0000950124-01-503327.txt : 20011009
0000950124-01-503327.hdr.sgml : 20011009
ACCESSION NUMBER: 0000950124-01-503327
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010927
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PERCEPTRON INC/MI
CENTRAL INDEX KEY: 0000887226
STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827]
IRS NUMBER: 382381442
STATE OF INCORPORATION: MI
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-20206
FILM NUMBER: 1746669
BUSINESS ADDRESS:
STREET 1: 47827 HALYARD DRIVE
CITY: PLYMOUTH
STATE: MI
ZIP: 48170-2461
BUSINESS PHONE: 3134144816
MAIL ADDRESS:
STREET 1: 47827 HALYARD DRIVE
CITY: PLYMOUTH
STATE: MI
ZIP: 48170-2461
10-K405
1
k65105e10-k405.txt
FORM 10-K FOR THE PERIOD END JUNE 30, 2001
1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001 OR [ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER: 0-20206
PERCEPTRON, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2381442
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47827 Halyard Drive
Plymouth, Michigan 48170-2461
(734) 414-6100
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the act: None
Securities registered pursuant to section 12(g) of the act:
COMMON STOCK, $0.01 PAR VALUE
RIGHTS TO PURCHASE PREFERRED STOCK
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on September
17, 2001, as reported by The Nasdaq Stock Market, was approximately $8,500,000
(assuming, but not admitting for any purpose, that all directors and executive
officers of the registrant are affiliates).
The number of shares of Common Stock, $0.01 par value, issued and outstanding as
of September 17, 2001, was 8,185,439.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document, to the extent specified in this report, are
incorporated by reference in Part III of this report:
Document Incorporated by reference in:
-------- -----------------------------
Proxy Statement for 2001
Annual Meeting of Shareholders Part III, Items 10-13
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
GENERAL
Perceptron, Inc. ("Perceptron" or the "Company") designs, develops, manufactures
and markets information-based measurement and inspection focused solutions for
process improvement. Among the solutions offered by the Company are: (1) Gauging
systems that provide for 100% inline measurement for reduction of process
variation; (2) Systems that guide robots in a variety of automated assembly
applications throughout the plant; (3) Systems that inspect painted surfaces,
and; (4) Sawmill systems that optimize the lumber production process in the
Forest Products industry. Perceptron's product offerings are designed to improve
quality, increase productivity and decrease costs in the automotive and forest
products industries.
The Company has two primary business segments: The Automotive Business segment
and the Industrial Businesses segment reflecting the different manufacturing
processes and the specialized knowledge required to maintain market leadership.
The Company has been selling to the automotive industry since its inception in
1981. In 1997, the Company acquired Autospect, Inc. ("Autospect") in order to
expand its offerings to the automotive paint process. The Industrial Businesses
segment consists primarily of the Forest Product business unit. The Forest
Products business unit was created with the 1997 acquisitions of Trident
Systems, Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose"). In
October 1998, the Company expanded its forest products offerings by acquiring
the assets and ultrasound intellectual property from Sonic Industries, Inc. and
Sonic Technologies, Inc. The Company has engineering, selling, assembly and
installation resources in place to support customer requirements in these
markets.
The Company's current principal products are based upon proprietary
three-dimensional image processing and feature extraction software algorithms
combined with two distinct three-dimensional object imaging technologies:
TriCam(TM) and LASAR(TM). TriCam(TM) technology uses structured laser light
triangulation techniques to obtain accurate three-dimensional measurements.
TriCam(TM) systems are used to measure formed parts for reduction of process
variation, to provide robot guidance sensing for automated assembly tasks and to
improve the speed and lower the cost of wheel alignment in final assembly
operations. TriCam(TM) is also used by the Forest Products business unit to
measure three-dimensional shapes of trees, logs, boards and by-products.
LASAR(TM) provides accurate three-dimensional measurements of a full scene over
a larger field of view than does TriCam(TM). The LASAR(TM) product is used by
the Forest Products business unit for the three-dimensional measurement of
stems, logs and cants.
The Company was incorporated in Michigan in 1981. Its headquarters are located
at 47827 Halyard Drive, Plymouth, Michigan 48170-2461, (734) 414-6100. The
Company also has operations in Atlanta, Georgia; Parksville, Montreal and
Vancouver, Canada; Munich, Germany; Rotterdam, The Netherlands; Quimper, France;
Sao Paulo, Brazil and Tokyo, Japan.
MARKETS
The Company services multiple markets, with the largest being the automotive
industry. The Company has product offerings encompassing virtually the entire
automobile manufacturing line, including stamping, general assembly, paint, trim
and final assembly. Perceptron's purchase of Trident and Nanoose in 1997 and
Sonic assets in 1998 increased its product and marketing efforts in the forest
and wood products markets. Within the forest and wood products markets,
Perceptron has products that service virtually every process center in the green
mill. The Company believes that there may be potential for its three-dimensional
measurement systems in other industrial and commercial applications. The
foregoing statement is a "forward looking statement" within the meaning of the
Securities Exchange Act of 1934, as amended ("Exchange Act"). See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Safe Harbor Statement".
PRODUCTS AND APPLICATIONS
AUTOMOTIVE BUSINESS SEGMENT
General: The Automotive Business segment is divided into two separate groups
using two different business models. The first group provides "Turnkey Systems
and Engineered Sub-systems" to automotive manufacturers and their suppliers
through a direct sales force. The second group provides "Technology Components"
using an original equipment manufacturer ("OEM") business model to a different
set of customers through a variety of alternate channels.
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Turnkey Systems & Engineered Sub-systems
AutoGauge(TM): These systems are used in the assembly and fabrication plants of
many of the world's leading auto manufacturers and their suppliers to contain,
correct and control the quality of body structures. AutoGauge(TM) systems are
placed directly in-line to automatically measure critical dimensional
characteristics of automotive vehicles, sub-assemblies and parts using
non-contact, laser-based sensors.
An earlier generation of AutoGauge(TM) is based on the P-1000 platform known for
its ability to run automatically for many years measuring 100% of vehicle
production in challenging environments. The P-1000 platform remains a viable
solution, and is still being purchased by many of the Company's customers.
More recently, AutoGauge(TM) technology has been ported to a new computing and
communication platform called IPNet(TM). The IPNet(TM) platform uses Internet
technology to disseminate critical manufacturing and quality information on a
real-time basis throughout a plant or enterprise. IPNet(TM) also communicates to
wireless devices such as Palm(TM) Pilots and web phones. Other advantages of the
IPNet(TM) platform include: A Windows based architecture allowing integration of
3rd party hardware and software, a new graphics based user interface, and
greater flexibility to distribute sensors throughout the manufacturing process
at lower cost.
AutoGauge(TM) has been enhanced with the ability to provide hybrid-systems
containing both fixed mounted sensors and robot-mounted sensors. This unique
ability provides automotive manufacturers with the flexibility to measure
multiple vehicle styles on a single assembly line and maintain their high-speed
production rates.
AutoFit(TM): These systems are used in automotive assembly plants to contain,
correct and control the fit of exterior body panels. The system automatically
measures, records and displays the gap and flushness of parts most visible to
the automobile consumer such as gaps between front and rear doors, hoods and
fenders, and deck lids and rear quarter panels. The TriCam(TM) sensor has been
enhanced to enable gap and flushness to be measured in several parts of the
manufacturing process: in the body shop during assembly of non-painted vehicles,
and in the final assembly area after the vehicle has been painted. AutoFit(TM)
has the ability to measure vehicles while in motion along the assembly line or
in a stationary position.
