock. Accordingly, it is the obligation of the shareholders to initiate all
necessary action to perfect their appraisal rights within the time prescribed in
Section 262.
Within 120 calendar days after the Effective Time, any shareholder of
record who has complied with the requirements for exercise of appraisal rights
will be entitled, upon written request, to receive from the Company a statement
setting forth the aggregate number of shares of Common Stock with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such statement must be mailed within 10 calendar days
after a written request therefor has been received by the Company.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the shareholders
entitled to appraisal rights and will appraise the "fair value" of the shares of
Common Stock, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Holders considering
seeking appraisal should be aware that the fair value of their shares of Common
Stock as determined under Section 262 could be more than, the same as or less
than the amount per share that they would otherwise receive if they did not seek
appraisal of their shares of Common Stock. The Delaware Supreme Court has stated
that "proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered in the appraisal proceedings. In addition, Delaware courts have
decided that the statutory appraisal remedy, depending on factual circumstances,
may or may not be a dissenter's exclusive remedy. The Court will also determine
the amount of interest, if any, to be paid upon the amounts to be received by
persons whose shares of Common Stock have been appraised. The costs of the
action may be determined by the Court and taxed upon the parties as the Court
deems equitable. The Court may also order that all or a portion of the expenses
incurred by any holder of shares of Common Stock in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts used in the appraisal proceeding, be charged pro
rata against the value of all the shares of Common Stock entitled to appraisal.
The Court may require shareholders who have demanded an appraisal and who
hold Common Stock represented by certificates to submit their certificates of
Common Stock to the Court for notation thereon of the pendency of the appraisal
proceedings. If any shareholder fails to comply with such direction, the Court
may dismiss the proceedings as to such shareholder.
32
<PAGE>
Any shareholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
of Common Stock subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of shares of Common Stock as of
a date prior to the Effective Time).
If any shareholder who demands appraisal of shares under Section 262 fails
to perfect, or effectively withdraws or loses, the right to appraisal, as
provided in the DGCL, the shares of Common Stock of such holder will be
converted into the right to receive the Merger Consideration in accordance with
the Merger Agreement, without interest. A shareholder will fail to perfect, or
effectively lose, the right to appraisal if no petition for appraisal is filed
within 120 calendar days after the Effective Time. A shareholder may withdraw a
demand for appraisal by delivering to the Company a written withdrawal of the
demand for appraisal and acceptance of the Merger, except that any such attempt
to withdraw made more than 60 calendar days after the Effective Time will
require the written approval of the Company. Once a petition for appraisal has
been filed, such appraisal proceeding may not be dismissed as to any shareholder
without the approval of the Court.
CONDUCT OF N-VISION'S BUSINESS AFTER THE MERGER
ATS is continuing to evaluate n-Vision's business, assets, practices,
operations, properties, corporate structure, capitalization, management and
personnel and discuss what changes, if any, will be desirable. ATS intends, at
least initially, to operate n-Vision as a wholly owned subsidiary of ATS,
continuing to focus on the 3D immersive display market in commercial, industrial
and military applications. Given its strength and experience as a provider of
systems engineering and software development solutions to the federal
government, ATS expects to market n-Vision's products directly to the federal
government and to market ATS' products and services to n-Vision's clients.
BUSINESS OF THE COMPANY
General
The Company is a manufacturer of 3D immersive displays for use in advanced
visualization applications, products, and systems for a variety of commercial,
industrial and military applications, with products that are marketed worldwide,
but principally to customers in North America, Europe, and the Pacific Rim. At
the beginning of the 1996 fiscal year, the Company was focused on the Datavisor
10x, a high performance Head Mounted Display System (HMD). During 1996, the
Company completed and began marketing the second generation HMDs, the
DatavisorHiRes and the Datavisor VGA. The Datavisor VGA included new features
and utilizes special electronics to address the lower resolution needs of the
less powerful workstations and personal computers that operate in the VGA
environment. During 1996, the Company also completed the development of the
Virtual Binoculars, a hand-held display device available in both a
high-resolution format and a VGA format. This product was aimed at the potential
market in military and ship training systems. In the third quarter of 1996, the
Company introduced the Datavisor 80, which maintains high-resolution capability
but offers an expanded field of view, up to 120 degrees. The first model was
delivered to NASA in November 1996 and a second unit was delivered in early
January 1997.
During the 1997 fiscal year, the Company focused on manufacturing and
marketing the seven high performance display devices developed in prior years.
These included the DatavisorHiRes and VGA products, the Datavisor 80 HiRes (high
resolution) and VGA Virtual Binoculars, which garnered publicity when they were
used by the Jet Propulsion Laboratory to view the Mars terrain in stereo. In the
first quarter of the 1997 fiscal year, the Company concluded an engineering
contract with a subsidiary of The Walt Disney Company to deliver its Viewport
HMD product. This $476,000 effort led to a $1.25 million order, which was
delivered in 1998.
33
<PAGE>
In its attempt to broaden its customer base by expanding its product lines
to offer lower-priced products, the Company introduced the Datavisor LCD and
Virtual Binoculars LCD in 1998. The Company's first shipments of the Datavisor
LCD, a lightweight HMD, offered for just under $10,000, were in the fourth
quarter of 1998. The Company's latest version of its Virtual Binoculars, the
Virtual Binoculars LCD, employs LCD technology to offer true VGA resolution at
an affordable cost. The Company also introduced the Datavisor NVG in 1998. The
Datavisor NVG, high-resolution simulated night vision goggles, is an adaptation
of the Company's core CRT (cathode ray tube) technology. The Datavisor NVG
goggles are already being used by the Air Force to produce high-fidelity,
low-cost night vision simulation that enables mission training. These new
products were focused on bringing the Company closer to competition with the
virtual reality products of large consumer electronics companies such as Sony.
During the third quarter of 1999, the decision was made to cease
manufacturing and production of the Datavisor LCD. It was determined that this
product could not be manufactured cost-effectively in spite of the Company's
best efforts to redesign the product using less expensive parts. The Datavisor
LCD was unable to generate customer interest and failed to compete with similar,
lower-priced products on the market.
During the same quarter of 1999, the VB-30 Hand Held Viewer ("VB-30") was
introduced at an industry trade show. Based on Sony's LDI-100B series of head
mount displays, the VB-30 features high resolution in an ergonomic housing that
may be held freely or mounted on a tripod. Priced at $4,000, the VB-30 is a
cost-effective display solution for a variety of visualization or virtual
reality applications. The VB-30 is also compatible with a wide range of video
and computer input formats. Applications for the device include simulators that
require a substitute for real binoculars (e.g., air traffic control, ship
handling and aircraft identification), medical imaging, telepresence, public
exhibits that require unassisted use of immersive displays, and
workstation-based virtual reality applications.
The Company has 13 employees, all of whom are full-time employees. The
Company is not unionized. During 1999, one person left the Company and has
continued to work with the Company on a consulting basis. The Company feels its
relations with its employees are good.
The Company continues to aggressively promote its products in
international markets by enlisting resellers such as Deneb Robotics, Inc.,
Immersion S.A., Nihon Binary of Japan, Solidray Co. Ltd., Virtual Presence Ltd.
and Virtual Reality Technologies Gmbh of Germany. The Company has sought
representation overseas to reduce demonstration expenses and other marketing
costs. Demonstrations are critical to sales success, and maintaining
relationships with organizations in Europe and Japan have been important in
reaching these markets with timely responses. Each distributor is trained in the
use of the Company's products.
The United States market has been characterized by direct selling and
sales of the Company's products to integrators that are using the products as a
component of or in support of various programs. While corporate and educational
sales have tended to be direct sales after demonstration, integrators often must
have the products demonstrated or integrated for the final customer, which has
often been the U.S. Government.
The Company extends sales terms of net 30 days. Overseas sales are quoted
in U.S. Dollars to reduce currency risk. The Company grants distributors a right
to return products, within limits. During the past fiscal year no products sold
to distributors have been returned. U.S. Government sales often take longer to
collect due to the bureaucratic nature of the U.S. Government and the extra
approval channels usually encountered. All receivables due from the U.S.
Government to date have been collected.
The major suppliers for the Company's products are: Brimar Ltd. of England
and Lexel Imaging Systems, Inc. for high resolution miniature cathode ray tubes.
The supply was critically low in late 1997 due to a tube delivery requiring
correction and slowed delivery of products at year end. As a result, the Company
dropped a supplier and added Lexel to alleviate these concerns. Other important
suppliers include Vivitek Ltd., a Taiwan based manufacturer of electronics
components which has recently been acquired by Delta Electronics, Inc., and Apex
Precision, Inc., a local company that supplies machined parts as required. The
Company has excellent relationships with these suppliers, and expects no change
in the relationships.
34
<PAGE>
The Company's customers are diverse and none by itself is material to the
Company except for a subsidiary of The Walt Disney Company, which accounted for
49% of total revenue in 1998. The U.S. Government is internally diverse with
sales to the U.S. Army, U.S. Navy, NASA, and the U.S. Air Force. The Company has
no contracts subject to renegotiation with the U.S. Government.
During 1996 and 1997, the Company entered the high-value immersive display
market, which is dominated by emerging commercial uses of head-mounted displays
in large corporations such as are in the automotive and aerospace industries and
the U.S. Government. The use of the products has moved swiftly in the automotive
industry, as highly sophisticated ergonomic design models can be exercised using
virtual driving and viewing. The aerospace market is divided into the military
and civilian training applications for pilots and the design application market
developing now as the automotive market developed in 1995 and 1996. The military
services of Europe and the United States are experimenting with mission
rehearsal systems, sighting systems, and other training applications. The
medical market is a high-value developing market, but developing slowly.
Inquiries are now being received as virtual reality demonstrations at medical
conventions are stimulating awareness of potential applications. This market has
potential as high resolution and quality are essential to the success of that
type of business. Geographically, the markets in Europe and Japan are developing
and evolving, with the European market ahead of the rest of the world. The
Company has five distributors in Europe and four in Asia. The Company's major
competitor for high-end federal systems and military applications is Kaiser
Electro-Optics, Inc. Commercial competitors include Fakespace, Inc. and Virtual
Research Systems Inc.
The Company is not required to obtain government approval for any of its
products, and there are no restricting regulations concerning the products. The
Company has completed certifications evidencing compliance with European EMC
Directive 89/33EEC (CE Mark) which is required for the sale of products to
non-technical users in the European market.
All research and development activities and related costs are treated as
normal operating expenses of the Company in the period they are incurred.
Properties
(a) The Company leases approximately 15,000 square feet for its
headquarters and operations in facilities located at 7680 Old Springhouse Road,
Madison Bldg., First Floor, McLean, Virginia 22102. The lease term is three (3)
years and will expire on February 29, 2000. The lease requires the Company to
pay certain customary property taxes and operating expenses. The Company pays
$9.00 per square foot for the leased space with a 3% rent increase per year.
The Company subleases approximately 43.4% (approximately 6,515 square
feet) of the space to three subtenants.
35
<PAGE>
MARKET PRICES OF COMMON STOCK AND DIVIDENDS
The Common Stock and Warrants are traded on the OTC Bulletin Board
(symbols: NVSN and NVSNW). The following table sets forth, for the periods
indicated, the high and low bid prices of the Company's Common Stock as provided
by Tradeline via WestLaw, adjusted for the one-for-two reverse split effected in
November 1998.
<TABLE>
<CAPTION>
Common Stock Common Stock Warrants Warrants
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1997
First Quarter................................ $1.63 $0.81 $0.19 $0.06
Second Quarter............................... 1.31 0.75 0.09 0.06
Third Quarter................................ 7.00 0.81 0.41 0.03
Fourth Quarter............................... 5.63 1.88 0.41 0.13
1998
First Quarter................................ $3.62 $1.50 $0.22 $0.06
Second Quarter............................... 3.00 1.50 0.28 0.09
Third Quarter................................ 3.25 1.44 0.22 0.09
Fourth Quarter............................... 1.75 0.19 0.19 0.02
1999
First Quarter................................ $0.38 $0.13 $0.09 $0.02
Second Quarter............................... 0.38 0.13 0.09 0.02
Third Quarter................................ 0.30 0.16 0.08 0.02
Fourth Quarter (through December [__], 1999).
</TABLE>
On October 14, 1999, the last trading day prior to the public announcement
of the proposed Merger, the high, low and closing sales price per share of
Common Stock was $0.30, $0.15 and $0.30, respectively. On December [_____],
1999, the last trading day prior to the printing of this Proxy Statement, the
closing price per share of Common Stock was $[_____].
At November 4, 1999, there were 2,651,523 shares of Common Stock
outstanding. There were 26 holders of record of Common Stock and 10 holders of
record of the warrants.
The Company has not paid any cash dividends on its Common Stock during the
past three years. Company has agreed not to pay any dividends on the Common
Stock prior to the Effective Time.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
Some statements in this Management's Discussion and Analysis contain
forward-looking information that involve a number of risks and uncertainties,
the possible realization of which could have material adverse effects on the
Company's operating results. Factors that may cause actual results to differ
materially include: development of new products, and rapid change in technology
that may displace products sold by the Company; the highly competitive market in
which the Company operates; dependence upon a limited number of suppliers for
product components, fluctuation in the Company's quarterly results of operations
due to the timing of orders from customers; and other risk factors listed in the
Company's SEC filings including but not limited to the Annual Report to
Shareholders for the year ended December 31, 1998.
Financial Condition
Nine Months Period Ended September 30, 1999
For the nine months ended September 30, 1999, the Company reported cash
and cash equivalents of $787,780, a 53% decrease from December 31, 1998 when the
Company reported cash and cash equivalents of $1,669,302. This decrease is due
to the lower level of revenue and continued losses in the first nine months of
the year. Accounts receivable at September 30, 1999 was $148,395, a decrease of
37% from the December 31, 1998 balance of $236,454, due to the decreased sales.
Inventories decreased by 41% to $571,046 from $974,099 at December 31, 1998.
This decrease is due to a one-time write off of obsolete inventory of $234,509
during the third quarter. This write off was based on the decision to
discontinue the marketing and production of the Datavisor LCD due to the
continuing unsuccessful attempts to manufacture the product cost-effectively to
compete with lower-priced competing products. The result was a lack of customer
interest in the Datavisor LCD. Net Property and Equipment decreased by 41% from
$420,049 at December 31, 1998 to $248,739 at September 30, 1999. This decrease
is the result of current year depreciation rates and also the associated write
off all Datavisor LCD demonstration units with a net value of $64,159. Current
liabilities decreased by 58% to $272,266 on September 30, 1999 from $648,948 on
December 31, 1998. This decrease is attributable to the decrease in accounts
payables and deferred revenues and accrued warranty costs. Accounts payable
decreased by 84% to $57,072 on September 30, 1999 from $359,561 on December 31,
1998. The higher accounts payables at December 31, 1998 was a result of
inventory purchases made at the end of 1998 that were paid in the first quarter
of 1999. Deferred revenue and accrued warranty costs decreased by 72% to $28,917
from $102,432 at December 31, 1998. This decrease is attributable to the
decrease in sales during 1999 and the expiration of extended warranties. The
long-term portion of the unsecured note payable to ATS decreased by 25% during
the past nine months to $180,000. The outstanding balance of this loan as of
September 30, 1999 was $300,000 with interest due on principal outstanding of 8%
per annum. Principal payments of $60,000 are payable twice each year in June and
December. Annual maturities of this note are $120,000, with the final payment to
be made in December 2001.
Results of Operations
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998
For the three months ended September 30, 1999, the Company reported
revenue of $252,638, a 42% decrease compared to the same period ended September
30, 1998 when the Company reported revenue of $437,820. The Company's 1998 level
of revenue was primarily attributable to the delivery of display systems to a
subsidiary of The Walt Disney Company, which was completed in 1998. The
Company's gross margin on sales was (58)% in the third quarter of 1999 compared
to 51% in the third quarter of 1998. This decrease in gross margin is due to a
one-time charge off of obsolete inventory of $234,509 during the third quarter
of 1999. This write-off was based on the decision to discontinue the marketing
and production of the Datavisor LCD due to continued unsuccessful attempts to
manufacture the product cost-effectively to compete with lower-priced competing
products. As of September 30, 1999 the Company had a backlog of undelivered
products and services of approximately $156,753.
Operating expenses for the three months ended September 30, 1999 increased
to $498,606 when compared to the same three-month period in 1998 where operating
expenses were $493,657. The increase in operating expenses was primarily the
result of the one time write-off of all Datavisor LCD demonstration units with a
net value of $64,159. Management is continuing to evaluate the cost structure of
the Company so as to determine if additional savings can be made. No assurances
can be made that the Company's operating costs can be decreased in the future or
sustained at their current levels.
37
<PAGE>
For the three months ended September 30, 1999, the Company reported a loss
from operations of $644,872 compared to a loss from operations of $266,479 for
the same period in 1998. The increased loss is primarily attributable to
decreased overall revenues and the write-off associated with the Datavisor LCD.
Non-operating income for the three months ended September 30, 1999 was
$10,139 compared to $22,119 for the same three month period in 1998.