AutoScan(TM): These systems provide a fast, non-contact method of gathering data
for the analysis of the surface contour of a part or product. These systems use
a robot mounted ContourProbe(TM) sensor specifically designed to "scan" a part
as the robot moves throughout its path. The AutoScan(TM) system measures and
collects the "point cloud data" required for contour analysis by third party
analysis software. This allows the part's shape to be automatically scanned and
compared to a computer-generated design.
AutoSpect(TM): These in-line, non-contact systems are used in auto assembly
plants to monitor and measure the quality of the vehicle's paint job. The
systems measure and generate objective, repeatable, reproducible ratings of the
painted surface. AutoSpect(TM) systems are fully automatic and monitor 100% of
painted vehicle production. AutoSpect(TM) measures the key elements of a paint
job most visible to the consumer: gloss, orange peel, and DORI (distinctness of
reflected image). The AutoSpect(TM) system has been upgraded to the IPNet(TM)
control and communication platform and shares many of the same components as the
AutoGauge(TM) system. Perceptron also offers a portable, battery powered paint
quality measurement system.
AutoGuide(TM): These robot guidance systems were developed in response to the
increasing use of robots for flexible, automated assembly applications. These
systems utilize Perceptron sensors and measurement technology to improve the
accuracy of robotic assembly operations. AutoGuide(TM) systems calculate the
difference between theoretical and actual relationships of a robot and the part
being assembled and sends compensation data, in six axes, to the robot. Robotic
applications supported by AutoGuide(TM) include windshield insertion, roof
loading, seat loading, hinge mounting, door attachment and sealant applications.
Technology Components
ScanWorks(TM): The Company provides ScanWorks(TM) products to a variety of
markets through third party OEMs, system integrators and value-added resellers
("VARs"). These products target the reverse engineering and inspection markets.
ScanWorks(TM) ToolKit is a software solution enabler used by coordinate
measuring machine (CMM) manufacturers, system integrators and application
software developers. It enables the integration of Perceptron's laser-based
scanning technology into their proprietary systems.
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ScanWorks(TM) Lite is a hardware/software component set that allows customers to
add digitizing capabilities to their machines or systems. The use of the Lite
software and the ContourProbe(TM) sensor enables users to collect, display,
manipulate and export large sets of point cloud data from portable coordinate
measuring machines (P-CMM).
Non-Contact Wheel Alignment Components (NCA): NCA components include
WheelWorks(TM) software and sensors based upon the TriCam(TM) design. These
technology components offer a fast, accurate, non-contact method of aligning
wheels during the automotive assembly process. The Company supplies NCA
components to multiple wheel alignment machine OEMs in Europe, Asia and North
America.
INDUSTRIAL BUSINESSES SEGMENT
General: The Industrial Businesses segment primarily consists of the Forest
Products business unit, which sells a complete line of mill-wide products for
optimization of yield and value. These systems are based on an architecture of
optimization modules that contain common user interfaces, reporting systems and
scanning interfaces. The system runs on the WindowsNT platform.
Scanning and optimization systems are sold directly to sawmills and to a large
number of sawmill machinery manufacturers and systems integrators. One of the
distinct advantages of Perceptron's optimization systems is that they can
operate on virtually any manufacturer's equipment. This allows the sawmill to
choose the best mechanical system for its own operations and receive the benefit
of the Company's scanning and optimization systems within the facility.
True Shape Bucking System ("TSB"): The TSB system optimizes the process of
cutting tree stems into logs. The system utilizes TriCam(TM) or LASAR(TM)
scanners to create a high density 3D surface map of a tree stem to be cut or
"bucked" into logs. The stem is either scanned as it is conveyed lineally
through an array of TriCam(TM) sensors or is scanned at rest with LASAR(TM)
sensors. Optimization software then makes a determination of the log lengths to
be cut based upon shape, product, defect and yield parameters and then provides
saw motion information to produce those cuts.
True Shape Log Optimizer System ("TSO"): The TSO system optimizes the process of
log breakdown into boards or cants. The system utilizes TriCam(TM) or LASAR(TM)
scanners to create a high-density 3D surface map of a log. Optimization software
makes a determination of the product mix to be cut from the log based upon
shape, product defect and yield parameters and then provides saw motion
information to produce those cuts.
The TSO system enables lumber manufacturers to optimize the yields and value
from the logs in the sawmill by using analysis algorithms to statistically
evaluate the log topography to optimize which products should be cut from the
log. The addition of a TSO to a sawmill increases the amount and value of the
final products that can be derived from the logs.
True Shape Log Sorter System ("TSS"): The TSS system optimizes the process of
log sorting. Certain customers prefer to sort logs into batches with common
characteristics and then feed them into the sawmill at high rates with a fixed
cutting pattern. The system utilizes TriCam(TM) scanners to create a
high-density 3D surface map of a log. Optimization software fits all of the
potential customer cutting scenarios into the log models and sorts the logs by
the pattern that will produce the highest value.
The TSS system allows lumber manufacturers to optimize the value of the logs
entering the sawmill based on pre-defined patterns. This technique provides
increased value over past systems that simply measured the small end diameter of
the log as the sorting criteria.
True Shape Cant Optimizer System ("TSC"): The TSC system optimizes the process
of cant (a log with two cut sides) breakdown. The system utilizes TriCam(TM),
Transverse TriCam(TM) (a TriCam(TM) derivative sensor in which the cant is
scanned as it is conveyed transversely though an arrangement of special
TriCam(TM) scanners) or LASAR(TM) scanners to create a high-density 3D surface
map of the cant. Optimization software fits the customer's final products into
the cant model to determine the cut that will produce the highest value. The TSC
system can model either straight sawing systems or the recently popular curve
sawing systems. The optimization software can also process grade-input data to
facilitate high-grade cutting patterns for maximum grade utilization.
True Shape Edger Optimizer System ("TSE"): The TSE system optimizes the process
of flitch edging (a flitch is an un-edged board cut from the side of a log) by
utilizing TriCam(TM) or Transverse TriCam(TM) scanners to create a high-density
3D surface map of the flitch. Optimization software fits the customer's final
board products into the flitch model to determine the cut that will produce the
highest value.
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True Shape Trimmer Optimizer System ("TST"): The TST system optimizes the
processes of board trimming by utilizing Transverse TriCam(TM) scanners to
create a high-density 3D surface map of the untrimmed board. Optimization
software fits the customer's final board products into the untrimmed board model
to determine the trim that will produce the highest value.
Mill Controller System: The Mill Controller system is a software package that
allows sawmill operators to define what orders they need filled for their
customers. The system links this information with the optimizer systems in the
sawmill to produce the lumber required to fill these orders.
The Mill Controller adds a level of control to the sawmill operator that was
previously unavailable. Typical optimizer systems attempt to maximize recovered
value from raw material without regard to the actual orders that the sawmill
needs to fill. By utilizing the Mill Controller, the sawmill can now balance
value-based recovery with the time based requirement to fill orders.
Mill Wide Web: The Mill Wide Web system is a software package that provides data
collection, data distribution, real-time reporting and data monitoring for the
saw mill environment. The package provides the user a web-based interface with
the software.
Profitizer: The Profitizer is an enterprise-wide, optimization software system
for the sawmill environment. The system optimizes the procurement, production
and sales areas of the lumber manufacturing process. By utilizing simulation and
linear programming the system can identify how the organization can maximize
profits based on real world constraints.
Lumber Analyzer System: The Lumber Analyzer system utilizes ultrasonic
technology to find defects in finished lumber. Defects such as splits, rot,
voids and cracks are important to secondary manufacturers who process dried
lumber into finished products such as furniture and moldings. The application of
a Lumber Analyzer system can save secondary manufacturers money by identifying
these defects and improving cutting decisions and raw material utilization. The
Lumber Analyzer system is in Beta testing at a customer site.
Carriage Saw Optimizer System: The LASAR Carriage Saw Scanning and Mill Expert
Optimization system scans logs after the operator has loaded them on the
carriage and provides either a complete breakdown solution or a minimum opening
face solution. This product is superior to the traditional curtain scanning
carriage saw systems. On average, the LASAR scanning and image processing takes
less time, leading to higher production. The scanning system provides
high-density true-shape data for the surface of the log that allows more
accurate sawing solutions, which enables the mill to realize greater value from
the log.
SALES AND MARKETING
The Company markets its systems directly to end users, system integrators, VARs
and OEMs.
The Company's direct sales efforts are led by the Company's account executives.
These account executives develop a close consultative selling relationship with
the Company's customers. Perceptron's senior management works in close
collaboration with customers' executives. The Company intends to continue this
marketing strategy for its automotive Turn-key systems and Engineered
Sub-systems as well as for selected forest and wood products applications.
With respect to automotive Technology Components sales and sales to the forest
and wood products industry, the Company's marketing strategy is focused
primarily on sales to selected system integrators, OEMs and VARs who integrate
the Company's products into their systems for sale to end user customers.
The Company's principal customers have historically been automotive companies
that the Company either sells to directly or through system integrators or OEMs.
The Company's products are typically purchased for installation in connection
with new model re-tooling programs undertaken by these companies. Because sales
are dependent on the timing of customers' re-tooling programs, sales by customer
vary significantly from year to year, as do the Company's largest customers. For
the twelve months ended June 30, 2001, approximately 22% of total revenues were
derived from three automotive companies (General Motors, Ford and
DaimlerChrysler). For the twelve months ended June 30, 2000, six months ended
June 30, 1999 and year ended December 31, 1998, approximately 35%, 25%, and 22%,
respectively, of total revenues were derived from the same three customers. For
the twelve months ended June 30, 2001 and 2000, six months ended June 30, 1999
and year ended December 31, 1998, approximately 8%, 11%, 8% and 13% of net
sales, respectively, were to system integrators and OEMs for the benefit of the
same three automotive companies. During the twelve months ended June 30, 2001,
sales to General Motors were 11.8% of the Company's total net sales.
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MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations consist primarily of final assembly,
testing and integration of the Company's software with individual components
such as, printed circuit boards manufactured by third parties according to the
Company's designs. The Company believes a low level of vertical integration
gives it significant manufacturing flexibility and minimizes total product
costs.
The Company purchases a number of component parts and assemblies from single
source suppliers. Although the Company believes that alternative suppliers are
available for most of its components, component supply shortages in certain
industries, including the electronics industry, have occurred in the past and
are possible in the future due to imbalances in supply and demand. Significant
delays or interruptions in the delivery of components or assemblies by
suppliers, or difficulties or delays in shifting manufacturing capacity to new
suppliers, could have a material adverse effect on the Company.
INTERNATIONAL OPERATIONS
Europe: The Company's European operations have contributed approximately 35%,
23%, 39% and 30% of the Company's revenues during the twelve months ended June
30, 2001 and 2000, six months ended June 30, 1999 and the year ended 1998,
respectively. The Company's wholly-owned subsidiary, Perceptron (Europe) B.V.
("Perceptron B.V."), is located in Rotterdam, The Netherlands. Perceptron B.V.
holds a 100% equity interest in Perceptron (Europe) GmbH ("Perceptron GmbH"),
which is located in Munich, Germany and a 100% interest in Perceptron E.U.R.L.
located in Quimper, France. The Company currently employs 53 people in its
European operations.
Asia: The Company operates a direct sales, application and support office in
Tokyo, Japan to service automotive customers in Asia.
South America: The Company has a direct sales, application and support office in
Sao Paulo, Brazil to service automotive customers in South America.
The Company's foreign operations are subject to certain risks typically
encountered in such operations, including fluctuations in foreign currency
exchange rates and controls, expropriation and other economic and local policies
of foreign governments, and the laws and policies of the U.S. and local
governments affecting foreign trade and investment. For information regarding
net sales, operating profit (loss) and identifiable assets of the Company's
foreign operations, see Note 16 to the Consolidated Financial Statements,
"Segment and Geographic Information".
COMPETITION
The Company believes that it provides the best and most complete solutions to
its automotive markets in terms of system capabilities and support, at a
competitive price for the value provided, which it believes are the principal
competitive factors in these markets. There are a number of companies that sell
similar and/or alternative technologies and methods into the same markets as the
Company.
The Company believes that it provides the best and most complete solutions to
the forest and wood products markets in terms of system capabilities and
support, at a competitive price for the value provided, which it believes are
the principal competitive factors in these markets. In the forest and wood
products markets, there are a number of companies that sell similar and/or
alternative technologies and methods into the same markets as the Company.
The Company believes that there may be other entities, some of which may be
substantially larger and have substantially greater resources than the Company,
which may be engaged in the development of technology and products, which could
prove to be competitive with those of the Company. In addition, the Company
believes that certain existing and potential customers may be capable of
internally developing their own technology. There can be no assurance that the
Company will be able to successfully compete with any such entities, or that any
competitive pressures will not result in price erosion or other factors, which
will adversely affect the Company's financial performance.
BACKLOG
As of June 30, 2001, the Company had a backlog of $20.1 million, compared to
$23.1 million at June 30, 2000 and $27.8 million at June 30, 1999. The
Automotive Business segment's backlog was $17.7 million, $19.1 million and $22.5
million at June 30, 2001, 2000 and 1999, respectively. The Industrial Businesses
segment backlog was $2.4 million, $4.0 million and $5.3 million at June 30,
2001, 2000 and 1999, respectively. Most of the backlog is subject to
cancellation by the customer. The level of order backlog at any particular time
is not necessarily indicative of the future operating performance of the
Company. The Company expects to be able to fill substantially all of the orders
in its backlog by June 30, 2002.
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RESEARCH AND DEVELOPMENT
As of June 30, 2001, 112 persons employed by the Company were focused primarily
on research, development and engineering relating to three-dimensional machine
vision systems, ultrasound technology and related software. For the twelve
months ended June 30, 2001 and 2000, six months ended June 30, 1999 and year
ended December 31, 1998, the Company's research, development and engineering
expenses were $13.8 million, $13.1 million, $6.5 million and $11.4 million,
respectively.
The Company engages in research and development ("R&D") to enhance its existing
products, to adapt existing products to new applications and to develop new
products to meet new market opportunities. The Company is involved in a
continuous product improvement program for its products intended to enhance
performance, reduce costs and incorporate new technological advances. To this
end, the Company is engaged in strategic alliances with a number of research and
development institutions. Recent customer recognition of the power of Web-based
or Web-like informational navigation for manufacturing operations has involved
the Company in pilot projects for widely distributed measurement systems and
remote information accessibility.
The Company has received a National Institute for Science and Technology -
Advanced Technology Program award to participate in a joint venture to develop a
robot guidance system for powertrain assembly automation. The Company's in-kind
development contribution is approximately $500,000 over a four-year period that
began in 1998. The joint venture is administered by the National Center for
Manufacturing Sciences and includes a major automotive manufacturer.
PATENTS, TRADE SECRETS AND CONFIDENTIALITY AGREEMENTS
The Company owns twenty U.S. patents and twelve pending U.S. patent
applications, which relate to various products and processes manufactured, used,
and/or sold by the Company. In addition, the Company also owns thirteen foreign
patents in Canada, Europe and Japan and has eighteen patent applications pending
in foreign locations. The U.S. patents expire from 2004 through 2019 and the
Company's existing foreign patent rights expire from 2008 through 2012.