Non-operating expenses were $6,000 for the third quarter in 1999 compared to
$8,831 in the third quarter in 1998, resulting in a positive net interest margin
of $4,139 for the third quarter in 1999 compared to a positive net interest
margin of $13,288 for the third quarter in 1998. The decrease in interest margin
was primarily attributable to lower cash on hand.
For the three months ended September 30, 1999, the Company reported a net
loss of $640,733 and loss per share of $0.24 compared to a net loss of $253,191
and loss per share of $0.10 for the same three month period in 1998. This
decrease is primarily attributable to a decrease in overall revenues and the
write-off associated with the Datavisor LCD.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
For the nine months ended September 30, 1999, the Company reported revenue
of $900,107, a 63% decrease compared to the same period ended September 30, 1998
when the Company reported revenue of $2,407,719. The Company's 1998 level of
revenue was primarily attributable to the delivery of display systems to a
subsidiary of The Walt Disney Company, which was completed in 1998. The
Company's gross margin on sales was 21% in the first nine months of 1999
compared to 49% in the first nine months of 1998. Excluding the one time
write-off of the Datavisor LCD inventory, the gross margin for the nine-month
period ending September 30, 1999 would have been 47%.
Operating expenses for the nine months ended September 30, 1999 decreased
to $1,294,117 when compared to the same nine-month period in 1998 where
operating expenses were $1,457,515. The decrease in operating expenses was the
combined result of lower product development costs and marketing and sales
costs. General and administrative costs were higher due primarily to the one
time write-off of all Datavisor LCD demonstration units with a net value of
$64,159.
For the nine months ended September 30, 1999, the Company reported a loss
from operations of $1,103,196 compared to a loss from operations of $257,947 for
the same period in 1998. The decrease is primarily attributable to decreased
revenues during 1999 when compared to the same period in 1998, as well as the
write-off associated with the Datavisor LCD.
Non-operating income for the nine months ended September 30, 1999 was
$35,016 compared to $67,405 for the same nine month period in 1998.
Non-operating expenses were $20,425 for the first nine months of 1999 compared
to $29,503 during the same period in 1998, resulting in a positive net interest
margin of $14,591 for the first nine months of 1999 compared to a positive net
interest margin of $37,902 for the same period in 1998. The decrease in interest
margin was primarily attributable to lower cash on hand.
For the nine months ended September 30, 1999, the Company reported a net
loss of $1,088,605 and loss per share of $0.41 compared to a net loss of
$220,045 and loss per share of $0.08 for the same nine month period in 1998. The
primary cause is a decrease in overall revenues and the write-off associated
with the Datavisor LCD during 1999.
38
<PAGE>
Year Ended December 31, 1998 compared to December 31, 1997
For the year ended December 31, 1998, the Company reported revenue of
$2,697,158, a 12% increase from the prior year in which the Company reported
revenue of $2,399,579. The increase is attributed primarily to the $1.25 million
order for the Viewport HMD from a subsidiary of The Walt Disney Company, which
was delivered in the first half of 1998. Sales of other commercial products such
as the Datavisor VGA, the Datavisor 80, and the Virtual Binoculars also
contributed to the increase in revenue during 1998. With the exception of the
Datavisor 80, these products typically offer customers a mid-range
price/performance option compared to the Datavisor HiRes, which has historically
been the Company's core product. During 1998, the Company continued aggressively
promoting its products in international markets by enlisting resellers such as
Deneb Robotics, Nihon Binary, Solidray, Virtual Presence, and Virtual Reality
Technologies.
The Company's gross margin on sales for the year ended December 31, 1998
was 46%, an increase from the 43% reported in 1997. At the current level of
sales and production, annual gross margins appear to be stabilizing at
approximately 45%.
For the year ended December 31, 1998, operating expenses decreased 21% to
$1,778,787 from $2,254,178 in 1997. General and administrative expenses
decreased significantly during the year and marketing expenses and product
development costs decreased marginally. The decrease is attributable to a number
of factors. During 1997, the Company experienced a substantial increase in
one-time general and administrative costs due to the need to upgrade its
infrastructure to support the anticipated growth of the Company. During the
first half of 1998, the Company was able to decrease these costs, as the
upgrades were substantially complete. Additionally, the upgrade in management
information systems has enabled the Company to maintain or cut costs in other
areas because of more effective cost management. A third factor that contributed
to the decrease in general and administrative costs were savings in salaries to
the executive management of the Company. These savings were achieved through
attrition and voluntary salary reductions. The Company does not believe that
operations will be substantially affected by these changes.
For the year ended December 31, 1998, marketing and sales expenses
decreased 4% to $534,427 from $556,632 in the same period in 1997. The decrease
is attributed to a number of factors including less advertising in industry
trade journals, and attrition of sales staff. The decrease was also attributable
to fewer new product launches during 1998 when compared to 1997. The Company
unveiled the Datavisor LCD at the end of 1998. The Datavisor LCD is a product
positioned at the "below $10,000" segment of the professional HMD market.
For the year ended December 31, 1998, the Company reported product
development costs of $371,729, compared to $400,977 for the same period ended
December 31, 1997. The decrease is attributed to the development of fewer new
products in 1998 as compared to 1997. Products under development in 1998
included the Datavisor LCD and Datavisor NVG.
Net non-operating income was $49,599 in 1998 versus $109,249 in 1997. At
the end of 1998, the Company sold its investments that consisted of debt
securities and placed the proceeds of $1,322,833 in an interest bearing money
market account at 4.2% interest.
Net operating loss for 1998 was $482,335 as opposed to a loss of
$1,116,825 in 1997, a decrease of over 57%. Loss per common share in 1998 was
$0.18 compared to a loss per share of $0.42 in 1997.
Liquidity and Capital Resources
Working capital totaled $1,317,687 as of September 30, 1999 compared to a
working capital balance of $2,574,579 as of September 30, 1998. The decrease is
primarily attributable to operating losses sustained during the past twelve
months, including the write-off associated with the Datavisor LCD in 1999.
The Company experienced a net loss for two consecutive years of
$482,000 in 1998 and $1,116,825 in 1997. If the Company continues its current
operating losses, it is anticipated that the Company will exhaust its cash
resources by the Spring of 2000. As discussed above in the section "Special
Factors--Background of the Merger," the Company is unable to secure additional
debt or equity financing due to its financial condition and its Common Stock
price. Because of its inability to find sources to generate long or short term
growth and its deteriorating financial condition, the Company decided to merge
with ATS. The consequences to the Company if this acquisition does not succeed
is the Company would need to liquidate through a bankruptcy proceeding.
39
<PAGE>
The Company has 1,380,000 Class A warrants outstanding which expire May
29, 2001. Two warrants may be exercised and exchanged for one share of common
stock at an exercise price of $11.00 per share. The warrants are also subject to
redemption at the Company's election if the Company's common stock price equals
or exceeds $18.00 per share for 20 consecutive trading days within a period of
30 days. The Company can make no assurances that investors will elect to
exercise the warrants or that the required exercise price or redemption price
can be reached since the current trading price has been approximately $0.30 to
$0.50 since the announcement of the merger and was in the $0.15 to $0.30 range
prior thereto.
Income Taxes
The Company is organized as a C Corporation and pays income taxes based
upon accrual based taxable income adjusted for differences in the timing of
reporting certain expenses for tax and financial statement purposes. The
Company's income taxes payable, if any, that may arise in the future may be
offset by credits available for certain research and development expenditures
incurred.
As of December 31, 1998, the Company had a net operating loss carryforward
available to offset future taxable income generated through 2018 of
approximately $3,800,000. The deferred tax asset associated with these benefits
has been fully reserved in the Company's financial statements because of the
uncertainty surrounding future profitability. In the event of a change in
control of the Company, use of such a carryforward could be reduced.
Year 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The "Year 2000 Problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. The potential exists for computer system failures or
miscalculations by computer programs, which could disrupt operations.
The Company has conducted a review of its internal computer and other
systems deemed to be date sensitive to assess its exposure to the Year 2000
problem. The Company has already modified or replaced internal systems that are
not Year 2000 compliant. Based upon the review, management believes that the
Year 2000 problem will not have a material adverse effect on the internal
operations of the Company.
Additionally, the Company has communicated with its major vendors and
suppliers to determine their state of readiness relative to the Year 2000
problem and the Company's exposure to third party Year 2000 issues. To date, the
Company has received responses from its major vendors and suppliers indicating
that they will be Year 2000 ready. However, there can be no guarantee that the
systems of other companies on which the Company's business relies will be
converted in a timely manner, or that representations made to the Company by
third parties will be accurate. As a result, the failure of a major vendor or
supplier to adequately address their Year 2000 problem could have a material
adverse effect on the operations of the Company.
The Company's Year 2000 conversion efforts have not been budgeted or
tracked as separate projects, but have been occurring in conjunction with normal
sustaining activities. All costs related to the Company's Year 2000 problem are
being expensed as incurred, while the cost of new hardware or software is being
capitalized or amortized over its expected useful life. The costs associated
with Year 2000 compliance have not been and are not anticipated to be material
to the Company's financial condition or results of operations. Specifically, as
of September 30, 1999, the Company has spent approximately $60,000 and does not
expect to incur any additional material costs. These costs are based upon
management's best estimates. However, there can be no guarantee that these
estimates will be achieved and actual results could differ from these plans. The
Company's contingency plan relative to the Year 2000 problem consists of
readiness to switch to Year 2000 compliant vendors if the Company discovers that
any of its current vendors are not Year 2000 ready.
40
<PAGE>
The Company's products make no internal calculations regarding dates.
Therefore, the Company's products do not pose a Year 2000 compliance issue.
Although the Company has no reason to conclude that any specific supplier
represents a material risk, the most likely risk would entail production
disruption due to inability of suppliers, some of whom represent the sole source
of component parts for certain items, to deliver such critical parts. The
Company is unable to quantify such a scenario, but it could potentially result
in a material adverse effect on results of operations, liquidity or financial
condition of the Company.
The preceding Year 2000 issue discussion contains various forward-looking
statements, which represent the Company's belief or expectations regarding
future events. When used in the Year 2000 discussion, the words "believes,"
"expects," "estimates" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements include, without
limitation, the Company's expectations as to when it will complete the
renovation and testing phases of its Year 2000 program as well as its Year 2000
contingency plans; its estimated cost of achieving Year 2000 readiness; and the
Company's belief that its internal systems will be Year 2000 compliant in a
timely manner. All forward-looking statements involve a number of risks and
uncertainties that could cause the actual results to differ materially from the
projected results. Factors that may cause these differences include, but are not
limited to, the availability of qualified personnel and other information
technology resources; the ability to identify and renovate all date sensitive
lines of computer code or to replace embedded computer chips in affected systems
and equipment; and the actions of government agencies or other third parties
with respect to Year 2000 problems.
Seasonality
Based on its limited experience to date, the Company believes that its
future operating results will not be subject to seasonal changes. Such effects,
should they occur, might become apparent in the Company's operating results
during a period of expansion. However, the Company can make no assurances that
its business can be significantly expanded.
41
<PAGE>
MANAGEMENT
The current directors and executive officers of the Company are as
follows:
Name Age Position
---- --- --------
Delmar J. Lewis 69 Chairman of the Board and
Chief Executive Officer
Claude H. Rumsey, Jr. 55 President, Secretary and Director
Eric A. Hall 36 Chief Financial Officer
Ronald Wilgenbusch 61 Director
Nelson A. Merritt 79 Director
The business address of the directors and executive officers of the
Company is 7680 Old Springhouse Road, Madison Building, First Floor, McLean,
Virginia 22102 and telephone number is (703) 506-8808. All of the Company's
directors are elected annually by the shareholders and hold office until their
respective successors are duly elected and qualified. Executive officers are
elected annually by the Board of Directors and serve at its discretion.
The current directors and executive officers of ATS are as follows:
Name Age Position
---- --- --------
Delmar J. Lewis 69 Chairman of the Board and
Chief Executive Officer
Claude H. Rumsey, Jr. 55 Vice President and Director
Ellen D. Glover 44 President and Chief Operating Officer
Harry S. Katrivanos 49 Vice President and Chief Financial Officer
The business address of Ms. Glover and Mr. Katrivanos is 7915 Jones Branch
Road, 7th Floor, McLean, Virginia 22101 and telephone number is (703) 506-0088.
The current directors and officers of ATS Acquisitions are as follows:
Name Age Position
---- --- --------
Delmar J. Lewis 69 Chairman of the Board, Chief Executive
Officer and President
Claude H. Rumsey, Jr. 55 Vice President, Secretary and Director
Delmar J. Lewis has been Chairman of the Board and Chief Executive Officer
of the Company since January 1995. In addition, Mr. Lewis is a co-founder of
Advanced Technology Systems, Inc. and has served as its Chairman of the Board
and Chief Executive Officer since 1978.
Claude H. Rumsey, Jr. has been a Director of the Company since its
incorporation in 1994. Mr. Rumsey is a co-founder of Advanced Technology
Systems, Inc. and has served as Executive Vice President and a Director of ATS
since January 1979.
Rear Admiral Ronald C. Wilgenbusch, USN (Retired) has been a Director of
the Company since 1997. In addition, Mr. Wilgenbusch has operated his own
consulting practice, RCW Consulting, providing consulting services to companies
in the defense industry since January 1995. From August 1991 through January
1995, he was a Principal at Booz Allen & Hamilton, a consulting firm in McLean,
Virginia.
Nelson Merritt was appointed to the Company's Board of Directors in
September 1999. Since April 1994, Dr. Merritt has been a general partner of the
consulting partnership, Merritt LP. In addition, since December 1987 he has
served as President and a Director of F.L. Merritt, Inc.
Eric A. Hall joined the Company in October 1998 as Controller and has
served as the Company's Chief Financial Officer since December 1998. From June
1991 through September 1998, Mr. Hall held the position of Controller at Signal
Transcription Network.
Ellen D. Glover has been Chief Operating Officer of ATS since October
1995. In October 1998 she was appointed President of ATS as well. From 1989 to
October 1995, Ms. Glover was Director of Operations of ATS.
42
<PAGE>
Harry S. Katrivanos has held the position of Vice President and Chief
Financial Officer of ATS since June 1996. From May 1998 to December 1998, Mr.
Katrivanos was Acting Chief Financial Officer of n-Vision. From March 1994 to
April 1996, Mr. Katrivanos served as Vice President and Chief Financial Officer
of the Orkand Corporation.
Each of the executive officers and directors are citizens of the United
States of America. None of the Company, ATS, ATS Acquisitions, nor its executive
officers, directors or controlling shareholders has during the last five years
(i) been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
further violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of the Record Date, the total number of outstanding shares of Common
Stock entitled to vote at the meeting is _____________. Stockholders are
entitled to one (1) non-cumulative vote for each share of Common Stock. A
majority of the issued and outstanding shares of Common Stock present at the
Special Meeting in person or by proxy constitutes a quorum for the transaction
of business at the meeting. In the event that there are not sufficient votes for
a quorum or to approve or ratify any proposal at the time of the Special
Meeting, the meeting may be adjourned in order to permit the further
solicitation of proxies.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of November 4, 1999 the number of shares
and percentage of outstanding Common Stock owned by (i) each person known to the
Company to be the beneficial owners of more than five percent (5%) of the
Company's outstanding Common Stock on the Record Date, as disclosed in certain
reports regarding such ownership filed by such persons with the Company and with
the Securities and Exchange Commission ("SEC") in accordance with Sections 13(d)
and 13(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act")
and (ii) all directors and executive officers of the Company, ATS and ATS
Acquisitions as a group.
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership (1) Class(2)
------------------------ ------------------------ ----------
Delmar J. Lewis (5)
Director and Officer 1,113,812 (3) 42%
Claude H. Rumsey, Jr. (5)
Director and Officer 340,477 (3) 13%
Ronald C. Wilgenbusch (5)
Director 22,500 (4) 1%
Nelson A. Merritt (5)
Director 2,000 *
Eric A. Hall (5)
Officer 0 __
Ellen D. Glover (6)
Officer 25,836 1%
Harry S. Katrivanos (6)
Officer 250 *
All directors and executive
officers as a group (7 persons) 1,404,875 53%
*Denotes less than 1%
43
<PAGE>
(1) Unless otherwise indicated, each person has sole voting and investment power
with respect to the shares beneficially owned.
(2) Calculated on the basis of 2,651,523 shares of the Company's Common Stock
outstanding on November 4, 1999.
(3) Includes 100,000 shares beneficially owned by Advanced Technology Systems,
Inc., of which Messrs. Delmar J. Lewis and Claude H. Rumsey, Jr. are the
majority stockholders.
(4) Constitutes 22,500 shares which may be acquired through the exercise of
stock options granted under the Company's Stock Option Plan.
(5) The address for such person is the same as the Company's address.
(6) The address for such person is the same as the address for ATS' principal
executive offices.
CERTAIN RELATED TRANSACTIONS
Note Payable to ATS
In connection with ATS' sale of its VR assets to the Company in 1994, ATS
extended a line of credit to the Company in the aggregate amount of $500,000 in
order to provide the Company with additional working capital financing.