The Company has been informed that certain of its customers have received
allegations of possible patent infringement involving processes and methods used
in the Company's products. Certain of these customers, including one customer
who was a party to a patent infringement suit relating to this matter, have
settled such claims. Management believes, however, that the processes used in
the Company's products were independently developed without utilizing any
previously patented process or technology. Because of the uncertainty
surrounding the nature of any possible infringement and the validity of any such
claim or any possible customer claim for indemnity relating to claims against
these customers, it is not possible to estimate the ultimate effect, if any, of
this matter on the Company's financial statements.
The Company has registered, and continues to register, various trade names and
trademarks, including SCANWORKS, OPTIFLEX, PERCEPTRON, DATACAM, LASAR, MILL WIDE
WEB, PROFITIZER, VERISTAR, DRISCAN, TRICAM, AUTOSPECT, IPNET, PAINTSCAN,
DYNASTAR II, and MILL WEB QC, among others, which are used in connection with
the conduct of its business.
The Company's software products are copyrighted and generally licensed to
customers pursuant to license agreements that restrict the use of the products
to the customer's own internal purposes on designated Perceptron equipment.
In connection with the settlement of certain litigation filed by the Company
against Fori Automation alleging infringement of certain of the Company's
patents relating to non-contact wheel alignment systems, the Company has
licensed such patents to Fori on a non-exclusive basis.
EMPLOYEES
As of June 30, 2001, the Company employed 330 persons. None of the employees is
covered by a collective bargaining agreement and the Company believes its
relations with its employees to be good.
ITEM 2: FACILITIES
Perceptron's principal domestic facilities consist of a 70,000 square foot
building located in Plymouth, Michigan, owned by the Company, and a 12,000
square foot leased building in Atlanta, Georgia. In addition, the Company leases
a 1,500 square meter facility in Munich, Germany; a 150 square meter facility in
Rotterdam, The Netherlands; a 6,200 square foot facility in Parksville, Canada;
a 654 square foot facility in Montreal, Canada; a 2,000 square foot facility in
Vancouver, Canada and offices in Quimper, France; Sao Paulo, Brazil and Tokyo,
Japan. Primary facilities used by the Automotive Business segment are Plymouth,
Michigan and the German location. Primary facilities used by the Forest Products
Business unit are Plymouth,
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Michigan, Atlanta, Georgia, and the Canadian locations. The Company believes
that its current facilities are sufficient to accommodate its requirements
through the year 2002.
ITEM 3: LEGAL PROCEEDINGS
On September 25, 1998, the U.S. District Court for the Eastern District of
Michigan dismissed, with prejudice, a suit filed against the Company by Speroni,
S.p.A. ("Speroni") which alleged tortious interference in conjunction with
exclusive distributorship contracts covering the sale of the P-1000 products in
Italy and France. Speroni's appeal of the dismissal was denied by the Federal
Court of Appeals. The suit alleged tortious interference in conjunction with
exclusive distributorship contracts covering the sale of P-1000 products in
Italy and France between Perceptron B.V., a wholly-owned subsidiary of the
Company, and Speroni. Perceptron B.V. terminated the exclusive distributorship
contracts in 1997 for breach of contract by Speroni and has sought arbitration
of this matter with the International Chamber of Commerce International Court of
Arbitration ("ICC"), to confirm the terminations and to award damages. Speroni
has filed counterclaims with the ICC alleging breach of the exclusive
distributorship contracts and seeking damages of $6.5 million. On February 12,
2001, the arbitrator determined that 1) Speroni breached its duty to properly
inform Perceptron B.V., but did not act in bad faith, and so Perceptron B.V. did
not satisfy the conditions required under French law and Italian law to
rightfully terminate the distributorship agreements without prior notice; and 2)
Perceptron B.V. did not breach its agreements with Speroni by providing certain
information to a customer of both Perceptron B.V. and Speroni and by submitting
a bid to a customer of both Perceptron B.V. and Speroni outside of Speroni's
territories, but did not act in good faith in not informing Speroni of these
activities. Damages, if any, on the claims on which the arbitrator found in
favor of Speroni shall be decided in the second phase of the arbitration
proceedings. The Company intends to vigorously defend against damage claims made
against it by Speroni.
The Company is a party to a suit filed by Analog Technologies, Inc. ("Analog")
on October 8, 1999 in the Circuit Court for the County of Oakland, Michigan. The
suit alleges that the Company breached a non-disclosure agreement and
misappropriated Analog's confidential information and trade secrets in
connection with the Company's development of a potential new product. The
potential new product involved is one of a number of new products under
development by the Company, which have not been discussed in the Company's
filings with the Securities and Exchange Commission. On February 15, 2000, the
Oakland County Circuit Court denied Analog's motion for preliminary injunction
against the Company. Analog also seeks unspecified compensatory damages in
excess of $25,000. The Company believes that Analog's claims are without merit
and intends to vigorously defend against Analog's claims.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No response to Item 4 is required.
8
9
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Perceptron's Common Stock is traded on The Nasdaq Stock Market's National Market
under the symbol "PRCP". The following table shows the reported high and low
sales prices of Perceptron's Common Stock for the fiscal year periods indicated:
Prices
------
Low High
---------- ----------
Fiscal 2000
Quarter Ended September 30, 1999................................ $ 3.50 $ 5.75
Quarter Ended December 31, 1999................................. $ 3.00 $ 4.81
Quarter Ended March 31, 2000.................................... $ 3.63 $ 7.50
Quarter Ended June 30, 2000..................................... $ 3.31 $ 6.25
Fiscal 2001
Quarter through September 30, 2000.............................. $ 3.00 $ 3.94
Quarter through December 31, 2000............................... $ 1.25 $ 3.63
Quarter Ended March 31, 2001.................................... $ 1.25 $ 2.38
Quarter Ended June 30, 2001..................................... $ 1.25 $ 1.98
Fiscal 2002
Quarter through September 17, 2001.............................. $ 1.05 $ 1.58
No cash dividends or distribution on Perceptron's Common Stock have been paid
and it is not anticipated that any will be paid in the foreseeable future. In
addition, the payment of cash dividends or other distributions is prohibited
under the terms of Perceptron's revolving credit agreement with its bank. See
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources", for a discussion of other
restrictions on the payment of dividends.
The approximate number of shareholders of record on September 17, 2001, was 256.
9
10
ITEM 6: SELECTED CONSOLIDATED FINANCIAL INFORMATION
PERCEPTRON, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
Twelve Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, December 31,
---------------------------- ------------- ----------------------------------------
Statement of Operations Data(1): 2001(2) 2000 1999(3) 1998 1997 1996
------------- ------------- ------------- ------------ ----------- -----------
Net sales $ 50,714 $ 69,821 $ 21,256 $ 49,635 $ 65,102 $ 58,975
Gross profit 24,593 38,589 10,488 27,193 40,025 35,367
Operating income (loss) (9,447) 3,659 (6,660) (5,776) 14,861 9,306
Income (loss) before income taxes (10,011) 3,294 (7,349) (5,143) 16,009 10,245
Income (loss) before cumulative
effect of change in
accounting principle (6,205) 1,857 (4,860) (3,339) 10,806 7,150
Cumulative effect of change in
accounting principle (1,333) - - - - -
Net income (loss) (7,538) 1,857 (4,860) (3,339) 10,806 7,150
Earnings (loss) per diluted share:
Before cumulative effect of change in
accounting principle (0.76) 0.23 (0.59) (0.41) 1.28 0.86
Cumulative effect of change in
accounting principle (0.16) - - - - -
Net income (loss) (0.92) 0.23 (0.59) (0.41) 1.28 0.86
Weighted average common
shares outstanding - diluted 8,178 8,199 8,185 8,239 8,412 8,309
As of June 30, As of December 31,
-------------------------------------------- ----------------------------------------
Balance Sheet Data: 2001 2000 1999 1998 1997 1996
------------- ------------- ------------- ------------ ----------- -----------
Working capital $ 23,169 $ 40,663 $ 34,569 $ 40,094 $ 45,604 $ 34,444
Total assets 67,519 66,227 61,334 66,408 68,142 61,456
Long-term liabilities 1,040 4,595 4,265 1,040 - -
Shareholders' equity 40,295 49,569 48,064 54,852 57,879 46,447
-----------
(1) No cash dividends have been declared or paid during the periods presented.