Additionally, ATS agreed to fund operations of the Company by lending the
Company amounts over the $500,000 line of credit limit. The Company had borrowed
$1,071,023 against this line as of December 31, 1995 to meet its on-going cash
flow requirements. ATS did not demand repayment of interest and principal due on
this loan until January 1, 1997. The Company used net proceeds of its initial
public offering in May 1996 to reduce the outstanding balance of the line of
credit by $500,000 and provide the Company with cash reserves to finance its
operations for the 12-month period following the closing of the initial public
offering, which occurred on May 28, 1996. The debt owed to ATS was retired and
replaced with a promissory note with a five-year term in the principal amount of
$600,000 at an interest rate of 8% per annum simple interest. The long-term
portion of this unsecured note payable to ATS decreased by 25% during the past
nine months to $180,000. The outstanding balance of this loan as of September
30, 1999 was $300,000 with interest due on principal outstanding of 8% per
annum. Principal payments of $60,000 are payable twice each year in June and
December. Annual maturities of this note are $120,000, with the final payment to
be made in December 2001.
Certain Transactions by Officers and Directors
In March 1999, Christopher Lewis, the former President, Chief Operating
Officer, Secretary and Director of the Company, sold to Delmar Lewis 253,662
shares of the Company's Common Stock at a price of $0.50 per share for a total
of $126,831 in a privately negotiated transaction and sold to Claude Rumsey
56,369 shares of the Company's Common Stock at a price of $0.50 per share for a
total of $28,184.50 in a privately negotiated transaction. As a result of these
sales, Christopher Lewis no longer owned any shares of the Company's Common
Stock. Christopher Lewis resigned from the positions of President, Chief
Operating Officer and Secretary of the Company effective June 4, 1999 and
resigned from his position on the Board of Directors of the Company effective
July 1, 1999.
EXPERTS
The financial statements of n-Vision, Inc. have been included herein in
reliance on the report of Grant Thornton LLP, independent certified public
accountants, given on the authority of Grant Thornton LLP as experts in
accounting and auditing.
44
<PAGE>
ADDITIONAL INFORMATION
Pursuant to the requirements of Section 13(e) of the Exchange Act, and
Rule 13e-3 promulgated thereunder, the Company, as issuer of the class of equity
securities that is the subject of the Rule 13e-3 transaction, together with ATS
and ATS Acquisitions, have filed a Schedule 13E-3 with the Commission with
respect to the transactions contemplated by the Merger Agreement. As permitted
by the rules and regulations of the Commission, this Proxy Statement omits
certain information, exhibits and undertakings contained in the Schedule 13E-3.
Such additional information can be inspected at and obtained from the Commission
in the manner set forth below under "Available Information."
Statements contained in this Proxy Statement or in any document
incorporated herein by reference as to 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 such contract or other document filed as an
exhibit to the Schedule 13E-3 or such other document, and each such statement
shall be deemed qualified in its entirety by such reference.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements, and other
information with the Commission. The reports, proxy statements, and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, 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. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Commission maintains a World Wide Web site on the Internet at
http:www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company. The same information is also available on the
Internet at http:www.FreeEDGAR.com.
THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY, ATS ACQUISITIONS AND ATS SINCE THE DATE
HEREOF OR THAT THE INFORMATION IN THIS PROXY STATEMENT OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN IS CURRENT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THEREOF.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Unaudited Balance Sheet as of September 30, 1999 and December 31, 1998.......F-2
Unaudited Statements of Operations for the three months
and nine months ended September 30, 1999 and September 30, 1998.........F-3
Unaudited Statements of Cash Flows for the nine months
ended September 30, 1999 and September 30, 1998.........................F-4
Notes to Financial Statements (unaudited) ...................................F-5
Report of Independent Certified Public Accountants...........................F-7
Audited Balance Sheets as of December 31, 1998 and December 31, 1997.........F-8
Audited Statements of Operations for the Fiscal Years Ended
December 31, 1998 and December 31, 1997.................................F-9
Audited Statements of Cash Flows for the Fiscal Years Ended
December 31, 1998 and December 31, 1997................................F-11
Notes to Financial Statements (audited) ....................................F-12
F-1
<PAGE>
n-VISION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------------------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 787,780 $ 1,669,302
Accounts Receivable 148,395 236,454
Inventories 571,046 974,099
Prepaid Expenses 82,732 53,580
------------------------------------
Total Current Assets 1,589,953 2,933,435
Property and Equipment 248,739 420,049
(Net of Accumulated Depreciation)
Other Assets 3,757 13,801
------------------------------------
$ 1,842,449 $ 3,367,285
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities-Long Term Note Due ATS $ 126,000 $ 120,000
Current Portion of Capital Lease Obligation - 2,225
Accounts Payable 57,072 359,561
Accrued Salaries and Benefits 60,277 64,280
Deferred Revenue and Accrued Warranty Costs 28,917 102,432
-------------------------------------
Total Current Liabilities 272,266 648,498
Long Term Liabilities
Note Payable-ATS 180,000 240,000
Stockholders' Equity
Common Stock, $.01 par value, 2,651,523 shares issued and 26,515 26,515
outstanding
Paid in Capital 10,473,679 10,473,679
Accumulated Deficit (9,110,011) (8,021,407)
-------------------------------------
Total Stockholders' Equity 1,390,183 2,478,787
-------------------------------------
$ 1,842,449 $ 3,367,285
=====================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
n-VISION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------------------------ -----------------------------
1999 1998 1999 1998
------------- ------------ ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 252,638 $ 437,820 $ 900,107 $ 2,407,719
Cost of Sales 164,395 210,642 474,677 1,208,151
Inventory Write-down 234,509 - 234,509 -
-------------- --------------- --------------- ---------------
Gross Margin (146,266) 227,178 190,921 1,199,568
Operating Expenses
General and Administrative 249,988 168,985 703,856 687,978
Product Development 118,902 169,954 259,556 351,594
Marketing and Sales 129,716 154,718 330,705 417,943
-------------- --------------- --------------- ---------------
(Loss) from operations (644,872) (266,479) (1,103,196) (257,947)
Non-Operating Income
Interest Income 10,139 22,119 35,016 67,405
Interest Expense (6,000) (8,831) (20,425) (29,503)
-------------- --------------- --------------- ---------------
Loss before income taxes (640,733) (253,191) (1,088,605) (220,045)
Income Tax expense - - - -
-------------- --------------- --------------- --------------
Net (Loss) $ (640,733) $ (253,191) $ (1,088,605) $ (220,045)
============== =============== =============== ==============
Weighted average shares outstanding 2,651,523 2,646,836 2,651,523 2,646,836
============== =============== =============== ==============
(Loss) per Share $ (0.24) $ (0.10) $ (0.41) $ (0.08)
============== =============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
n-VISION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------------------
1999 1998
-------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net (Loss) $ (1,088,605) $ (220,045)
-------------------------------------
Adjustments to reconcile Net (Loss) to net cash used
in operating activities
Depreciation and amortization 186,541 202,491
Inventory Write-Down 234,509 -
Loss on Disposal of Fixed Assets 69,056 12,650
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable 87,659 (254,485)
(Increase) Decrease in Inventories 168,544 84,204
(Increase) Decrease in Prepaid Expenses (29,152) 18,691
(Increase) Decrease in Other Receivable 400 (54,781)
(Decrease) Increase in Accounts Payable (302,489) (69,387)
(Decrease) Increase in Accrued Salaries and Benefits (4,003) (51,568)
(Decrease) Increase in Accrued Interest 6,000 8,400
(Decrease) Increase in Deferred Revenue and Warranty Reserve (73,515) 13,248
-------------------------------------
Total Adjustments 343,550 (90,537)
-------------------------------------
Net Cash Used in Operating Activities (745,055) (310,582)
-------------------------------------
Cash Flows from Investing Activities
Purchase of property and equipment (74,984) (44,578)
Proceeds from sale of fixed assets 741 -
-------------------------------------
Net Cash Used in Investing Activities (74,243) (44,578)
-------------------------------------
Cash Flows from Financing Activities
Payments of Long Term Note - ATS (60,000) (60,000)
Payments of Capital Lease Obligations (2,225) (18,342)
-------------------------------------
Net Cash Used in Financing Activities (62,225) (78,342)
-------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (881,523) (433,502)
Cash and Cash Equivalents at January 1 1,669,302 876,805
-------------------------------------
Cash and Cash Equivalents at September 30 $ 787,780 $ 443,303
=====================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
n-VISION, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A Interim Financial Statements
The condensed financial statements for the three month and nine month
periods ended September 30, 1999 and September 30, 1998 are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim period. The condensed
financial statements should be read in conjunction with the audited financial
statements and notes thereto, together with management's discussion and analysis
of financial condition and results of operations, contained in the Company's
Annual Report to Shareholders for the year ended December 31, 1998. The results
of operations for the three and nine months ended September 30, 1999 are not
necessarily indicative of the results for the entire fiscal year ending December
31, 1999.
In preparing financial statements in conformity with generally accepted
accounting principles management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Note B Earnings per share
In 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128 - "Earnings per Share." Statement 128 replaces the
presentation of primary and fully diluted earnings per share ("EPS") pursuant to
Accounting Principles Board Opinion No. 15 with the presentation of basic and
diluted EPS. Basic EPS excludes dilution and is computed by dividing net income
available to common shareholders by the weighted number of shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or converted
into common shares and then shared in the earnings of the Company. Options
granted to employees are accounted for in accordance with APB 25, whereby if
options are priced at fair market value or above at the date of the grant, no
compensation expense is recognized.
F-5
<PAGE>
The following table sets forth the reconciliation between basic and
diluted EPS.
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Numerator
Net Income (Loss) available for common shareholders - Basic (1,088,605) (220,045)
Income Adjustments - -
--------------- -----------------
Net Income (Loss) available for common shareholders - Diluted (1,088,605) (220,045)
Denominator
Denominator for Basic EPS-weighted average shares 2,651,523 2,646,836
Effect for Dilutive Securities
Employee Stock Options - -
--------------- -----------------
Denominator for diluted EPS 2,651,523 2,646,836
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Note C Merger Agreement
On October 15, 1999, the Company signed a definitive agreement to merge
with a subsidiary of Advanced Technology Systems, Inc. ("ATS"). ATS, which is
headquartered in McLean, Virginia, provides systems engineering and software
development solutions to government and commercial clients worldwide.
The transaction is structured as a merger in which a newly-formed
subsidiary of ATS will merge with and into the Company, with the Company
surviving as a wholly-owned subsidiary of ATS. If the merger is approved by the
Company's stockholders and consummated, each stockholder of the Company will
receive $0.50 in cash per share of the Company's common stock. The transaction
is subject to customary conditions including approval by the Company's
stockholders. The Company anticipates holding a special meeting of stockholders
during the fourth quarter of 1999 or first quarter of 2000 to seek stockholder
approval of this transaction.
F-6
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
n-Vision, Inc.
We have audited the accompanying balance sheets of n-Vision, Inc., as of
December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for each of the two years in the period 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 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 financial position of n-Vision, Inc., as of December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the two years in the period then ended, in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Vienna, Virginia
February 12, 1999
F-7
<PAGE>
n-Vision, Inc.
Balance Sheets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,669,302 $ 876,805
Investments - 1,246,875
Accounts receivable
Trade 236,054 252,270
Other 400 15,335
Inventories 974,099 843,868
Prepaid expenses 53,580 83,227
-----------------------------------------
Total Current Assets 2,933,435 3,318,380
Property and Equipment, net 420,049 604,617
Other Assets 13,801 27,193
-----------------------------------------
$ 3,367,285 $ 3,950,190
- -----------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of note payable to Advanced
Technology Systems, Inc. $ 120,000 $ 120,000
Current portion of capital lease obligation 2,225 24,599
Accounts payable 359,561 302,484
Accrued salaries and vacation 64,280 115,198
Deferred revenue and accrued warranty costs 102,432 72,665
-----------------------------------------
Total Current Liabilities 648,498 634,946
Long-Term Liabilities
Note payable--Advanced Technology Systems, Inc. 240,000 360,000
Capital lease obligation--net of current portion - 2,497
Stockholders' Equity
Common stock, $.01 par value; 12,500,000 shares
authorized; 2,651,523 and 2,646,837 shares
issued and outstanding at December 31, 1998
and 1997, respectively 26,515 26,468
Paid-in capital 10,473,679 10,468,476
Unrealized loss on available-for-sale investment - (3,125)
Accumulated deficit (8,021,407) (7,539,072)
-----------------------------------------
Total Stockholders' Equity 2,478,787 2,952,747
----------------------------------------
$ 3,367,285 $ 3,950,190
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
n-Vision, Inc.
Statements of Operations
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $ 2,697,158 $ 2,399,579
Cost of Sales 1,450,305 1,371,525
----------------------------------------
Gross Margin 1,246,853 1,028,054
Operating Expenses
General and administrative 872,631 1,296,569
Marketing and sales 534,427 556,632
Product development 371,729 400,977
----------------------------------------
Loss from Operations (531,934) (1,226,124)
Non-operating Income (Expense)
Interest income 87,721 160,099
Interest expense--note and lease obligations (38,122) (50,800)
----------------------------------------
Loss Before Income Taxes (482,335) (1,116,825)
Provision for Income Taxes - -
----------------------------------------
Net Loss $ (482,335) $ (1,116,825)
- ----------------------------------------------------------------------------------------------------------------
Loss Per Common Share--basic and diluted $ (0.18) $ (0.42)
- ----------------------------------------------------------------------------------------------------------------
Shares Used in Calculation of Loss Per Common
Share--basic and diluted 2,648,008 2,649,206
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
n-Vision, Inc.
Statements of Stockholders' Equity
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock
Subscriptions and
Common Notes Paid-in
Stock Receivable Capital
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1997 $ 26,657 $ (91,722) $ 10,555,961
Proceeds on Common Stock Subscriptions Receivable - - 4,048
Cancellation of Shareholder Notes Receivable in Exchange for (189) 91,722 (91,533)
Common Stock
Unrealized Loss on Available-for-Sale Investment - - -
Net Loss - - -
-----------------------------------------------------
Balance, December 31, 1997 26,468 - 10,468,476
Proceeds on Exercised Options to Purchase Common Stock 93 - 5,157
Reverse Stock Split on Exercised Options (46) - 46
Unrealized Gain on Available-for-Sale Investment - - -
Net Loss - - -
-----------------------------------------------------
Balance, December 31, 1998 $ 26,515 $ - $ 10,473,679
<CAPTION>
Unrealized
Loss on
Accumulated Available-for-Sale
Deficit Investment Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1997 $ (6,422,247) $ - $ 4,068,649
Proceeds on Common Stock Subscriptions Receivable - - 4,048
Cancellation of Shareholder Notes Receivable in Exchange for - - -
Common Stock
Unrealized Loss on Available-for-Sale Investment - (3,125) (3,125)
Net Loss (1,116,825) - (1,116,825)
-----------------------------------------------------
Balance, December 31, 1997 (7,539,072) (3,125) 2,952,747
Proceeds on Exercised Options to Purchase Common Stock - - 5,250
Reverse Stock Split on Exercised Options - - -
Unrealized Gain on Available-for-Sale Investment - 3,125 3,125
Net Loss (482,335) - (482,335)
-----------------------------------------------------
Balance, December 31, 1998 $ (8,021,407) $ - $ 2,478,787
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
n-Vision, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net loss $ (482,335) $ (1,116,825)
-------------------------------------------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 270,919 194,530
Loss on disposal of fixed assets 4,670 33,626
Changes in assets and liabilities
Decrease (increase) in accounts receivable 31,151 (53,363)
Increase in inventories (197,839) (90,956)
Decrease (increase) in prepaid expenses 29,647 (34,496)
Increase (decrease) in accounts payable 57,077 (3,672)
(Decrease) increase in accrued salaries and
vacation (50,918) 33,248
Increase (decrease) in deferred revenue and
accrued warranty costs 29,767 (71,449)
-------------------------------------------
Total Adjustments 174,474 7,468
------------------------------------------
Net Cash Used in Operating Activities (307,861) (1,109,357)
-------------------------------------------
Cash Flows from Investing Activities
Purchase of property and equipment (20,179) (308,176)
Proceeds from sale of fixed assets 10,158 9,243
Sale of investments 1,250,000 -
------------------------------------------
Net Cash Used in Investing Activities 1,239,979 (298,933)
-------------------------------------------
Cash Flows from Financing Activities
Net proceeds from issuance of common stock and
warrants 5,250 4,048
Payments to Advanced Technology Systems, Inc. (120,000) (120,000)
Payments on capital lease obligations (24,871) (21,792)
-------------------------------------------
Net Cash Used in Financing Activities (139,621) (137,744)
-------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 792,497 (1,546,034)
Cash and Cash Equivalents at Beginning of Year 876,805 2,422,839
------------------------------------------
Cash and Cash Equivalents at End of Year $ 1,669,302 $ 876,805
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
n-Vision, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
n-Vision, Inc. (the Company), a Delaware corporation, was incorporated in
1994. The Company's operations are based from office and manufacturing
facilities in McLean, Virginia. The Company designs, develops, manufactures
and markets state-of-the-art, proprietary virtual reality (VR) products and
systems for a variety of commercial, industrial and military applications.
Revenue Recognition
Revenue from the sale of VR products is recognized upon shipment. Related
warranty costs are provided for at the time of sale.
Currently, the Company has non-exclusive distribution agreements with
companies in the United Kingdom, Europe and Japan. The Company performs
ongoing credit evaluations of its customers' financial condition and usually
requires no collateral. The Company's typical sales terms with distributors
permit certain distributors the right to return products for credit against
future purchases in certain circumstances. As of December 31, 1998 and 1997,
no reserve was recorded because distributors have sold substantially all
products to end users who have no right of return.
Inventories
Inventories are stated at lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment are stated at cost less depreciation computed using
the straight-line method over estimated useful lives of five to seven years
for furniture, three years for computer equipment and software, and two
years for demonstration equipment.
F-12
<PAGE>
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." Under the liability method, a deferred tax asset, net of a valuation
allowance, or liability is recorded on the tax effects of temporary
differences between the tax basis and financial amounts of assets and
liabilities, or for differences in timing such as net operating losses.
Temporary differences arise from accrued warranty costs, receivable and
inventory reserves and the liability for paid leave.
Research and Development Costs
Research and development costs are expensed in the period in which they are
incurred.
Use of Estimates in Preparing Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The estimated fair value information as of December 31, 1997, presented
herein is required by Statement of Financial Accounting Standards (SFAS) No.
107, "Disclosures About Fair Value of Financial Instruments." Such
information which pertains to the Company's financial instruments (primarily
cash, investments and borrowings) is based on the requirements set forth in
SFAS No. 107 and does not purport to represent the aggregate fair value of
the Company. Further, the fair value estimates are based on various
assumptions, methodologies and subjective considerations, which vary widely
among different entities and are subject to change. Financial instruments in
the accompanying balance sheet consist of cash deposits stated at cost which
equals fair value and investments in debt securities stated at the related
security's quoted trading value. Notes payable are presented in the
accompanying balance sheets at the face value of the obligation outstanding.
Management is unable to determine the fair value of the notes, as they are
between related parties and no comparable market value data for such
instruments are available.
Loss Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share,"
effective for periods ending after December 15, 1997. The Statement
establishes standards for computing and presenting earnings (or loss) per
share and applies to entities with publicly held common stock or potential
common stock. The Statement simplifies the standards for computing earnings
per share previously found in Accounting Principles Board Opinion No. 15,
"Earnings Per
F-13
<PAGE>
Share," and makes the standards comparable to international EPS standards.
The Company has adopted the provisions of SFAS No. 128 as required.
SFAS No. 128 replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires a dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of
the diluted EPS computation. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. Diluted
EPS is computed using the weighted-average number of common shares and
dilutive potential common shares outstanding during the period. Basic and
diluted loss per share for the Company is the same amount because the effect
of including warrants and stock options in the diluted calculation is
anti-dilutive. All loss per share amounts for all periods have been
presented, and where necessary, restated to conform to SFAS No. 128
requirements.
The following schedule sets forth the computation of basic and diluted
earnings per share for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Numerator
Net loss $ (482,335) $ (1,116,825)
------------------------------------
Denominator
Denominator for basic loss per
share--weighted-average shares outstanding 2,648,008 2,649,206
-------------------------------------
Effect of dilutive securities--warrants and options - -
Denominator for diluted loss per
share--adjusted weighted-average shares and
assumed conversions 2,648,008 2,649,206
-------------------------------------
Basic and diluted loss per share $ (.18) $ (.42)
-------------------------------------
</TABLE>
Earnings per common share are computed on the basis of the average number of
shares outstanding during each year, retroactively adjusted to give effect
to all stock splits and stock dividends.
Comprehensive Income
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. The Statement
requires entities to include details of
F-14
<PAGE>
comprehensive income with the same prominence as other financial statements.
For the years ended December 31, 1998 and 1997, the Company has not
recognized other comprehensive income that management considers material to
the financial statements.
Segment Reporting
The Financial Accounting Standards Board issued SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information," effective for
periods beginning after December 15, 1997. The Statement requires a public
business enterprise to report a measure of segment profit or loss, certain
specific revenue and expense items and segment assets. For the years ended
December 31, 1998 and 1997, the Company operates in one segment; therefore,
no additional disclosures under SFAS No. 131 are required.
- --------------------------------------------------------------------------------
NOTE B--OPERATIONS
Since the completion of its initial public offering in May 1996, the
Company's revenue has increased annually to approximately $2.7 million in
1998. Despite revenue increases and decreases in the overall operational
expenses, the Company continues to incur operating losses. Management
believes the Company possesses sufficient liquid working capital to maintain
operations in 1999. The primary challenges facing the Company in its attempt
to generate consistent profits are--
o Dependence on a relatively small number of customers and the
resultant need to generate larger orders from an expanded customer
base.
o Competitive pressure to offer lower-priced products while
maintaining profitable margins and superior quality.
o Limitation on the Company's growth posed by a still-developing
market for Virtual Reality (VR) applications.
At present, management remains committed to facing these and other
challenges by expanding product lines to offer lower-priced products and
solutions and attracting new markets or customers worldwide via its network
of distributors. In addition, management is aware of the need for
maintaining control of its operating costs. The Company's success in
implementing its plans to generate profits cannot be assured. Therefore,
management's plans in the future could include, but are not limited to, a
merger or acquisition of the Company with a strategic partner, introduction
of other new products or service lines complementary to its existing
business or other transactions aimed at maximizing shareholder value.
F-15
<PAGE>
- --------------------------------------------------------------------------------
NOTE C--INVENTORIES
Inventories consist of the following at December 31:
1998 1997
----------------------------------------------------------------------------
Raw materials $ 743,708 $ 625,423
Work in process 88,139 186,570
Finished goods 185,987 67,370
Reserve for inventory obsolescence (43,735) (35,495)
-----------------------------------
$ 974,099 $ 843,868
----------------------------------
During the fourth quarter of 1998, an adjustment of approximately $83,000
was made to reduce the carrying value of inventory. A portion of the total
adjustment was associated with operations during the first three quarters of
1998.
- --------------------------------------------------------------------------------
NOTE D--PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
1998 1997
----------------------------------------------------------------------------
Furniture $ 38,552 $ 38,552
Computers and equipment 495,027 499,322
Demonstration equipment 264,702 214,504
Computer software 127,944 126,336
Leasehold improvements 9,659 5,649
935,884 884,363
-------------------------------------
Less accumulated depreciation (515,835) (279,746)
--------------------------------------
$ 420,049 $ 604,617
-------------------------------------
The net book value of property under capitalized leases at December 31, 1998
and 1997, was approximately $2,000 and $24,000, respectively.
F-16
<PAGE>
- --------------------------------------------------------------------------------
NOTE E--INCOME TAXES
The provision for income taxes consists of the following for the year ended
December 31:
1998 1997
----------------------------------------------------------------------------
Current (benefit) $ - $ -
Deferred (benefit) (435,050) (434,000)
Valuation allowance 435,050 434,000
-----------------------------------
$ - $ -
------------------------------------
Following is a reconciliation of the statutory federal income tax rate to
effective rates reflected in the statements of operations for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pretax loss $ (482,335) $ (1,116,825)
-------------------------------------
Tax (benefit) at statutory rate $ (163,994) $ (379,721)
State income tax benefit, net of federal expense (19,293) (44,673)
Permanent differences (251,763) (9,606)
Change in valuation allowance 435,050 434,000
-------------------------------------
Income tax benefit $ - $ -
-------------------------------------
</TABLE>
Deferred tax assets are composed of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Inventory and receivable reserves $ 26,120 $ 22,988
Other differences (3,192) (4,788)
Accrued vacation and warranty expenses 24,207 35,880
Depreciation (17,248) (6,178)
Deferred warranty revenue 27,556 15,595
Net operating loss carryforward 1,443,626 1,002,522
-------------------------------------
1,501,069 1,066,019
Valuation allowance (1,501,069) (1,066,019)
-------------------------------------
$ - $ -
-------------------------------------
</TABLE>
F-17
<PAGE>
The Company has a net operating loss carryforward as of December 31, 1998,
of approximately $3,800,000 available to offset future tax income. In the
event of a change in control of the Company, the use of all or a portion of
the net operating loss may be limited. The net operating loss carryforward
expires as follows:
Year of Expiration Amount
----------------------------------------------------------------------------
2010 $ 900,000
2011 1,100,000
2012 1,200,000
2018 600,000
--------------------
$ 3,800,000
--------------------
----------------------------------------------------------------------------
NOTE F--LONG-TERM OBLIGATIONS
Notes Payable--Advanced Technology Systems
The Company is obligated under a promissory note in the amount of $360,000
at December 31, 1998. The note payable is unsecured and is due to Advanced
Technology Systems, Inc. (ATS), a Company principally owned and controlled
by a stockholder and officer of the Company. The principal balance on this
note arose from a line-of-credit arrangement with ATS, the borrowings on
which amounted to $1,127,328 at December 31, 1995. The balance due on the
line of credit was partially curtailed in June 1996, using the proceeds of
the Company's initial public offering. Interest is due on principal
outstanding at 8 percent per annum. Principal payments of $60,000 are
payable twice each year in June and December and commenced on June 30, 1997.
Annual maturities of this note for each of the next three years are $120,000
after which the note will be paid in full.
Capital Lease Obligation
The Company leases certain equipment under a capitalized lease. The lease
commitment is for three years and expired in January 1999 when the Company
made a final payment of approximately $2,300.
F-18
<PAGE>
- --------------------------------------------------------------------------------
NOTE G--COMMITMENTS
Employment Agreements
The Company has an employment agreement originating in 1996 with one of its
officers, the agreement which expires in 1999. The Company's commitment in
1999 under the agreement is $52,000.
Operating Leases
The Company is obligated under certain noncancelable operating leases for
office and manufacturing space and equipment. The Company subleases a
portion of its leased office space to ATS (see Note I) on a month-to-month
basis, and to an unrelated party under a sublease which is co-terminus with
the Company's lease. The following is a schedule of the approximate future
minimum rental payments required under operating leases, and future minimum
sublease rental income under subleases with terms of one year or more as of
December 31, 1998.
Lease Sublease
Year ending December 31, Commitment Income
----------------------------------------------------------------------------
1999 $ 150,478 $ (61,347)
2000 28,567 (10,274)
2001 1,701 -
2002 1,701 -
-----------------------------------
$ 182,447 $ (71,621)
-----------------------------------
Total rent expense for the years ended December 31, 1998 and 1997, net of
sublease rental income, was approximately $70,500 and $72,000, respectively.
- --------------------------------------------------------------------------------
NOTE H--STOCKHOLDERS' EQUITY
Reverse Stock Split
During 1998, the shareholders approved a proposal to amend and restate the
Company's Certificate of Incorporation to effect a one-for-two reverse stock
split of the issued and
F-19
<PAGE>
outstanding shares of common stock of the Company. The amendment became
effective on the close of business on November 12, 1998. The trading of the
shares on the NASDAQ Small Cap Market reflected the effect of the reverse
split when trading opened on November 27, 1998. The result of the reverse
split was that the total number of common stock outstanding was halved. The
number of shares held by each shareholder was reduced to an amount equal to
50 percent of the number owned before the effectiveness of the reverse split
and fractional shares were cashed out. All references to shares outstanding,
including the number of shares subject to outstanding options and warrants,
have been retroactively restated to adjust for the split.
Stock Option Plan
In 1996, the Company issued non-qualified stock options accounted for under
Accounting Principles Board Opinion No. 25. These options have variable
terms and become exercisable starting in 1998. The exercise price is equal
to the fair market value of the underlying shares at the date of grant.
Accordingly, no compensation cost has been recognized for the plan. Had
compensation cost for the plan been determined based on the fair value of
the options at the grant dates consistent with the method of SFAS No.
123, the Company's net loss and loss per share would have been as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------- -------------------------------------------
As Reported Pro forma As Reported Pro forma
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss $ (482,335) $ (498,826) $ (1,116,825) $ (1,172,252)
Loss per share (.18) (.19) (.42) (.44)
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes options-pricing model with the following
weighted-average assumptions used for grants in 1997: expected volatility of
105.10 percent calculated by averaging the Company's volatility with the
mean volatility of an appropriate peer group; risk-free interest rates
ranging from 5.78 percent to 6.69 percent in 1997; and expected lives of
three to four years. The weighted-average fair value of options granted
during 1997 was $2.74. The Company did not grant any options in 1998.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
F-20
<PAGE>
A summary of the status of the Company's incentive stock option plan as
of December 31, 1998 and 1997, and changes for the year then ended on those
dates is presented below:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------- -----------------------------------------
Weighted- Weighted-
Average Average
Shares Exercise Price Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 116,687 $ 1.87 74,953 $ 1.38
Granted - - 41,734 2.74
Exercised (4,688) 1.38 - -
Forfeited - - - -
--------------------------------------------------------------------------------------
Outstanding at
year-end 111,999 $ 1.87 116,687 $ 1.87
--------------------------------------------------------------------------------------
Options exercisable
at year-end 91,132 $ 1.69 85,386 $ 1.55
--------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE I--RELATED PARTY TRANSACTIONS
The Company was reimbursed approximately $6,000 and $63,500 by Advanced
Technology Systems, Inc. (ATS), in 1998 and 1997, respectively, for rent and
other administrative consulting services rendered by employees on behalf of
ATS.
In addition, the Company paid ATS approximately $163,000 and $175,800 in
1998 and 1997, respectively. The significant portion of the amount paid to
ATS was repayment on the note payable and the associated interest paid.
- --------------------------------------------------------------------------------
NOTE J--EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) retirement plan (the Plan) that originated
January 1, 1993, and which is a defined contribution plan covering all
full-time employees of the Company who are at least 21 years of age and have
three months of continuous, full-time employment
F-21
<PAGE>
with the Company. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974. The Company made no contributions to
the Plan during fiscal years 1998 and 1997.
- --------------------------------------------------------------------------------
NOTE K--CONCENTRATIONS
Deposit Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk consist of demand-deposits placed with financial institutions. Funds in
excess of the federal insurance limit for the years ended December 31, 1998
and 1997, totaled $340,302 and $776,805, respectively.
Customers
For the years ended December 31, 1998 and 1997, aggregate revenue derived
from one customer amounted to approximately 49 percent and 25 percent,
respectively, of the Company's total revenue. The Company had sales to
customers outside the United States (primarily Europe) constituting $569,379
and $583,690 for the years ended December 31, 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
NOTE L--SUPPLEMENTAL CASH FLOWS INFORMATION
Supplemental Cash Flow Information
The Company paid the following amounts for interest and income taxes during
the year ended December 31:
1998 1997
--------------------------------------------------------------------------
Interest $ 38,122 $ 50,800
--------------------------------
Income taxes $ - $ -
--------------------------------
F-22
<PAGE>
Supplemental Non-Cash Financing and Investing Activities
The amount of inventory used for demonstration purposes and reclassified to
property and equipment amounted to $67,608 and $217,703 for the years ended
December 31, 1998 and 1997, respectively.
F-23
<PAGE>
Apppendix A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ADVANCED TECHNOLOGY SYSTEMS, INC.,
ATS ACQUISITIONS, INC.
AND
N-VISION, INC.
Dated as of the 15th Day of October, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
THE MERGER
Page
----
<S> <C> <C>
Section 1.1 Structure of the Merger 1
Section 1.2 Effect on Outstanding Shares 2
Section 1.3 Exchange Procedures 2
Section 1.4 Options 3
Section 1.5 Warrants 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Seller 4
Section 2.2 Representations and Warranties of the Purchaser 11
and Purchaser Sub.