(2) In fiscal 2001, the Company implemented the Securities and Exchange
Commission's Staff Accounting Bulletin 101 ("SAB 101") guidelines on
revenue recognition. See also Note 2, "Change in Accounting Principle", in
the Notes to the Consolidated Financial Statements. On a comparative basis,
fiscal 2000 sales, net income and earnings per share would have been
$68,952, $25, and $.0 respectively, on a pro forma basis reflecting the
effects of the change in accounting principle. Pro forma amounts for
periods prior to fiscal 2000 have not been presented, as the effect of the
change in accounting principle could not be reasonably determined.
(3) In 1999, the Company elected to change its reporting period from a calendar
year ending December 31 to a fiscal year ending June 30. As a result, 1999
represents a six-month transition period.
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11
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Perceptron, Inc. ("Perceptron" or the "Company") designs, develops, manufactures
and markets information-based measurement and inspection focused solutions for
process improvement primarily for the automotive and forest products industries.
The Company's current principal products are based upon proprietary
three-dimensional image processing and feature extraction software algorithms
combined with two distinct three-dimensional object imaging technologies:
TriCam(TM) and LASAR(TM). TriCam(TM) technology uses structured laser light
triangulation techniques to obtain accurate three-dimensional measurements.
TriCam(TM) systems are used to measure formed parts for reduction of process
variation, to provide robot guidance sensing for automated assembly tasks and to
improve the speed and lower the cost of wheel alignment in final assembly
operations. TriCam(TM) is also used by the Forest Products business unit to
measure three-dimensional shapes of trees, logs, boards and by-products.
LASAR(TM) provides accurate three-dimensional measurements of a full scene over
a larger field of view than does TriCam(TM). The LASAR(TM) product is used by
the Forest Products business unit for the three-dimensional measurement of
stems, logs and cants.
The Company has two business segments: the Automotive Business segment and the
Industrial Businesses segment. The Company's Automotive Business segment is
comprised of two groups that use different business models to sell products. The
first group provides "Turnkey Systems and Engineered Sub-systems" to automotive
manufacturers and their suppliers through a global direct sales force. The
second group provides "Technology Components" using an OEM business model to a
different set of customers through a variety of alternate channels.
Historically, systems sales to automotive customers have typically depended
primarily on new model re-tooling programs. Accordingly, these sales may vary
significantly among customers on a year-to-year and quarter-to-quarter basis.
The Industrial Businesses segment primarily consists of the Forest Products
business unit, which sells its products primarily to North American sawmills,
sawmill machinery manufacturers and systems integrators.
During the fourth quarter of fiscal 2001, the Company implemented the Securities
and Exchange Commission's Staff Accounting Bulletin No. 101 (SAB 101) guidelines
on revenue recognition. Under the new accounting method adopted retroactive to
July 1, 2000, the Company recognizes the portion of revenue from the sales of
products upon shipment when both title and risk of loss pass to the customer and
defers the greater of the fair value or the contractual holdback of any
undelivered elements, such as installation services, until the undelivered
elements are completed. Historically, the Company recognized revenue from the
sales of products upon shipment, and accrued for any costs of installation not
completed. The Company previously accounted for contractual acceptance terms
based upon probable achievement of meeting the acceptance criteria. See also
Note 2, "Change in Accounting Principle" in the Notes to the Consolidated
Financial Statements.
On June 24, 1999, the Company elected to change its reporting period from a
calendar year ending December 31, to a fiscal year ending June 30. As a result,
this Form 10-K contains financial information for the six-month transition
period January 1, 1999 through June 30, 1999.
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED JUNE 30, 2001, COMPARED TO TWELVE MONTHS
ENDED JUNE 30, 2000
Overview. Fiscal 2001 results reflect a change in accounting principle for
revenue recognition based on the new guidelines of SAB 101. The Company reported
a net loss before the cumulative effect of the accounting change of $6.2
million, or $0.76 per share, for the twelve months ended June 30, 2001 compared
to net income of $1.9 million, or $0.23 per share, in the same period ended June
30, 2000. The cumulative effect of the change in accounting principle on prior
years resulted in a charge to income of $1.3 million (net of income taxes of
$764,000) or $.16 per share. The net loss for fiscal 2001 after the cumulative
effect was $7.5 million or $.92 per share. Net income for fiscal 2000 would have
been $1.4 million, or $.17 per share on a pro forma basis reflecting the new
accounting method. Net sales of $50.7 million for the year ended June 30, 2001
were down $19.1 million, or 27%, compared with sales for the year ended June 30,
2000 of $69.8 million. The fiscal 2001 sales include $2.1 million that is
included in the cumulative effect adjustment. Implementing SAB 101 also had the
effect of deferring sales of $1.9 million that historically would have been
recorded in fiscal 2001. The overall impact of SAB 101 on income before the
cumulative effect of the accounting change for fiscal 2001 was a decrease of
$192,000. Sales for fiscal 2000 would have been $69.0 million on a pro forma
basis reflecting the new accounting method. Automotive Business segment sales
accounted for 79% of total sales for the year ended June 30, 2001 compared to
79% for the year ended June 30, 2000. Industrial Businesses segment sales
represented 21% of fiscal 2001 sales compared with 21% of fiscal 2000 sales. Net
Domestic sales were $30.9 million for the year ended June 30, 2001 as compared
to $53.4 million for the year ended June 30, 2000. Net International sales were
$19.8 million for the year ended June 30, 2001 compared to $16.4 million for the
year ended June 30, 2000. Gross profit as a percent of net sales for fiscal year
2001 was 48.5% compared to 55.3% for
11
12
fiscal year 2000. The decrease in gross profit margin percentage was primarily
due to the following factors: unabsorbed fixed overhead related to lower volumes
accounted for approximately half of the rate decline, the effect of currency
declines principally in the euro and competitive pricing pressure in Europe
accounted for approximately one third of the rate decrease, and higher outside
material content associated with the product mix sold by the Forest Products
business unit accounted for the balance of the rate deterioration. The gross
profit rate for fiscal year 2000 would have been 54.8% on a pro forma basis
reflecting the new accounting method. Operating expenses were down $1.8 million
in the twelve months ended June 30, 2001 compared with 2000. The decrease
primarily reflected cost reduction initiatives that were implemented throughout
the year. During the third and fourth quarter of fiscal 2001, the Company
executed a restructuring plan that included a work force reduction of
approximately 15% and the closing of certain offices resulting in restructuring
charges of $900,000 for employee separation and office closing reserves. In
addition certain write-offs of inventory and capital assets related to product
development projects that were suspended and for which it was determined that no
alternative uses were available resulted in a $1.3 million charge to operating
expense. Year-over-year net interest expense was up $304,000 as a result of
higher borrowings under the Company's revolving line of credit required to fund
operating losses.