ARTICLE III
CONDUCT PENDING THE MERGER
Section 3.1 Conduct of the Seller's Business Prior to The Effective Time 12
Section 3.2 Forbearance by the Seller 12
Section 3.3 Conduct of the Purchaser's and the Purchaser Sub's 14
Business Prior to the Effective Time
ARTICLE IV
COVENANTS
Section 4.1 No Solicitation 15
Section 4.2 Employees and Directors 16
Section 4.3 Access and Information 16
Section 4.4 Antitakeover Provisions 17
Section 4.5 Additional Agreements 17
Section 4.6 Publicity 18
Section 4.7 Notification of Certain Matters 18
Section 4.8 Indemnification 18
Section 4.9 Shareholders' Meeting 19
Section 4.10 Proxy Statement 20
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE V
CONDITIONS TO CONSUMMATION
<S> <C> <C>
Section 5.1 Conditions to Each Party's Obligations 20
Section 5.2 Conditions to the Obligations of the Purchaser 20
under this Agreement
Section 5.3 Conditions to the Obligations of the Seller 21
ARTICLE VI
TERMINATION
Section 6.1 Termination 22
Section 6.2 Effect of Termination 23
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.1 Effective Date and Effective Time 23
Section 7.2 Deliveries at the Closing 23
ARTICLE VIII
OTHER MATTERS
Section 8.1 Certain Definitions; Interpretation 23
Section 8.2 Non-Survival of Representations, Warranties 24
Covenants and Agreements
Section 8.3 Amendment 24
Section 8.4 Waiver 24
Section 8.5 Counterparts 24
Section 8.6 Governing Law 24
Section 8.7 Expenses 24
Section 8.8 Notices 24
Section 8.9 Entire Agreement; Etc. 25
Section 8.10 Assignment 25
Section 8.11 Schedules Not Admissions 25
</TABLE>
ii
<PAGE>
This is an AGREEMENT AND PLAN OF MERGER, dated as of the 15th
day of October, 1999 (this "Agreement"), by and among Advanced Technology
Systems, Inc., a Virginia corporation (the "Purchaser"), ATS Acquisitions, Inc.,
a Delaware corporation and a wholly owned subsidiary of the Purchaser (the
"Purchaser Sub"), and n-Vision, Inc., a Delaware corporation (the "Seller").
INTRODUCTORY STATEMENT
The boards of directors of the Purchaser, the Purchaser Sub and the
Seller have approved, and deem it advisable and in the best interests of their
respective companies and their shareholders to consummate the business
combination transaction provided for herein.
The Purchaser desires to continue the business operations of Seller and
utilize its employees, technology and client base as a part of its ongoing
business plan.
The Purchaser, the Purchaser Sub and the Seller desire to make certain
representations, warranties and agreements in connection with the business
combination transaction provided for herein and to prescribe various conditions
to such transaction.
In consideration of their mutual promises and obligations hereunder,
the parties hereto adopt and make this Agreement and prescribe the terms and
conditions hereof and the manner and basis of carrying it into effect, which
shall be as follows:
ARTICLE I
THE MERGER
Section 1.1 Structure of the Merger. On the Effective Date (as defined
in Section 7.1), Purchaser Sub shall merge (the "Merger") with and into Seller
pursuant to a Plan of Merger substantially in the form attached as Exhibit A
which qualifies as a reorganization under Section 368 of the Internal Revenue
Code of 1986, as amended; the separate existence of Purchaser Sub shall cease;
Seller shall be the surviving corporation in the Merger (the "Surviving
Corporation") and a wholly owned subsidiary of Purchaser; and all of the
property (real, personal and mixed), rights, powers, duties and obligations of
Purchaser Sub shall be taken and deemed to be transferred to and vested in
Seller, as the Surviving Corporation in the Merger, without further act or deed;
all in accordance with the applicable laws of the State of Delaware. At the
Effective Time (as defined in Section 7.1), the Certificate of Incorporation and
Bylaws of the Seller shall be amended in their entirety to conform to the
Certificate of Incorporation and Bylaws of Purchaser Sub in effect immediately
prior to the Effective Time and shall become the Certificate of Incorporation
and Bylaws of the Surviving Corporation. At the Effective Time, the directors
and officers of Purchaser Sub shall become the directors and officers of the
Surviving Corporation.
1
<PAGE>
Section 1.2 Effect on Outstanding Shares.
(a) By virtue of the Merger, automatically and without any action on
the part of the holder thereof, each share of the Seller's common stock, par
value $ 0.01 per share (the "Seller Common Stock") issued and outstanding at the
Effective Time (other than (i) shares held directly or indirectly by the
Purchaser and (ii) shares held as treasury stock of the Seller) shall become and
be converted into the right to receive $0.50 in cash without interest (the
"Merger Consideration"). As of the Effective Time, each share of Seller Common
Stock held directly or indirectly by the Purchaser (other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted) and each
share of Seller Common Stock held as treasury stock of the Corporation shall be
cancelled and retired and cease to exist, and no exchange or payment shall be
made with respect thereto.
(b) The shares of common stock of Purchaser Sub issued and outstanding
immediately prior to the Effective Time shall become shares of the Surviving
Corporation after the Merger and shall thereafter constitute all of the issued
and outstanding shares of the capital stock of the Surviving Corporation.
Section 1.3 Exchange Procedures.
(a) At and after the Effective Time, each certificate previously
representing shares of Seller Common Stock (the "Certificate") (except as
specifically set forth in Section 1.2) shall represent only the right to receive
the Merger Consideration in cash without interest.
(b) At or before the Effective Time, the Purchaser shall deposit, or
shall cause to be deposited, with American Stock Transfer & Trust Company (or
such other bank or trust company as selected by the Purchaser and reasonably
acceptable to the Seller) as exchange agent (the "Exchange Agent"), for the
benefit of the holders of shares of Seller Common Stock, for exchange in
accordance with this Section 1.3, an amount of cash sufficient to pay the
aggregate Merger Consideration to be paid pursuant to Section 1.2.
(c) As soon as practicable after the Effective Time, the Purchaser
shall cause the Exchange Agent to mail or deliver to each holder of record of a
Certificate or Certificates the following: (i) a letter of transmittal
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent, which shall be in a customary form; and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon the proper surrender of a Certificate or Certificates to the
Exchange Agent, together with a properly completed and duly executed letter of
transmittal, the holder of such Certificate or Certificates shall be entitled to
receive in exchange therefor a check in an amount equal to the product of the
Merger Consideration and the number of shares of Seller Common Stock represented
by the Certificate or Certificates surrendered pursuant to the provisions
hereof, and the Certificate or Certificates so surrendered shall forthwith be
cancelled. The Purchaser shall direct the Exchange Agent to make payment of the
Merger Consideration with respect to the Certificates so surrendered within five
(5) business days of the receipt of all required documentation. No interest will
be paid or accrued
2
<PAGE>
on the Merger Consideration. In the event of a transfer of ownership of any
shares of Seller Common Stock not registered in the transfer records of the
Seller, a check for the Merger Consideration may be issued to the transferee if
the Certificate representing such Seller Common Stock is presented to the
Exchange Agent, accompanied by documents sufficient, in the discretion of the
Purchaser and the Exchange Agent, (i) to evidence and effect such transfer and
(ii) to evidence that all applicable stock transfer taxes have been paid.
(d) From and after the Effective Time, there shall be no transfers on
the stock transfer records of the Seller of any shares of Seller Common Stock
that were outstanding immediately prior to the Effective Time. If after the
Effective Time Certificates are presented to the Purchaser, they shall be
cancelled and exchanged for the Merger Consideration deliverable in respect
thereof pursuant to this Agreement in accordance with the procedures set forth
in this Section 1.3.
(e) Any portion of the aggregate Merger Consideration or the proceeds
of any investments thereof that remains unclaimed by the shareholders of the
Seller for 18 months after the Effective Time shall be repaid by the Exchange
Agent to the Purchaser. Any shareholders of the Seller who have not theretofore
complied with this Section 1.3 shall thereafter look only to the Purchaser for
payment of their Merger Consideration deliverable in respect of each share of
Seller Common Stock such shareholder holds as determined pursuant to this
Agreement without any interest thereon. Notwithstanding the foregoing, none of
the Purchaser, the Surviving Corporation, the Exchange Agent or any other person
shall be liable to any former holder of Seller Common Stock for any amount
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Exchange Agent, the posting by such person of a bond in such amount as the
Exchange Agent may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the Merger Consideration
deliverable in respect thereof pursuant to this Agreement.
Section 1.4 Options. Purchaser or Seller, at the direction of the
Purchaser, shall pay to each holder of an option which has been granted by the
Seller to purchase shares of Seller Common Stock, and which is outstanding and
exercisable but unexercised immediately prior to the Effective Time ("Seller
Options"), an amount in cash computed by multiplying (i) any positive difference
obtained by subtracting from (x) the per share amount of the Merger
Consideration and (y) the per share exercise price applicable to such option by
(ii) the number of shares of Seller Common Stock subject to such option,
subject, with respect to each such holder, to the receipt by the Purchaser of an
acknowledgment from such holder that such payment shall constitute consideration
for the termination and cancellation of such option. Purchaser shall make such
payments on the Effective Date. The Seller agrees to take or cause to be taken
all action necessary so that each such option outstanding immediately after the
Effective Time as a result of the failure of the holder thereof to deliver the
acknowledgment described in the
3
<PAGE>
preceding sentence shall be converted into a right to receive the amount
described in the preceding sentence.
Section 1.5 Warrants. In the event that any of the Seller's warrants to
purchase shares of Seller Common Stock (the "Seller Warrants"), exercise price
$11.00 per share, are exercised and paid for after the Effective Date and prior
to their expiration, Seller or Purchaser shall pay to the holder of such Warrant
an amount in cash computed by multiplying (x) the per share amount of the Merger
Consideration by (y) the number of shares of Seller Common Stock to be issued
pursuant to such Warrant, subject, with respect to each such holder, to the
receipt of or acknowledgement from such holder that such payment shall
constitute consideration for the termination and cancellation of such Warrant.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Seller. The Seller
represents and warrants to the Purchaser and Purchaser Sub that, except as
specifically disclosed in a letter of the Seller delivered to the Purchaser
prior to the execution hereof (and making specific reference to the Section or
Sections of this Agreement for which an exception is taken) (such letter, as
amended from time to time in the manner provided for in Section 4.7 hereof, the
"Disclosure Schedule"):
(a) Organization.
(i) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
duly qualified to do business and is in good standing in the Commonwealth of
Virginia and in each other jurisdiction in which the nature of the business
conducted or the properties or assets owned or leased by it makes such
qualification necessary. The minute books of the Seller accurately record, in
all material respects, all material corporate actions of its shareholders and
Board of Directors (including Committees thereof). Prior to the execution of
this Agreement, Seller has delivered to Purchaser true and correct copies of the
Certificate of Incorporation and Bylaws of Seller. The Seller has the corporate
power and authority to carry on its business as it is now conducted and to own,
lease and operate its properties. Seller has no subsidiaries.
(ii) The Seller holds all licenses, certificates, permits,
franchises and rights from all appropriate federal, state or other public
authorities necessary for the conduct of its business. The Seller has conducted
its business so as to comply in all respects with all applicable federal, state
and local statutes, ordinances, regulations or rules, and the Seller is not
presently charged with, or, to the Seller's knowledge, under governmental
investigation with respect to, any actual or alleged material violations of any
statute, ordinance, regulation or rule; and the Seller is not the subject of any
pending or, to the Seller's knowledge, threatened material proceeding by any
regulatory authority having jurisdiction over its business, properties or
operations.
4
<PAGE>
(b) Capital Structure.
(i) The authorized capital stock of the Seller consists of
Twenty-Five Million (25,000,000) shares of common stock, par value $0.01 per
share. As of the date of this Agreement: (A) 2,655,569 shares of Seller Common
Stock were issued and outstanding, (B) 500,000 shares of Seller Common Stock
were reserved for issuance pursuant to stock options, and (C) no shares of
Seller Common Stock were held by the Seller in its treasury. All outstanding
shares of Seller Common Stock are validly issued, fully paid and nonassessable
and not subject to any preemptive rights. The Disclosure Schedule 2.1(b) sets
forth a complete and accurate list of all options to purchase Seller Common
Stock outstanding, including the dates of grant, exercise prices, dates of
vesting, dates of termination and shares subject to option for each grant.
(ii) As of the date of this Agreement, except for this
Agreement and as set forth in the Disclosure Schedule 2.1(b), the Seller is not
a party to or is bound by any outstanding subscriptions, options, warrants,
calls, rights, convertible securities, commitments or agreements of any
character obligating the Seller to issue, deliver or sell, or cause to be
issued, delivered or sold, any additional shares of capital stock of the Seller
or obligating the Seller to grant, extend or enter into any such option,
warrant, call, right, convertible security, commitment or agreement. As of the
date hereof, there are no outstanding contractual obligations of the Seller to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Seller.
(iii) To the best of Seller's knowledge, except as declared in
Disclosure Schedule 2.1(b), no person or "group" (as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is the beneficial owner of 5% or more of the outstanding shares
of Seller Common Stock.
(c) Authority. The Seller has all requisite corporate power and
authority to enter into this Agreement and, subject to approval of this
Agreement by the requisite vote of the shareholders of the Seller, to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Seller. This Agreement has been duly executed and delivered by the Seller and,
assuming due execution and delivery by each of the Purchaser and the Purchaser
Sub, constitutes a valid and binding obligation of the Seller, enforceable in
accordance with its terms subject to applicable conservatorship, receivership,
bankruptcy, insolvency and similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of equity,
whether applied in a court of law or a court of equity.
(d) Shareholder Approvals. The Board of Directors of the Seller has
directed that this Agreement and the transactions contemplated hereby be
submitted to the Seller's shareholders for approval at a meeting of such
shareholders and, except for adoption of this Agreement by the requisite vote of
the Seller's shareholders, no other corporate proceedings on the part of the
Company are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. The Seller has received the written opinion of
R P Financial, L.C. to the
5
<PAGE>
effect that the Merger Consideration to be received by the shareholders of the
Seller is fair, from a financial point of view, to such shareholders.
(e) No Violations. Subject to approval of this Agreement by the
regulatory agencies referred to in Section 2.1(g)(ii), the execution, delivery
and performance of this Agreement by the Seller do not, and the consummation of
the transactions contemplated hereby by the Seller will not, constitute (i) a
breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of the Seller of the Seller or to which the Seller (or any of its
properties) is subject, (ii) a breach or violation of, or a default under, the
Certificate of Incorporation or Bylaws of the Seller or (iii) a breach or
violation of, or a default under (or an event which with due notice or lapse of
time or both would constitute a default under), or result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
pledge, security interest, charge or other encumbrance (a "Lien") upon any of
the properties or assets of the Seller under, any of the terms, conditions or
provisions of any note, bond, indenture, deed of trust, loan agreement or other
agreement, instrument or obligation to which the Seller is a party, or to which
any of its properties or assets may be bound or affected.
(f) Consents. Except as referred to herein or in connection, or in
compliance, with the Securities Act of 1933, as amended (the "Securities Act"),
the Exchange Act, and the environmental, corporation, securities or blue sky
laws or regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any public body or authority is necessary
for the consummation by the Seller of the Merger or the other transactions
contemplated by this Merger Agreement.
(g) Reports.
(i) As of their respective dates, neither the Seller's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998, nor any other
document filed subsequent to December 31, 1996 under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, each in the form (including any documents
specifically incorporated by reference therein) filed with the Securities and
Exchange Commission (collectively, the "Reports"), contained or will contain any
untrue statement of a material fact or omitted or will omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Each of the balance sheets of the Seller contained or specifically
incorporated by reference in the Seller's Reports (including in each case any
related notes and schedules) fairly presented the financial position of the
entity to which it relates as of its date and each of the statements of income
and of changes in shareholders' equity and of cash flows of the Seller contained
or specifically incorporated by reference in its Reports (including in each case
any related notes and schedules) (collectively the "Financial Statements"),
fairly presented the results of operations, shareholders' equity and cash flows,
as the case may be, of the entity to which it relates for the periods set forth
therein (subject, in the case of unaudited interim statements, to normal
year-end audit adjustments), in each case in accordance with generally accepted
accounting principles ("GAAP") consistently applied during the periods involved,
except as may be noted therein.
6
<PAGE>
(ii) The Seller has filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file since December 31, 1996 with (A) the
SEC and (B) the National Association of Securities Dealers, Inc. and any other
self-regulatory organization ("SRO"), and have paid all fees and assessments due
and payable in connection therewith, except for those fees and assessments that
would not be material.
(h) Absence of Certain Changes or Events. From December 31, 1998 to the
date hereof: (i) the Seller has not, except as set forth in the Disclosure
Schedule 2.1(h), incurred any material liability, other than in the ordinary
course of its business consistent with past practice, (ii) the Seller has not,
except as set forth in the Disclosure Schedule 2.1(h), taken any action that
would require the consent of the Purchaser and the Purchaser Sub pursuant to
Section 3.2 hereof, and (iii) there has not been any condition, event, change or
occurrence that, individually or in the aggregate, has had, or is reasonably
likely to have, a Material Adverse Effect on the Seller. "Material Adverse
Effect," with respect to a person, means a material adverse effect upon (A) the
business, properties, assets, financial condition or results of operations of
the Seller, or (B) the ability of such person to consummate the transactions
contemplated by this Agreement.
(i) Business of Seller. Since December 31, 1998, Seller has conducted
its business only in the ordinary course. For purposes of the foregoing, Seller
has not, since December 31, 1998, controlled expenses through (i) elimination of
employee benefits, (ii) deferral of routine maintenance of real property or
leased premises, (iii) elimination of reserves where the liability related to
such reserve has remained, (iv) reduction of capital improvements from previous
levels, (v) failure to depreciate capital assets in accordance with past
practice or to eliminate capital assets which are no longer used in the business
of Seller, or (vi) extraordinary reduction or deferral of ordinary or necessary
expenses.
(j) Taxes. All federal, state, local and foreign tax returns, as
defined below, required to be filed by or on behalf of the Seller have been duly
and timely filed or requests for extensions have been timely filed (and any such
extension shall have been granted and not have expired). All taxes, as defined
below, shown on such returns, and all taxes required to be shown on returns for
which extensions have been granted, have been paid in full or adequate provision
has been made for any such taxes on the Seller's balance sheet as of December
31, 1998 (in accordance with GAAP). Since December 31, 1998, there has been no
audit examination of the Seller by the Internal Revenue Service. As of the date
of this Agreement, there is no audit examination, deficiency, claim or
assessment, or refund litigation with respect to any taxes of the Seller that
could reasonably be expected to result in a Material Adverse Effect on the
Seller, and no claim or assessment has been made by any authority in a
jurisdiction where the Seller does not file tax returns and the Seller is
subject to taxation. All taxes, interest, additions, and penalties due with
respect to completed and settled examinations or concluded litigation relating
to the Seller have been paid in full or adequate provision has been made for any
such taxes on the Seller's balance sheet as of December 31, 1998 (in accordance
with GAAP). Except as set forth in
7
<PAGE>
Disclosure Schedule 2.1(j), the Seller has complied with the Tax Identification
Number reporting requirements and has not executed an extension or waiver of any
statute of limitations on the assessment or collection of any material tax due
that is currently in effect. Except as set forth in Disclosure Schedule 2.1(j),
the Seller has withheld and paid all taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, shareholder or other third party, and the Seller has
timely complied with all applicable information reporting requirements under
Part III, Subchapter A of Chapter 61 of the Code and similar applicable state
and local information reporting requirements, except in each case for such
failure to withhold, pay or comply that would not, individually or in the
aggregate, result in a Material Adverse Effect on the Seller.
"Taxes" shall mean all taxes, charges, fees, levies, penalties or other
assessments imposed by any United States federal, state, local, or foreign
taxing authority, including, but not limited to, income, excise, property,
sales, transfer, franchise, payroll, withholding, social security or other
taxes, including any interest, penalties or additions attributable thereto. "Tax
Return" shall mean any return, report, information return or other documents
(including any related or supporting information) with respect to Taxes.
(k) Absence of Claims. Except as set forth in Disclosure Schedule
2.1(k), Seller is not a party to any pending litigation, legal, administrative,
arbitration or other proceeding, claims, actions, investigations or inquiries or
controversy before any court or governmental agency ("Claim"), and Seller is not
aware of any pending Claim against Seller or to which Seller's assets are
subject, in either case which is reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on the Seller or to materially
hinder or delay consummation of the transactions contemplated hereby, and, to
the Seller's knowledge, no such Claim has been threatened.
(l) Agreements.
(i) Except for this Agreement and except as disclosed in
Disclosure Schedule 2.1(l), the Seller is not a party to a written or, to the
Seller's knowledge, oral (A) consulting agreement (other than data processing,
software programming and licensing contracts entered into in the ordinary course
of business not terminable on thirty (30) days' or less notice, and providing
for payments in excess of $5,000 per annum, (B) agreement with any director,
executive officer or other key employee of the Seller the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Seller of the nature contemplated by this Agreement,
(C) agreement with respect to any director, executive officer or key employee of
the Seller providing for other than at-will employment, (D) agreement or plan,
including any stock option plan, stock appreciation rights plan, restricted
stock plan, stock purchase plan, or any other non-qualified compensation plan,
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement, (E) agreement containing covenants that limit the ability of the
Seller to compete in any line of business or with any person, or that involve
any restriction on the geographic area in which or method by which, the Seller
(including any successor thereof) may carry on its business, (F) agreement which
by its terms limits the payment of dividends by Seller, (G) instrument
evidencing or related to indebtedness for borrowed money, whether directly or
indirectly, by way
8
<PAGE>
of purchase money obligation, conditional sale, lease purchase, guaranty or
otherwise, in respect of which Seller is an obligor to any person, which
instrument evidences or relates to indebtedness or which contains financial
covenants or other restrictions (other than those relating to the payment of
principal and interest when due) which would be applicable on or after the
Effective Time to Purchaser, or (H) contract, plan or arrangement which provides
for payments of benefits payable to any participant therein or party thereto,
and which might render any portion of any such payments or benefits subject to
disallowance of deduction therefor as a result of the application of Code
Section 280G.
(ii) All the contracts, plans, arrangements and instruments
listed in Disclosure Schedule 2.1(l) are in full force and effect on the date
hereof and neither Seller nor, to the knowledge of Seller, any other party to
any such contract, plan, arrangement or instrument, has breached any provisions
of, or is in default in any respect under any term of, any such contract, plans,
arrangement or instrument, and no party to any such contract, plan, arrangement
or instrument will have the right to terminate any or all of the provisions of
any such contract, plan, arrangement or instrument as a result of the
transactions contemplated by this Agreement. Except as otherwise described in
Disclosure Schedule 2.1(l), no plan, employment agreement, termination
agreement, or similar agreement or arrangement to which Seller may be liable (i)
contains provisions which permit an employee or independent contractor to
terminate it without cause and continue to accrue benefits thereunder; (ii)
provides for acceleration in the vesting of benefits thereunder upon the
occurrence of a change in ownership or control of Seller; (iii) provides for
benefits which may cause the disallowance of a federal income tax deduction
under the Code Section 280G; or (iv) requires Seller to provide a benefit in the
form of Seller Common Stock or determined by reference to the value of Seller
Common Stock.
(iii) The Seller is not in default under or in violation of
any provision, and is not aware of any fact or circumstance that has been or
could be alleged to constitute a default or violation, of any note, bond,
indenture, mortgage, deed of trust, loan agreement or other agreement to which
it is a party or by which it is bound or to which any of its respective
properties or assets is subject.
(m) Labor Matters. The Seller is not a party to, nor bound by, any
collective bargaining agreement, contract, or other agreement or understanding
with a labor union or labor organization with respect to its employees. The
Seller is not the subject of any proceeding asserting that it has committed an
unfair labor practice or seeking to compel to bargain with any labor
organization as to wages and conditions of employment, nor is the management of
the Seller aware of any strike, other labor dispute or organizational effort
involving the Seller that is pending or threatened.
(n) Title to Assets. Except as set forth in Disclosure Schedule 2.1(n),
the Seller has insurable title (subject only to standard title insurance policy
exceptions as determined by customary practices in the area in which such
properties are located) to its owned real properties, except for liens, as
defined below, or such other defects arising by operation of law or which would
not, individually or in the aggregate, have a Material Adverse Effect on the
Seller. Seller, as lessee, has the right under valid and existing leases of
properties used by Seller in the conduct of its business to occupy and use all
such properties that are leased by it as are now occupied and
9
<PAGE>
used by it, which leases are identified in Disclosure Schedule 2.1(n). Liens
shall mean any claim, encumbrance, or charge on property for payment of a debt,
obligation or duty.
(o) Compliance with Laws. To the best of Seller's knowledge, the Seller
has maintained in full force and effect all permits, licenses, certificates of
authority, orders and approvals of, and has made all filings, applications and
registrations with, federal, state, local and foreign governmental or regulatory
bodies (each, a "Governmental Entity") that are in each case required in order
to permit it to carry on its business as it is presently conducted; to the
knowledge of the Seller, no suspension or cancellation of any of such permits,
licenses, certificates of authority, orders or approvals is threatened. The
business of the Seller is not being conducted in violation of any law,
ordinance, regulation, order, writ, rule, decree or approval of any Governmental
Entity.
(p) Fees. The Seller has not, nor to Seller's knowledge have any of its
respective officers, directors, employees or agents, employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions, or finder's fees, and no broker or finder has acted directly
or indirectly for the Seller in connection with this Agreement or the
transactions contemplated hereby.
(q) Insurance. The Seller is presently insured, and since December 31,
1996 has been insured, for reasonable amounts with financially sound and
reputable insurance companies, against such risks as companies engaged in a
similar business located in the Commonwealth of Virginia would, in accordance
with good business practice, customarily be insured. Each policy of insurance
maintained by Seller as of the date hereof is set forth in Disclosure Schedule
2.1(q). Seller has not received notice from any insurance carrier that (i) such
insurance will be cancelled or that coverage thereunder will be reduced or
eliminated or (ii) premium costs with respect to such insurance will be
increased.
(r) Books and Records. The books and records of the Seller have been,
and are being, maintained in accordance with applicable legal and accounting
requirements and reflect in all material respects the substance of material
events and transactions that should be included therein.
(s) Corporate Documents. The Seller has delivered to the Purchaser true
and complete copies of its Certificate of Incorporation and Bylaws, as amended
to date, which are currently in full force and effect.
10
<PAGE>
Section 2.2 Representations and Warranties of the Purchaser and
Purchaser Sub. The Purchaser and Purchaser Sub represent and warrant to the
Seller that:
(a) Corporate Organization and Qualification.
(i) Purchaser. The Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Virginia.
(ii) Purchaser Sub. Purchaser Sub will at the Effective Time
be a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware. Purchaser Sub will not, prior to the
Effective Time, engage in any business other than the transactions contemplated
by this Agreement or have any obligations or liabilities other than its
obligations hereunder.
(iii) Capital Structure. The authorized capital stock of the
Purchaser Sub consists of 1,000 shares of common stock, par value $.0l per share
("Purchaser Sub Common Stock"). As of October 14, 1999, 1,000 shares of
Purchaser Sub Common Stock were outstanding. At the Effective Time, all the
issued and outstanding capital stock of Purchaser Sub will be owned by the
Purchaser. All outstanding shares of capital stock of the Purchaser Sub is, and
at the Effective Time will be, and all outstanding shares of capital stock of
Purchaser Sub at the Effective Time will be, validly issued, fully paid and
nonassessable and not subject to any preemptive rights.
(iv) Authority. Each of the Purchaser and the Purchaser Sub
has the requisite power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of the Purchaser and the Purchaser Sub and, assuming due
execution and delivery by the Seller, is a valid and binding agreement of the
Purchaser and the Purchaser Sub enforceable against the Purchaser and the
Purchaser Sub in accordance with its terms subject to applicable bankruptcy,
insolvency and similar laws affecting creditors rights and remedies generally
and subject, as to enforceability, to general principles of equity whether
applied in a court of law or a court of equity.
(v) No Violations. The execution, delivery and performance of
this Agreement by the Purchaser or the Purchaser Sub do not, and the
consummation of the transactions contemplated hereby will not, constitute (i) a
breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of the Purchaser or the Purchaser Sub or to which the Purchaser
(or any of its respective properties) is subject, (ii) a breach or violation of,
or a default under, the Certificate of Incorporation or Bylaws of the Purchaser
or the Purchaser Sub or (iii) a breach or violation of, or a default under (or
an event which with due notice or lapse of time or both would constitute a
default under), or result in the termination of, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the properties or assets of the
Purchaser or the Purchaser Sub under any of the terms, conditions or provisions
of any note, bond, indenture, deed of trust, loan
11
<PAGE>
agreement or other agreement, instrument or obligation to which the Purchaser or
the Purchaser Sub is a party, or to which any of their respective properties or
assets may be bound or affected.
(vi) Access to Funds. The Purchaser and the Purchaser Sub on
the date hereof have, and at the Effective Time will have, all funds necessary
to consummate the Merger and fulfill their obligations under the terms of this
Agreement, including without limitation, their obligation to pay the aggregate
Merger Consideration.
(vii) Absence of Claims. No litigation, proceeding or
controversy before any court or governmental agency is pending, and there is no
pending claim, action or proceeding against the Purchaser, the Purchaser Sub or
any of their subsidiaries, which is reasonably likely, individually or in the
aggregate, to materially hinder or delay consummation of the transactions
contemplated hereby, and, to the best of the Purchaser's knowledge, no such
litigation, proceeding, controversy, claim or action has been threatened.
ARTICLE III
CONDUCT PENDING THE MERGER
Section 3.1 Conduct of the Seller's Business Prior to the Effective
Time. Except with the written consent of Purchaser, from and after the execution
and delivery of this Agreement and until the Effective Time, the Seller will:
(a) conduct its business, maintain its properties and operate only in
the ordinary course of business consistent with past practices and maintain
Seller's Financial Statements and Reports in accordance with GAAP;
(b) use its commercially reasonable efforts to maintain and preserve
intact its business organization, properties, leases and advantageous business
relationships and maintain good relationships with employees and goodwill and
business relationships with customers and others;
(c) maintain in full force and effect all of the insurance policies and
bonds covering the directors, officers, employees, properties, and businesses of
the Seller; and
(d) not knowingly take any action which would materially adversely
affect or delay the ability of the Seller, Purchaser or the Purchaser Sub to
obtain any necessary approvals, consents or waivers of any governmental
authority or any other entity required for the transactions contemplated hereby.
Section 3.2 Forbearance by the Seller. Without limiting the covenants
set forth in Section 3.1 hereof, except as otherwise specifically provided in
this Agreement and except to the extent required by law or regulation or by
regulatory authorities, and except in each case as specifically permitted by
other subsections of this Section 3.2 from and after the execution and delivery
of this Agreement and until the Effective Time, the Seller will not, without the
prior written consent of the Purchaser and Purchaser Sub:
12
<PAGE>
(a) amend its Certificate of Incorporation or Bylaws or other corporate
governance documents;
(b) issue or sell any shares of its capital stock, issue or grant any
stock options, warrants, rights, calls or commitments of any character calling
for or permitting the issuance or sale of its capital stock (or securities
convertible into or exchangeable, with or without additional consideration, for
shares of such capital stock or amend any of the terms of the outstanding stock
options);
(c) pay or declare any cash dividend or other dividend or distribution
with respect to the Seller's capital stock;
(d) increase or reduce the number of shares of its capital stock by
split, reverse split, reclassification, distribution of stock dividends, change
of par or stated value or otherwise modify, change or amend the voting rights or
preferences attributable to any such capital stock;
(e) purchase, permit the conversion of or otherwise acquire or transfer
for any consideration any outstanding shares of its capital stock or securities
carrying the right to acquire, or convert into or exchange for such stock, with
or without additional consideration;
(f) (i) adopt, amend or otherwise modify any of Seller's employee
plans, including, without limitation, any bonus, stock, pension, profit sharing,
retirement or other compensation plan qualified or non-qualified; (ii) enter
into or amend any contract of employment with any officer which is not
terminable at will without cost or other liability; (iii) make or grant any
general or individual wage or salary increase or increase in any manner the
compensation or fringe benefits of any of its employees, officers or directors
(other than any wage or salary increase to be implemented in the ordinary course
of business; (iv) become a party to or commit itself to find or otherwise
establish any trust or account related to any Employee Plan with or for the
benefit of any employee, officer or director; (v) hire any new employee, except
that Seller may hire individuals of comparable skills and qualifications and at
comparable levels of compensation to replace any employees who terminate their
employment with Seller after the date of this Agreement; (vi) pay any bonus
under any bonus or compensation plan (other than bonuses which have been
determined to be paid prior to the execution and delivery of this agreement; or
(vii) make any discretionary contribution to any Employee Plan;
(g) incur any obligations, liabilities or expenses or make any
charitable contributions, except in the ordinary course of business consistent
with past practice;
(h) merge or consolidate Seller with any other corporation; sell,
transfer or lease any of its assets or property except in the ordinary course of
business; or make any acquisition of all or any substantial portion of the
business or assets of any other person, firm, association, corporation or
business organization;
(i) waive, release, transfer or grant any rights, or modify or change
in any material respect, any material leases, licenses or agreements, other than
in the ordinary course of business;
13
<PAGE>
(j) subject any asset or property of Seller to a lien, mortgage,
pledge, security interest or other encumbrance; modify in any material respect
the manner in which Seller has heretofore conducted its business or enter into
any new line of business;
(k) incur any indebtedness for borrowed money (or guarantee any
indebtedness for borrowed money), except for deposit liabilities and except for
indebtedness incurred in the ordinary course of business the repayment term of
which does not exceed 30 days;
(l) cancel or compromise any debt or claim, which has not previously
been charged off, other than in the ordinary course of business and in an
aggregate amount which would not have a Material Adverse Effect on Seller;
(m) enter into any transaction other than in the ordinary course of
business;
(n) invite or initiate or engage in discussions or negotiations for the
acquisition or merger of the Seller by or with any corporation or other entity
other than the Purchaser or its affiliates;
(o) take any action which constitutes a breach or default of its
obligations under this Agreement, or would result in any of its representations
or warranties set forth in this Agreement becoming untrue, or which is
reasonably likely to delay or jeopardize the receipt of any of the regulatory
approvals required hereby;
(p) change its method of accounting as in effect as of December 31,
1998, except as required by changes in GAAP or Governmental Entities;
(q) agree to the extension of any statute of limitations for making any
assessments with respect to Taxes;
(r) fail to maintain and keep its properties in as good repair and
condition as at present, except for ordinary wear and tear;
(s) make any loan or loan commitment to any of its officers, directors
or 5% or more shareholders (or any person or entity controlled by or affiliated
with such officer, director or 5% or more shareholder);
(t) agree or make any commitment to take any action to do any of the
foregoing.