Automotive. Sales in the twelve months ended June 30, 2001 decreased $15.3
million, or 28%, to $40.2 million compared to $55.5 million in the twelve months
ended June 30, 2000. Within the Turnkey Systems and Engineered Sub-systems
group, AutoGauge, AutoGuide, and AutoSpect sales accounted for approximately
$26.8 million, or 67%, $2.2 million, or 5%, and $2.0 million, or 5%,
respectively, of net Automotive sales in fiscal 2001 compared to approximately
$39.9 million, or 72%, $5.6 million, or 10%, and $1.5 million, or 3%,
respectively, of net Automotive sales in the twelve months ended June 30, 2000.
The AutoGauge and AutoGuide sales decline primarily reflected the downturn in
the North American automotive market and our customers' decision to postpone
capital spending. The AutoSpect sales improvement was primarily due to customer
acceptance of the new web-based system for measuring the quality of finished
painted surfaces. The Technology Components group accounted for approximately
$6.8 million, or 17%, of net Automotive sales in fiscal 2001 compared to
approximately $6.5 million, or 12%, in the twelve months ended June 30, 2000.
The increase primarily reflected higher sales of new ScanWorks products that
offset lower NCA component sales. Training and service revenues accounted for
most of the remainder of net sales in both years.
Industrial Businesses. Sales of $10.5 million for the twelve months ended June
30, 2001 were to the forest products industry except for the sale of $.2 million
of steel blast furnace inspection systems. Sales of $14.3 million in the twelve
months ended June 30, 2000 included $1.0 million of sales of steel blast furnace
inspection systems. The sales decline was primarily due to lower softwood prices
that caused forest products industry customers to delay capital spending and
diminishing sales for steel blast furnace inspection systems.
Bookings & Backlog. New order bookings for the twelve months ended June 30, 2001
were $47.7 million compared to $65.0 million for the twelve months ended June
30, 2000. Automotive bookings totaled $39.2 million in the fiscal 2001 period
compared to $52.0 million a year ago. The decrease in automotive bookings in
fiscal 2001 was also primarily due to the declining automotive market that
caused customers to delay placing orders for capital equipment. Forest Products
bookings were $8.5 million in fiscal 2001 compared to $13.0 million a year ago.
The bookings decrease reflected low softwood lumber prices that caused customers
to delay placing orders. The new order bookings, net of sales, resulted in a
backlog at June 30, 2001 of $20.1 million compared to $23.1 million at June 30,
2000. The amount of new order bookings and the level of backlog during any
particular period are not necessarily indicative of the future operating
performance of the Company.
Gross Profit. Gross profit was $24.6 million, or 48.5% of sales, in the twelve
months ended June 30, 2001, as compared to $38.6 million, or 55.3% of sales, in
the twelve months ended June 30, 2000. The decrease in gross profit margin
percentage was primarily due to the following factors: unabsorbed fixed overhead
related to lower volumes accounted for approximately half of the rate decline,
the effect of currency declines principally in the euro and competitive pricing
pressure in Europe accounted for approximately one third of the rate decrease,
and higher outside material content associated with the product mix sold by the
Forest Products business unit accounted for the balance of the rate
deterioration. Gross profit for fiscal year 2000 would have been $37.8 million
or 54.8% on a pro forma basis reflecting the new accounting method.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses during fiscal
2001 were $19.3 million, compared with $21.8 million during fiscal 2000. The
decrease primarily reflected lower personnel related expenses offset in part by
$470,000 for reserves related to accounts receivable primarily held by the
Company's international subsidiaries.
Engineering, Research and Development (R&D) Expenses. Engineering and R&D
expenses were $13.8 million for the twelve months ended June 30, 2001, compared
with $13.1 million in fiscal 2000. The increase in expenses was due to certain
reserves for inventory and capital assets related to product development
projects that were put on hold and for which it was determined that no
alternative uses were available. The charges amounted to approximately $1.3
million. Mitigating this charge was a $600,000 reduction primarily related to
lower personnel related costs and other engineering material costs.
Restructuring Charge. The restructuring expense in fiscal 2001 was comprised of
a charge of $336,000 recorded during the third quarter related primarily to
closing certain leased facilities and a charge of $564,000 during the fourth
quarter related primarily to employee separation costs.
12
13
Other Income and Deductions. Other income and deductions included a $226,000
gain on sale of assets that partially offset foreign currency losses of
approximately $250,000 and resulted in a net deduction of $27,000 for fiscal
2001. The net deduction of $132,000 for fiscal 2000 was primarily due to a
$102,000 loss on sale of assets.
Interest Expense, net. Net interest expense was $537,000 in fiscal 2001,
compared with $233,000 in fiscal 2000. The increase resulted from higher
borrowings under the Company's revolving line of credit required to fund
operating losses.
Income Taxes - Income tax benefit for fiscal 2001 reflects the effect of the mix
of operating profit and loss among the Company's various operating entities.
Outlook. The restructuring program implemented during the second half of fiscal
2001 will enable the Company to break-even at a lower level of operation. Since
the near-term sales outlook for the Automotive business unit is improved
compared with this time last year, the Company expects operating results for the
first half of fiscal 2002 to approach break-even. The outlook for the second
half of fiscal 2002 is not clear, and the direction of operating results will
depend on whether or not the economy begins to improve. The foregoing statements
contain "forward looking statements" within the meaning of the Securities
Exchange Act of 1934. Actual results could differ materially from those in the
forward looking statements due to a number of uncertainties, including those
described under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Safe Harbor Statement", below.
TWELVE MONTHS ENDED JUNE 30, 2000, COMPARED TO TWELVE MONTHS
ENDED JUNE 30, 1999
Overview. The Company reported net income of $1.9 million, or $0.23 per share,
for the twelve months ended June 30, 2000 compared to a loss of $5.0 million, or
$0.61 per share, in the same period ended June 30, 1999. Net sales of $69.8
million for the twelve months ended June 30, 2000 were up $17.2 million, or
32.8%, over sales for the comparable period ended June 30, 1999 of $52.6
million. Automotive sales accounted for 79% of total sales during the twelve
months ended June 30, 2000 compared to 81% for the twelve-month period ended
June 30, 1999. Industrial Businesses sales represented 21% of total sales for
2000 compared to 19% for the twelve months ended June 30, 1999. Net Domestic
sales were up $18.6 million to $53.4 million for the twelve months ended June
30, 2000 as compared to $34.8 million for the same period ended 1999. Net
International sales decreased $1.4 million from $17.8 million in the twelve
months ended June 30, 1999 to $16.4 million in the fiscal 2000 twelve-month
period. Gross profit as a percent of net sales for the 2000 period was 55.3%
compared to 53.7% for the twelve months ended June 30, 1999 principally
reflecting the benefit from economies of scale associated with higher sales in
fiscal 2000 that was partially reduced by competitive pricing pressure and the
effect of currency declines principally in the euro. Operating expenses were
down $0.6 million in the twelve months ended June 30, 2000 compared to 1999
primarily reflecting an intangible asset write-off of $1.5 million in the 1999
period that was offset by higher costs in the fiscal 2000 period for research
and development work on new products, higher personnel costs and incremental
expenses associated with the ultrasound technology acquisition. The twelve-month
comparison also reflects higher interest expense and lower interest income
totaling $471,000 as a result of lower cash balances, higher borrowings under
the Company's revolving line of credit and a full twelve months of interest on
the note payable assumed with the October 1, 1998 purchase of the Sonic Group.
Other expenses were down $569,000 representing $671,000 for legal fees related
to a civil action discussed in Item 3, "Legal Proceedings" during the fiscal
1999 period compared to $102,000 for disposal of assets in the fiscal 2000
period.