Section 3.3 Conduct of the Purchaser's and the Purchaser Sub's Business
Prior to the Effective Time. Except as expressly provided in this Agreement,
during the period from the date of this Agreement to the Effective Time, the
Purchaser shall not, and shall cause the Purchaser Sub not to, (i) take any
action that would cause the representations in Section 2.2 to fail to be true
and accurate or that would materially affect the ability of the Purchaser and
the Purchaser Sub to perform their covenants and agreements under this Agreement
or to consummate the transactions contemplated hereby or (H) take any action,
which would
14
<PAGE>
materially adversely affect or delay the ability of the Seller or the Purchaser
to obtain any necessary approvals, consents or waivers of any governmental
authority required for the transactions contemplated hereby.
ARTICLE IV
COVENANTS
Section 4.1 No Solicitation. From and after the date hereof until the
termination of this Agreement, neither the Seller, nor any of its officers,
directors, employees, representatives, agents or affiliates (including, without
limitation, any investment banker, attorney or accountant retained by the
Seller), will, directly or indirectly, initiate, solicit or knowingly encourage
(including by way of furnishing non-public information or assistance), or take
any other action to facilitate knowingly, any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal (as defined below), or enter into or maintain or continue
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain an Acquisition Proposal or agree to or endorse any
Acquisition Proposal, or authorize or permit any of its officers, directors or
employees or any investment banker, financial advisor, attorney, accountant or
other representative to take any such action, and the Seller shall notify
Purchaser orally (within one business day) and in writing (as promptly as
practicable) of all of the relevant details relating to all inquiries and
proposals which it or any such officer, director, employee, investment banker,
financial advisor, attorney, accountant or other representative may receive
relating to any of such matters and if such inquiry or proposal is in writing,
the Seller shall deliver to Purchaser a copy of such inquiry or proposal
promptly; provided, however, that nothing contained in this Section 4.1 shall
prohibit the Board of Directors of the Seller from (i) furnishing information
to, or entering into discussions or negotiations with any person or entity that
makes an unsolicited written, bona fide proposal, to acquire the Seller pursuant
to a merger, consolidation, share exchange, business combination, tender or
exchange offer or other similar transaction, if, and only to the extent that,
(A) the Board of Directors of the Seller receives a written opinion from its
independent financial advisor that such proposal is superior to the Merger from
a financial point-of-view to the Seller's shareholders, (B) the Board of
Directors of the Seller, after consultation with and based upon the written
advice of independent legal counsel (who may be the Seller's regularly engaged
independent legal counsel),
15
<PAGE>
determines in good faith that such action is necessary for the Board of
Directors of the Seller to comply with its fiduciary duties to shareholders
under applicable law (such proposal that satisfies (A) and (B) being referred to
herein as a "Superior Proposal") and (C) prior to furnishing such information
to, or entering into discussions or negotiations with, such person or entity,
the Seller (x) provides reasonable notice to Purchaser to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
such person or entity and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form, (ii) complying with Rule
14e-2 promulgated under the Exchange Act with regard to a tender or exchange
offer or (iii) failing to make or withdrawing or modifying its recommendation
and entering into a Superior Proposal if there exists a Superior Proposal and
the Board of Directors of the Seller, after consultation with and based upon the
written advice of independent legal counsel (who may be the Seller's regularly
engaged independent legal counsel), determines in good faith that such action is
necessary for the Board of Directors of the Seller to comply with its fiduciary
duties to shareholders under applicable law. For purposes of this Agreement,
"Acquisition Proposal" shall mean any of the following (other than the
transactions contemplated hereunder) involving the Seller: (i) any merger,
consolidation, share exchange, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 10% or more of the assets of the Seller, taken as a whole, in a
single transaction or series of transactions; (iii) any tender offer or exchange
offer for 10% or more of the outstanding shares of capital stock of the Seller
or the filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
Section 4.2 Employees and Directors. None of the Seller's officers
shall by virtue of the Merger become officers of the Purchaser or the Purchaser
Sub, or have or exercise any power or duty conferred upon such an officer,
unless and until duly elected or appointed to such position in accordance with
the Bylaws of the Purchaser or the Purchaser Sub, respectively. Neither the
Purchaser nor the Purchaser Sub shall have any duty or obligation to continue to
employ any of Seller's employees beyond the Effective Date. All of Seller's
employees who remain following the Effective Date shall be employed at will. No
contractual right to employment shall inure to such employees because of this
Agreement.
Section 4.3 Access and Information.
(a) From the date of this Agreement through the Effective Time, Seller
shall afford to each of Purchaser and its authorized agents and representatives,
reasonable access to its properties, assets, books and records and personnel, at
reasonable business hours and after reasonable notice; and Purchaser shall be
provided with such financial and operating data and other information with
respect to the businesses, properties, assets, books and records and personnel
of Seller as it shall from time to time reasonably request. Purchaser agrees to
conduct any such requests and discussions hereunder in a manner so as not to
interfere unreasonably with normal operations and consumer and employee
relationships of Seller. In the event the Purchaser learns of any information or
matters during such investigation that the Purchaser believes may constitute or
reveal a material breach of the Seller's representations, warranties, covenants
or agreements contained herein, the Purchaser shall provide the Seller with a
written notice within 15 business days or such longer period as extended by the
parties in writing contemplated by this Section 4.3, specifying the information
or matters learned and the basis upon which they may constitute or reveal a
material breach of the Seller's representations, warranties, covenants or
agreements. No breach of a representation, warranty, covenant or agreement that
is learned pursuant to Purchaser's investigation contemplated by this Section
4.3 shall constitute a material breach of a representation, warranty, covenant
or agreement by Seller under any provision of or for any purpose under this
Agreement and the information or matters underlying such breach shall be deemed
to have been fully disclosed in Seller's disclosure pursuant to this Agreement,
unless Purchaser provides Seller with a written notice relating thereto
delivered within the time period provided in the immediately preceding sentence
and Purchaser exercises its right to terminate this Agreement on the basis
thereof in accordance with Section 6.1.
16
<PAGE>
(b) The Purchaser agrees to treat as strictly confidential all
information received from the Seller and agrees not to divulge to any other
person, natural or corporate (other than essential employees and agents of such
party) any financial statements, schedules, contracts, agreements, instruments,
papers, documents and other information relating to the Seller which it may come
to know or which may come into its possession and, if the transactions
contemplated hereby are not consummated for any reason, agrees promptly to
return to the Seller all written material furnished by Seller.
(c) Each party hereto will not, and will cause its respective
representatives not to, use any information obtained from any other such party
as a result of this Agreement (including this Section 4.3) or in connection with
the transactions contemplated hereby (whether so obtained before or after the
execution hereof, including work papers and other materials derived therefrom
(collectively, the "Confidential Information") for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement. Subject to the
requirements of law, regulation and applicable Governmental Entities, each party
hereto will keep confidential, and will cause its respective representatives to
keep confidential, all Confidential Information relating to or furnished by any
other such party unless such information (i) was already or becomes known to the
general public, other than from a prohibited disclosure by a party to this
Agreement or its representatives, (ii) becomes available to such party or an
affiliate of such party from sources (other than another party to this Agreement
or its representatives) not bound by a confidentiality obligation or agreement,
(iii) is disclosed with the prior written approval of the party which furnished
such Confidential Information or (iv) is or becomes readily ascertainable from
published information. In the event that this Agreement is terminated or the
transactions contemplated by this Agreement shall otherwise fail to be
consummated, each party hereto and its respective representatives shall promptly
cause all Confidential Information in the possession of itself and its
representatives, including all copies or extracts thereof, to be returned to the
party which furnished the same.
Section 4.4 Antitakeover Provisions. The Seller shall use reasonable
best efforts (i) to exempt or continue to exempt the Purchaser, the Agreement
and the Merger from any provisions of an antitakeover nature in the Seller's
Certificate of Incorporation and Bylaws and the provisions of any federal or
state antitakeover laws, and (ii) upon the reasonable request of the Purchaser,
to assist in any challenge by the Purchaser to the applicability to the
Agreement or the Merger of any state antitakeover law.
Section 4.5 Additional Agreements. Subject to the terms and conditions
of this Agreement, each of the parties hereto agrees to use all reasonable
efforts to take promptly, or cause to be taken promptly, all actions and to do
promptly, or cause to be done promptly, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement as promptly as practicable,
including using reasonable efforts to obtain all necessary actions or
non-actions, extensions, waivers, consents and approvals from all applicable
governmental entities, effecting all necessary registrations, applications and
filings (including, without limitation, filings under any applicable state
securities laws) and obtaining any required contractual consents and regulatory
approvals.
17
<PAGE>
Section 4.6 Publicity. The initial press release announcing this
Agreement shall be a joint press release and thereafter the Seller and the
Purchaser shall consult with each other in issuing any press releases or similar
public disclosure with respect to the other or the transactions contemplated
hereby and in making any filings with any governmental entity or with any
national securities exchange or association with respect thereto; provided,
however, that nothing contained in this Section 4.6 shall prohibit any party
from responding to questions from the business press or, following notification
to the other parties to this Agreement, from making any disclosure which, after
consultation with its counsel, it deems necessary to comply with the
requirements of applicable law or regulation.
Section 4.7 Notification of Certain Matters. The Purchaser and the
Purchaser Sub, on the one hand, and the Seller, on the other hand, shall give
prompt notice to the other of (a) the occurrence or its knowledge of any event
or condition that would cause any of its representations or warranties set forth
in this Agreement not to be true and correct in all material respects as of the
date of this Agreement or as of the Effective Time (except as to any
representation or warranty which specifically relates to an earlier date), or
any of its obligations set forth in this Agreement required to be performed at
or prior to the Effective Time not to be performed in all material respects at
or prior to the Effective Time (any such notice, a "Supplemental Disclosure
Schedule "), including without limitation, any event, condition, change or
occurrence which individually or in the aggregate has, or which, so far as
reasonably can be foreseen at the time of its occurrence, is reasonably likely
to result in a Material Adverse Effect on it; and (b) any action of a third
party of which it receives notice that might reasonably be expected to prevent
or materially delay the consummation of the transactions contemplated hereby,
including, without limitation, any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement. Any
Supplemental Disclosure Schedule given by the Seller to the Purchaser shall be
deemed to amend the Disclosure Schedule and, unless the Purchaser, by written
notice to the Seller given within fifteen (15) business days of its receipt of
such Supplemental Disclosure Schedule, exercises any right of termination it may
then have under Section 6.1(b), the Purchaser shall thereafter be deemed to have
permanently and irrevocably waived (on behalf of itself and its Subsidiaries)
(i) any right of termination (or any other rights or remedies) arising out of or
with respect to the events or conditions described in such Supplemental
Disclosure Schedule; and (ii) any contribution of such events or conditions
towards the occurrence of a Material Adverse Effect; provided, that no such
waiver shall exist with respect to the cumulation of such events or conditions
with any other events or conditions described in any subsequent Supplemental
Disclosure Schedule for purposes of determining the occurrence of a Material
Adverse Effect.
Section 4.8 Indemnification.
(a) From and after the Effective Time through the sixth anniversary of
the Effective Date, the Purchaser and the Purchaser Sub on a joint and several
basis agree to indemnify and hold harmless each present and former director and
officer of the Seller (each, an "Indemnified Party"), against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities (collectively, the "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, and whether or not the
Indemnified Party is a party thereto, arising out of matters
18
<PAGE>
existing or occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement), whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent then permitted under
Delaware law or, if greater, that the Seller would have been permitted under its
Certificate of Incorporation or Bylaws in effect on the date hereof.
(b) Any Indemnified Party wishing to claim indemnification under
Section 4.8(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Purchaser and the Purchaser Sub
thereof, but the failure to so notify shall not relieve the Purchaser or the
Purchaser Sub of any liability it may have hereunder to such Indemnified Party
if such failure does not materially and substantially prejudice the indemnifying
party. In the event of any such claim, action, suit, proceeding or
investigation, (i) the Purchaser or the Purchaser Sub shall have the right to
assume the defense thereof with counsel reasonably acceptable to the Indemnified
Party and neither the Purchaser nor the Purchaser Sub shall be liable to such
Indemnified Party for any legal expenses of other counsel subsequently incurred
by such Indemnified Party in connection with the defense thereof, except that if
neither the Purchaser nor the Purchaser Sub elects to assume such defense within
a reasonable time or counsel for the Indemnified Party at any time advises that
there are issues which raise conflicts of interest between the Purchaser or the
Purchaser Sub and the Indemnified Party, the Indemnified Party may retain
counsel satisfactory to such Indemnified Party, and the Purchaser or the
Purchaser Sub shall remain responsible for the reasonable fees and expenses of
such counsel as set forth above, promptly as statements therefor are received;
provided, however, that the Purchaser and the Purchaser Sub shall be obligated
pursuant to this paragraph (b) to pay for only one firm of counsel for all
Indemnified Parties in any one jurisdiction with respect to any given claim,
action, suit, proceeding or investigation unless the use of one counsel for such
Indemnified Parties would present such counsel with a conflict of interest; (ii)
the Indemnified Party will reasonably cooperate in the defense of any such
matter and (iii) the Purchaser shall not be liable for any settlement effected
by an Indemnified Party without its prior written consent, which consent may not
be withheld unless such settlement is unreasonable in light of such claims,
actions, suits, proceedings or investigations against, and defenses available
to, such Indemnified Party.
Section 4.9 Shareholders' Meeting. The Seller shall take all action
necessary, in accordance with applicable law and its Certificate of
Incorporation and Bylaws, to convene a meeting of the holders of Seller Common
Stock (the "Shareholder Meeting") as promptly as practicable for the purpose of
considering and voting on the approval and adoption of this Agreement. The
Seller's Board of Directors, subject to its fiduciary duties as advised by such
board's counsel, (i) shall recommend at the Shareholder Meeting that the holders
of the Seller Common Stock vote in favor of and approve and adopt this Agreement
and (ii) shall use its reasonable best efforts to solicit such approvals.
Section 4.10 Proxy Statement. As soon as practicable after the date
hereof, the Seller shall prepare a proxy statement, which shall be reasonably
acceptable to counsel to the Purchaser, to take shareholder action on the Merger
and this Agreement (the "Proxy Statement"), file the Proxy Statement with the
SEC, respond to comments of the staff of the SEC and promptly thereafter mail
the Proxy Statement to all holders of record (as of the applicable record date)
of shares of Seller Common Stock. The Seller shall provide the Purchaser with
reasonable
19
<PAGE>
opportunity to review and comment upon the contents of the Proxy Statement. The
Seller represents and covenants that the Proxy Statement and any amendment or
supplement thereto, at the date of mailing to shareholders of the Seller and the
date of the Shareholder Meeting, will be in material compliance with all
relevant rules and regulations of the SEC and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Purchaser and the
Purchaser Sub shall furnish the Seller with all information concerning the
Purchaser and the Purchaser Sub as the Seller may reasonably request in
connection with the Proxy Statement. To the extent not prohibited by the
Association of Independent Certified Public Accountants, the Seller shall cause
to be delivered to the Purchaser letters of procedures from the Seller's
independent certified public accountants, (i) dated the date of the mailing of
the Proxy Statement to the Seller's shareholders and delivered on such date and
(ii) dated a date not earlier than five business days preceding the Closing Date
(as defined in Section 7.1) and addressed to the Purchaser and delivered on or
prior to the Closing Date, concerning such matters as are customarily covered in
transactions of the type contemplated hereby.
ARTICLE V
CONDITIONS TO CONSUMMATION
Section 5.1 Conditions to Each Party's Obligations. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions, none
of which may be waived:
(a) this Agreement shall have been approved by the requisite vote of
the holders of Seller Common Stock at the Shareholder Meeting in accordance with
applicable law; and
(b) no party hereto shall be subject to any order, decree or injunction
of a court or agency of competent jurisdiction which enjoins or prohibits the
consummation of the Merger.
Section 5.2 Conditions to the Obligations of the Purchaser under this
Agreement. The obligations of the Purchaser to effect the Merger shall be
further subject to the satisfaction at or prior to the Effective Time of the
following conditions, any one or more of which may be waived by the Purchaser:
(a) each of the obligations, covenants and agreements of the Seller
required to be performed by it at or prior to the Effective Time pursuant to the
terms of this Agreement shall have been duly performed and complied with in all
material respects, and the Purchaser shall have received a certificate to the
foregoing effect dated the Effective Date and signed by an officer of the
Seller;
(b) the representations and warranties of the Seller contained in this
Agreement (subject to Section 4.7) shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time (as
though made at and as of the Effective Time except as to (i) any
20
<PAGE>
representation or warranty which specifically relates to an earlier date and
(ii) where the facts which cause the failure of any representation or warranty
to be so true and correct would not, either individually or in the aggregate,
constitute a Material Adverse Effect on Purchaser and its Subsidiaries taken as
a whole) and the Purchaser shall have received a certificate to the foregoing
effect dated the Closing Date signed by an officer of the Seller;
(c) the Purchaser shall have received certified copies of the
resolutions or documents of like import evidencing the authorization of this
Agreement and the consummation of the transactions contemplated hereby by the
Seller's Board of Directors and the Seller's shareholders;
(d) the Seller shall have furnished the Purchaser with such
certificates of its officers or others and such other documents to evidence
fulfillment of the conditions set forth in this Section 5.2 as the Purchaser may
reasonably request; and
(e) the Seller will be responsible for making all filings and/or
submitting all returns with respect to any state and/or local real estate
transfer or gains taxes that are required to be filed before the Effective Time.