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
-------------------- -------------------
(unaudited)
Net Sales $ 69,821 $ 52,581
Cost of Sales 31,232 24,358
--------- ----------
Gross Profit 38,589 28,223
Selling, General and Administrative Expense 21,815 21,524
Engineering, Research and Development Expense 13,115 12,506
Non-cash intangible asset write-off - 1,472
--------- ----------
Operating Income (Loss) 3,659 (7,279)
Interest Income (Expense), net (233) 238
Foreign Currency Gain (Loss) (30) (12)
Other (102) (671)
--------- ----------
Income (Loss) Before Income Taxes 3,294 (7,724)
Income Tax Expense (Benefit) 1,437 (2,696)
--------- ----------
Net Income (Loss) $ 1,857 $ (5,028)
========= ==========
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Automotive. Sales in the twelve months ended June 30, 2000 increased $12.7
million, or 30%, to $55.5 million compared to $42.8 million in the twelve months
ended June 30, 1999. P-1000 sales accounted for approximately 47% of net
Automotive sales in fiscal 2000 compared to approximately 71% in the twelve
months ended June 30, 1999. The percentage sales decrease reflected customers'
migration to the Company's web-based Intelligent Process Network ("IPNet(TM)")
product. Sales of the Company's IPNet(TM) product totaled approximately 25% of
net automotive sales in the twelve months ended June 30, 2000. Robot Guidance
Systems ("RGS"), now known as AutoGuide(TM) systems and NCA systems sales
accounted for 20% of net sales in fiscal 2000 compared to 13% in fiscal 1999.
Other product sales, which during the 1999 twelve-month period included the
first developmental system to inspect wet film paint thickness, represented 12%
of net fiscal 1999 Automotive sales as compared to 5% for the twelve months
ended June 30, 2000. Training and service revenues accounted for the remainder
of net sales in both years.
Industrial Businesses. At the present time, the Industrial Businesses segment's
principal market is the Forest Products industry. Sales in the twelve months
ended June 30, 2000 were $14.3 million, of which $12.5 million was delivered by
the Forest Products business unit. Sales of $9.8 million for the same period
last year were all delivered by the Forest Products business unit. Sales were up
$4.5 million from the same period last year primarily due to sales of newly
introduced products to the forest products industry and new sales in the steel
blast furnace inspection and digitizing markets.
Bookings & Backlog. New order bookings for the twelve months ended June 30, 2000
were $65.0 million compared to $55.8 million for the twelve months ended June
30, 1999. Automotive bookings totaled $52.0 million in the fiscal 2000 period
compared to $46.5 million a year ago. The increase in automotive bookings in
fiscal 2000 is primarily related to orders for the Company's new IPNet(TM)
product. During the twelve months ended June 30, 2000, automotive bookings
represented: 45% P-1000, 33% IPNet(TM) and 15% RGS and NCA as compared with 61%
P-1000, 12% IPNet(TM) and 18% RGS and NCA for the twelve months ended June 30,
1999. Industrial Businesses bookings were $13.0 million in fiscal 2000 compared
to $9.3 million a year ago of which Forest Product bookings represented 85% and
94%, respectively. The new order bookings, net of sales, resulted in a backlog
at June 30, 2000 of $23.1 million compared to $27.8 million at June 30, 1999.
The amount of new order bookings and the level of backlog during any particular
period are not necessarily indicative of the future operating performance of the
Company.
Gross Profit. Gross profit was $38.6 million, or 55.3% of sales, in the twelve
months ended June 30, 2000, as compared to $28.2 million, or 53.7% of sales, in
the 1999 twelve-month period. The percentage increase principally reflected the
benefit from economies of scale associated with the higher sales volume in
fiscal 2000 reduced by competitive pricing pressure and the effect of currency
declines principally in the euro.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased
slightly from $21.5 million in the twelve months ended June 30, 1999 to $21.8
million in the comparable 2000 period. The increase included higher costs for
personnel related expenses, twelve months of SG&A costs incurred by the
ultrasound division of the Forest Products business unit in fiscal 2000 as
compared with only nine months in fiscal 1999, and offsetting cost reductions in
other operating expenses such as legal, contract services and bad debt expense.
Engineering, Research and Development (R&D) Expenses. Engineering and R&D
expenses increased from $12.5 million in the twelve months ended June 30, 1999
to $13.1 million in fiscal 2000. The increase in expenses primarily reflect the
Company's continued investments in new product development including twelve
months of engineering costs for ultrasound technology in the current period
compared to only nine months of expenses in the period a year ago.
Intangible Asset Write-off. During 1998, the Company developed a new suite of
non-contact three-dimensional measurement technologies, which superseded certain
existing technologies recorded as intangible assets. As a result, the carrying
value of these intangible assets was evaluated for impairment. This evaluation
resulted in a write-off of intangible assets with a net book value of $1.5
million in 1998.
Other Income and Deductions. Other income and deductions decreased $80,000 from
net deductions of $445,000 for the twelve months ended June 30, 1999 to net
deductions of $365,000 in the comparable 2000 period. The favorable change was
primarily due to higher legal expenses in the fiscal 1999 period of $671,000
related to a civil action for which the Company was awarded a favorable
judgement. The Company is in the process of trying to collect on this judgement.
The twelve month comparison was also impacted by reduced net interest income in
fiscal 2000 from lower cash balances and higher interest expense related to
borrowings under the Company's Revolving Credit Agreement and the debt assumed
in October 1998 related to the ultrasound technology acquisition as compared to
fiscal 1999. Additionally, fiscal 2000 included $102,000 of expense related to
the disposal of machinery and equipment.
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SIX MONTHS ENDED JUNE 30, 1999, COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Overview. The Company reported a net loss of $4.9 million, or $0.59 per share,
for the six months ended June 30, 1999 compared to a net loss of $3.2 million,
or $0.38 per share, in the same 1998 period. Net sales of $21.3 million for the
six months ended June 30, 1999 were up $3.0 million, or 16%, over the comparable
1998 period sales of $18.3 million. Automotive sales accounted for 85% of total
sales during the six months ended June 30, 1999 compared to 81% in the same 1998
period. Forest Product sales represented 15% of total sales for 1999 compared to
19% in the six months ended June 30, 1998. Net Domestic sales remained flat at
$12.4 million for both the 1999 and 1998 six-month periods ended June 30. Net
International sales increased $2.9 million from $5.9 million in the six months
ended June 30, 1998 to $8.8 million in the 1999 six-month period. Gross profit
as a percent of net sales for the 1999 period was 49.3% compared to 51.7% in
1998 principally reflecting both competitive pricing pressure on the Company's
mature product lines and the effect of currency declines principally in the
Deutsche mark. Operating expenses were up $2.5 million in the six months ended
June 30, 1999 compared to 1998, reflecting higher costs for research and
development work on new products, the Company's global marketing initiatives,
incremental expenses associated with the ultrasound technology acquisition and
certain non-recurring and unusual items for aged accounts receivable primarily
related to the Company's Autospect and Trident Systems operations. The six month
comparison also reflects reduced net interest income of $417,000 as a result of
lower cash balances and higher other expenses of $671,000 for legal fees related
to a civil action discussed in Item 3, "Legal Proceedings".