Seller also agrees to pay any expenses relating to the preparation or filing of
returns with respect thereto.
Section 5.3 Conditions to the Obligations of the Seller. The
obligations of the Seller to effect the Merger shall be further subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
one or more of which may be waived by the Seller:
(a) each of the obligations of the Purchaser and the Purchaser Sub,
respectively, required to be performed by it at or prior to the Effective Date
pursuant to the terms of this Agreement shall have been duly performed and
complied with in all material respects, and the Seller shall have received a
certificate to the foregoing effect dated the Closing Date and signed by an
officer of each of the Purchaser and Purchaser Sub; and
(b) the representations and warranties of the Purchaser and Purchaser
Sub contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time (as
though made at and as of the Effective Time except as to any representation or
warranty which specifically relates to an earlier date) and the Seller shall
have received a certificate to the foregoing effect dated the Effective Date
signed by an officer of each of the Purchaser and Purchaser Sub.
21
<PAGE>
ARTICLE VI
TERMINATION
Section 6.1 Termination. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated, and the Merger abandoned, prior to
the Effective Time, either before or after its approval by the shareholders of
the Seller:
(a) by the mutual consent of the Purchaser and the Seller in a written
instrument if the Board of Directors of each so determines by vote of a majority
of the members of its respective entire board;
(b) by the Purchaser or the Seller (provided that the party seeking
termination is not then in material breach of any representation, warranty,
covenant or other agreement contained herein), in the event of (i) a failure to
perform or comply by the other party with any covenant or agreement of such
other party contained in this Agreement, which failure or non-compliance is
material in the context of the transactions contemplated by this Agreement, or
(ii) any inaccuracies, omissions or breach in the representations, warranties,
covenants or agreements of the other party contained in this Agreement the
circumstances as to which either individually or in the aggregate have, or
reasonably could be expected to have, a Material Adverse Effect on such other
party; in either case which has not been or cannot be cured within 30 calendar
days after written notice thereof is given by the party seeking to terminate to
such other party;
(c) by the Purchaser or the Seller by written notice to the other party
if either (i) any approval, consent or waiver of a governmental authority
required to permit consummation of the transactions contemplated hereby shall
have been denied or (ii) any governmental authority of competent jurisdiction
shall have issued a final, unappealable order enjoining or otherwise prohibiting
consummation of the transactions contemplated by this Agreement, provided,
however, that no party shall have the right to terminate this Agreement pursuant
to this Section 6.1(c) if such denial or request or recommendation for
withdrawal shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants and agreements of such party set
forth herein;
(d) by the Purchaser, if the Board of Directors of the Seller does not
publicly recommend in the Proxy Statement that the Seller's shareholders approve
and adopt this Agreement or if, after recommending in the Proxy that
shareholders approve and adopt this Agreement, the Board of Directors of the
Seller shall have withdrawn, modified or amended such recommendation in any
respect materially adverse to the Purchaser, or the Shareholders Meeting is held
and the holders of Seller Common Stock shall fail to approve and adopt this
Agreement; or
(e) by the Purchaser by written notice to the Seller in the event that
there has occurred since the date of this Agreement an event, condition, change
or occurrence which, individually or in the aggregate, has had or could
reasonably be expected to result in a Material Adverse Effect on the Seller;
provided that the Purchaser shall have given the Seller thirty (30) calendar
days
22
<PAGE>
prior written notice of such termination, and the Seller shall not have remedied
such event, condition, change or occurrence by the end of such thirty-day
period.
Section 6.2 Effect of Termination. In the event of termination of this
Agreement by either the Purchaser or the Seller as provided in Section 6.1, this
Agreement shall forthwith become void and have no effect except (i) Sections
4.3(b) and 4.3(c) shall survive any termination of this Agreement, and (ii) that
notwithstanding anything to the contrary contained in this Agreement, no party
shall be relieved or released from any liabilities or damages arising out of its
willful breach of any provision of this Agreement.
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.1 Effective Date and Effective Time. Subject to the
provisions of Article V and VI, the closing of the transactions contemplated
hereby shall take place at the offices of the Purchaser on such date (the
"Closing Date") and at such time as the Purchaser and the Seller mutually agree
to within five (5) days after the expiration of all applicable waiting periods
in connection with approvals of governmental authorities and all conditions to
the consummation of this Agreement are satisfied or waived, or on such other
date as may be agreed by the parties. Subject to the provisions of this
Agreement, on the Closing Date, the Plan of Merger shall be signed, verified and
affirmed as required by Delaware Law and duly filed with the Secretary of State
of the State of Delaware. The date of such filing is herein called the
"Effective Date". The "Effective Time" of the Merger shall be the time on the
Effective Date as set forth in such Plan of Merger.
Section 7.2 Deliveries at the Closing. Subject to the provisions of
Articles V and VI, on the Closing Date there shall be delivered to the Purchaser
and the Seller the documents and instruments required to be delivered under
Article V.
ARTICLE VIII
OTHER MATTERS
Section 8.1 Certain Definitions; Interpretation. As used in this
Agreement, the following terms shall have the meanings indicated, unless the
context otherwise requires:
"materials" means material to the Purchaser or the Seller (as
the case may be) and its respective subsidiaries, taken as a
whole.
"person" includes an individual, corporation, partnership,
association, trust or unincorporated organization.
When a reference is made in this Agreement to Sections or Exhibits,
such reference shall be to a Section of, or Exhibit to, this Agreement unless
otherwise indicated. The headings contained in this Agreement are for ease of
reference only and shall not affect the meaning or
23
<PAGE>
interpretation of this Agreement. Whenever the words "include, "includes, or
"including" are used in this Agreement, they shall be deemed followed by the
words "without limitation." Any singular term in this Agreement shall be deemed
to include the plural, and any plural term the singular. Any reference to gender
in this Agreement shall be deemed to include any other gender.
Section 8.2 Non-Survival of Representations, Warranties, Covenants and
Agreements. All representations, warranties, covenants and agreements contained
in this Agreement (or in any instrument delivered pursuant to this Agreement)
shall not survive beyond the Effective Time, except for the agreements contained
in Article I and Section 4.8.
Section 8.3 Amendment. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective boards of directors,
at any time before or after approval hereof by the shareholders of the Seller
but, after such approval, no amendment shall be made which reduces the amount or
changes the form of the Merger Consideration as provided in Section 1.02 or
which in any way materially adversely affects the rights of such shareholders,
without the further approval of such shareholders. This Agreement may not be
amended except by an instrument in writing specifically referring to this
Section 8.3 and signed on behalf of each of the parties hereto.
Section 8.4 Waiver. At any time prior to the Effective Date, the
Purchaser and the Purchaser Sub, on the one hand, and the Seller, on the other
hand, may (i) extend the time for the performance of any of the obligations or
other acts of the other, (ii) waive any inaccuracies in the representations and
warranties of the other contained herein or in any documents delivered pursuant
hereto and (iii) waive compliance by the other with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing specifically referring to this Section 8.4
and signed on behalf of such party.
Section 8.5 Counterparts. This Agreement may be executed in
counterparts each of which shall be deemed to constitute an original, but all of
which together shall constitute one and the same instrument.
Section 8.6 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Delaware, without
regard to conflicts of laws principles.
Section 8.7 Expenses. Each party hereto will bear all expenses incurred
by it in connection with this Agreement and the transactions contemplated
hereby.
Section 8.8 Notices. All notices, requests, acknowledgements and other
communications hereunder to a party shall be in writing and shall be delivered
by hand, overnight courier or by facsimile transmission (confirmed in writing)
to such party at its address or facsimile number set forth below or such other
address or facsimile number as such party may specify by notice hereunder, and
shall be deemed to have been delivered as of the date so delivered .
24
<PAGE>
Section 8.9 Entire Agreement; Etc. This Agreement, together with the
Disclosure Schedules (including any Supplemental Disclosure Schedules), the
Exhibits and the Plan of Merger, represent the entire understanding of the
parties hereto with reference to the transactions contemplated hereby and
supersedes any and all other oral or written agreements heretofore made. All
terms and provisions of the Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
Nothing in this Agreement is intended to confer upon any other person any rights
or remedies of any nature whatsoever under or by reason of this Agreement.
Section 8.10 Assignment. This Agreement may not be assigned by any
party hereto without the written consent of the other parties.
Section 8.11 Schedules Not Admissions. Inclusion in any Exhibit hereto
or in the Disclosure Schedules (including in any Supplemental Disclosure
Schedule) of any statement or information by the Seller shall not constitute an
admission that such information is required (by reason of materiality or
otherwise) to be furnished as part of such Disclosure Schedules,
25
<PAGE>
(including any Supplemental Disclosure Schedule) or otherwise under this
Agreement or an admission against interest with respect to any person not a
party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
ADVANCED TECHNOLOGY SYSTEMS, INC.
By: /s/ Claude H. Rumsey, Jr.
-------------------------------
ATS ACQUISITIONS, INC.
By: /s/ Claude H. Rumsey, Jr.
-------------------------------
N-VISION, INC.
By: /s/ Delmar J. Lewis
-------------------------------
26
<PAGE>
Appendix B
RP FINANCIAL, LC.
- --------------------------------------------------------------------------------
Financial Advisory and Investment Banking Services
October 6, 1999
Board of Directors
N-Vision, Inc.
7680 Old Springhouse Road
Madison Building, First Floor
McLean, Virginia 22102
Members of the Board:
You have requested RP Financial, LC. ("RP Financial") to provide you
with its opinion as to the fairness from a financial point of view to the
shareholders of N-Vision, Inc., McLean, Virginia ("NVSN"), of the draft
Agreement and Plan of Merger (the "Agreement"), by and among NVSN and Advanced
Technology Systems, Inc. ("ATS"), whereby ATS will acquire for cash all of the
outstanding shares of NVSN Common Stock and NVSN will merge with and into ATS
(the "Merger"). The Agreement, inclusive of exhibits, is incorporated herein by
reference. Unless otherwise defined, all capitalized terms incorporated herein
have the meanings ascribed to them in the Agreement.
Summary Description of Consideration
At the Merger Effective Date, each outstanding share of NVSN Common
Stock issued and outstanding at the Merger Effective Date shall cease to exist
and shall be converted into the right to receive $0.50 in cash (the "Merger
Consideration"). Each option granted by NVSN to purchase shares of NVSN Common
Stock issued and outstanding to the NVSN Stock Option Plan (the "NVSN Stock
Option Plan") and warrant issued and outstanding, as adjusted for the
one-for-two reverse stock split, whether or not such option or warrant is
exercisable on the Merger Effective Date, shall, by reason of the Merger, cease
to be outstanding and be converted into the right to receive in cash an amount
equal to (i) the positive difference between (A) $0.50 and (B) the exercise
price of each such option multiplied by (ii) the number of shares of NVSN Common
Stock subject to the option or warrant. As of this date, there were 2,651,523
outstanding shares of NVSN common stock. At the same date, there were 91,132
employee granted stock options with a weighted average exercise price of $1.69
per share, 20,000 of which were in the money based on an exercise price of $0.25
per share, and 1,380,000 Class A warrants with an exercise price of $11.00 per
share, none of which are in the money.
- --------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center Telephone: (703) 528-1700
1700 North Moore Street, Suite 2210 Fax No.: (703) 528-1788
Arlington, VA 22209 E-Mail: [email protected]
<PAGE>
Board of Directors
October 5, 1999
Page 2
RP Financial Background and Experience
RP Financial, as part of its valuation and consulting practice, is
regularly engaged in the valuation of financial assets, businesses and
securities in connection with mergers and acquisitions of banking, technology,
insurance and medical service companies, including initial and secondary stock
offerings and business valuations for other corporate purposes. As specialists
in the valuation of technology and related businesses, RP Financial has
experience in, and knowledge of the Virginia and Mid-Atlantic merger markets for
companies with assets like those of NVSN.
Materials Reviewed
In rendering this opinion, RP Financial reviewed the following
material: (1) the draft Agreement, including exhibits; (2) the following
information for NVSN -- (a) audited financial statements for the fiscal years
ended December 31, 1996 through 1998 included in the annual reports, (b)
shareholder, regulatory and internal financial and other reports through the
most recent date available, (c) the annual proxy statement for the last three
years, and (d) the prospectus for initial public offering in 1996 and Form SB-2
Registration Statement dated May 29, 1996; (3) discussions with NVSN's
management regarding past and current business, operations, financial condition,
and future prospects; (4) competitive factors; and (5) the market pricing and
financial characteristics of publicly-traded companies offering similar products
as well as those companies in the electronic instruments and controls industry
and the technology sector.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
NVSN furnished by NVSN to RP Financial for review for purposes of its opinion,
as well as publicly-available information regarding companies and the market and
competitive environment for the products offered by NVSN. NVSN did not restrict
RP Financial as to the material it was permitted to review. RP Financial did not
perform or obtain any independent appraisals or evaluations of the assets and
liabilities and potential and/or contingent liabilities of NVSN.
RP Financial expresses no opinion on matters of a legal, regulatory,
tax or accounting nature or the ability of the merger as set forth in the
Agreement to be consummated. In rendering its opinion, RP Financial assumed
that, in the course of obtaining the necessary regulatory and governmental
approvals for the proposed merger, no restriction will be imposed on ATS that
would have a material adverse effect on the ability of the merger to be
consummated as set forth in the Agreement.
<PAGE>
Board of Directors
October 5, 1999
Page 3
Opinion
It is understood that this letter is directed to the Board of Directors
of NVSN in its consideration of the Agreement, and does not constitute a
recommendation to any shareholder of NVSN as to any action that such shareholder
should take in connection with the Agreement, or otherwise.
It is understood that this opinion is based on market conditions and
other circumstances existing on the date hereof.
It is understood that this opinion may be included in its entirety in
any communication by NVSN or its Board of Directors to the stockholders of NVSN.
It is also understood that this opinion may be included in its entirety in any
regulatory filing by NVSN or ATS, and that RP Financial consents to the summary
of this opinion in the proxy materials of NVSN, and any amendments thereto.
Except as described above, this opinion may not be summarized, excerpted from or
otherwise publicly referred to without RP Financial's prior written consent.
Based upon and subject to the foregoing, and other such matters we
consider relevant, it is RP Financial's opinion that, as of the date hereof, the
Merger Consideration to be received by the holders of NVSN Common Stock, as
described in the Agreement, is fair to such shareholders from a financial point
of view.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ RP Finaical, LC.
-----------------------------------
<PAGE>
Appendix C
ss. 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to ss. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to ss. 251 (other than a merger effected pursuant to ss. 251(g) of this
title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record
date fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation
pursuant to ss.ss. 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated
as a national market system security on an interdealer
quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
<PAGE>
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and
c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to ss. 228 or
ss. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in
such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation
<PAGE>
to all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation
the appraisal of such holder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second notice
before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective date
of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection.
An affidavit of the secretary or assistant secretary or of the transfer
agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining
the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more
than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting
<PAGE>
corporation. If the petition shall be filed by the surviving or resulting
corporation, the petition shall be accompanied by such a duly verified list. The
Register in Chancery, if so ordered by the Court, shall give notice of the time
and place fixed for the hearing of such petition by registered or certified mail
to the surviving or resulting corporation and to the stockholders shown on the
list at the addresses therein stated. Such notice shall also be given by 1 or
more publications at least 1 week before the day of the hearing, in a newspaper
of general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
<PAGE>
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
(8 Del. C. 1953, ss. 262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, ss. 24; 57
Del. Laws, c. 148, ss.ss. 27-29; 59 Del. Laws, c. 106, ss. 12; 60 Del. Laws, c.
371, ss.ss. 3-12; 63 Del. Laws, c. 25, ss. 14; 63 Del. Laws, c. 152, ss.ss. 1,
2; 64 Del. Laws, c. 112, ss.ss. 46-54; 66 Del. Laws, c. 136, ss.ss. 30-32; 66
Del. Laws, c. 352, ss. 9; 67 Del. Laws, c. 376, ss.ss. 19, 20; 68 Del. Laws, c.
337, ss.ss. 3, 4; 69 Del. Laws, c. 61, ss. 10; 69 Del. Laws, c. 262, ss.ss. 1-9;
70 Del. Laws, c. 79, ss. 16; 70 Del. Laws, c. 186, ss. 1; 70 Del. Laws, c. 299,
ss.ss. 2, 3; 70 Del. Laws, c. 349, ss. 22; 71 Del. Laws, c. 120, ss. 15; 71 Del.
Laws, c. 339, ss.ss. 49-52.)