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
-------------------- -------------------
(unaudited)
Net Sales $ 21,256 $ 18,310
Cost of Sales 10,768 8,852
--------- ----------
Gross Profit 10,488 9,458
Selling, General and Administrative Expense 10,693 9,281
Engineering, Research and Development Expense 6,455 5,333
--------- ----------
Operating Loss (6,660) (5,156)
Interest Income, net - 417
Foreign Currency Loss (18) (29)
Other (671) -
--------- ----------
Loss Before Income Taxes (7,349) (4,768)
Income Tax Benefit (2,489) (1,597)
--------- ----------
Net Loss $ (4,860) $ (3,171)
========= ==========
Automotive. Sales in the six months ended June 30, 1999 increased $3.2 million,
or 22%, to $18.0 million compared to $14.8 million in 1998. P-1000 sales
accounted for approximately 60% of net Automotive sales in the 1999 period
compared to approximately 51% in the same period of 1998. RGS and NCA systems
sales accounted for 18% of net sales in 1999 compared to 32% in 1998. The
variance in RGS and NCA sales is a function of the timing of orders by the
Company's customers. Other product sales, which during the 1999 six-month period
included early sales of the Company's new products (principally the Company's
web-based IPNet(TM) and the first developmental system to inspect wet film paint
thickness), represented 15% of net 1999 Automotive sales as compared to 12% in
the six-month 1998 period. Training and service revenues accounted for the
remainder of net sales in both years.
Forest Products. Sales in the six months ended June 30, 1999 were $3.3 million,
down $200,000, or 8%, from the comparable 1998 period sales of $3.5 million. The
lower sales level in the 1999 period reflected postponement of capital purchases
in late 1998 by mills affected by the soft dimension lumber market. During the
six months ended June 30, 1999, the Company sold its first Lumber Analyzer
system, an ultrasound technology product that the Company acquired in the fourth
quarter of 1998.
Bookings & Backlog. New order bookings for the six months ended June 30, 1999
were $25.6 million compared to $18.8 million in the 1998 period. Automotive
bookings totaled $22.6 million in the 1999 period compared to $14.7 million a
year ago. The increased Automotive bookings in 1999 is primarily related to
orders for the Company's new IPNet(TM) product and RGS and NCA systems. Forest
Product bookings were $3.0 million in 1999 compared to $4.1 million a year ago.
The 1999 period includes a $1.1 million two-year blanket order for the Lumber
Analyzer system. The new order bookings net of sales resulted in a backlog at
June 30, 1999 of $27.8 million compared to $24.7 million in 1998. The amount of
new order bookings and the level of backlog during any particular period is not
necessarily indicative of the future operating performance of the Company.
Gross Profit. Gross profit was $10.5 million, or 49.3% of sales, in the six
months ended June 30, 1999, as compared to $9.5 million, or 51.7% of sales, in
the 1998 six months. The percentage decrease reflected both competitive pricing
pressure on the Company's mature product lines and the effect of currency
declines principally in the Deutsche mark.
15
16
Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased
from $9.3 million in the six months ended June 30, 1998 to $10.7 million in the
same 1999 period. The increase was due to SG&A costs incurred by the ultrasound
division of the Forest Products business unit which were not in the 1998 period,
increased personnel and related expenses to support the Company's global
marketing activities, and bad debt expenses incurred during 1999. The bad debt
expenses incurred in 1999 primarily were for the final resolution of aged
accounts receivable primarily related to the Company's Autospect and Trident
Systems operations.
Engineering, Research and Development (R&D) Expenses. Engineering and R&D
expenses increased from $5.3 million in the six months ended June 30, 1998 to
$6.5 million in the 1999 period. The increase in expenses primarily reflect the
Company's continued investments in new product development including engineering
costs for ultrasound technology that were not in the 1998 period. The Company
began to realize revenue from some of the new products during the six-month
period ended June 30, 1999.
Other Income and Deductions. Other income and deductions decreased from income
of $388,000 in the six months ended June 30, 1998 to deductions of $689,000 in
the 1999 period. The $1.1 million net unfavorable change was primarily due to
$671,000 of legal expenses related to a civil action for which the Company was
awarded a favorable judgement. The Company is in the process of trying to
collect on this judgement. The six month comparison was also impacted by reduced
interest income from lower cash balances and higher interest expense related to
borrowings under the Company's Revolving Credit Agreement and the debt assumed
in October 1998 related to the ultrasound technology acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $6.7 million at June 30, 2001,
compared to $5.9 million at June 30, 2000. The cash increase of $.8 million for
the twelve month period ended June 30, 2001, resulted primarily from the net use
of cash to fund operating activities, capital spending, and the effect of
exchange rates on cash amounting to $7.4, $1.4, and $.6 million, respectively,
that was offset by net cash provided from financing activities of $10.1 million.
The net cash used for operations primarily reflected the net loss for the period
of $7.5 million and the increase in deferred income tax benefit of $4.9 million
related to the net loss. This use of cash was partially offset by non-cash
operating expenses associated with depreciation and amortization of $2.1 million
and net changes in assets and liabilities primarily related to working capital
of $2.9 million. Receivables, net of foreign currency translation adjustments,
decreased $6.0 million. Offsetting the cash provided from receivables was a $3.4
million increase in inventory, a $.5 million change in current assets and
liabilities that primarily reflected the use of cash to pay incentive
compensation and liabilities accrued at June 30, 2000, offset by a $.8 million
increase in accounts payable. The level of receivables and inventory at June
30, 2001, primarily reflect the timing of certain sales that did not occur by
June 30, but are expected to be completed in the first quarter of fiscal 2002.
At June 30, 2001, the Company had a $15.0 million Revolving Credit Agreement
(Credit Agreement) that expires on July 31, 2002. The Credit Agreement was
replaced in September 2001 (see paragraph below). The Credit Agreement
prohibited the Company from paying dividends. In addition, the Credit Agreement
contained various financial covenants that, among other things, restricted
dividend payments by requiring the Company to maintain a Fixed Charge Coverage
Ratio and a Total Liabilities to Tangible Net Worth Ratio and required the
Company to maintain certain levels of earnings before interest, taxes,
depreciation and amortization ("EBITDA"). The Company's EBITDA for the twelve
months ended June 30, 2001 was below the level required by the financial
covenant. The Company's bank waived the covenant default through June 30, 2001.
The Company had $13.6 million outstanding under the Credit Agreement at June 30,
2001.
In September 2001, the Company replaced its existing Credit Agreement with two
collateral-based Revolving Credit Facilities ("Revolver"): "Facility A" in the
principal amount of $17.0 million that expires on August 31, 2003 and "Facility
B" in the principal amount of $1.5 million that expires on August 31, 2002.
Proceeds under each Facility may be used for working capital and general
corporate purposes. The aggregate principal amount outstanding at any one time
under Facility A cannot exceed the lesser of $17.0 million or the Facility A
borrowing base which is comprised of 80% of eligible accounts receivable billed
in the United States, aged up to 180 days, 35% of raw material located in the
United States, and $4.8 million representing 80% of the appraised value of the
Company's real property located in Plymouth, Michigan. The aggregate principal
amount outstanding at any one time under Facility B cannot exceed the lesser of
$1.5 million or the Facility B borrowing base which is 50% of finished goods
inventory located in the United States. The collateral for both Facility A and B
is substantially all U.S. assets of the Company and a pledge of 65% of the
common stock of Perceptron B.V. owned by the Company. Facility A can be
designated as a Floating Rate Loan with interest calculated daily at 1/2% below
the bank's prime rate which was 6.5% as of September 13, 2001 or as a Eurodollar
Rate Loan when the Company achieves a ratio of funded debt to earnings before
interest, taxes, depreciation, and amortization of less than 5:1. Interest on
Facility B is calculated daily at the bank's prime rate plus 0.25%. Quarterly,
the Company pays a commitment fee of 1/4% per annum on the daily unused portion
of Facility A. The Credit Agreement prohibits the Company from paying dividends.
In addition, the Revolver contains various financial covenants that, among other
things, restrict dividend payments by requiring the Company to
16
17
maintain a Fixed Charge Coverage Ratio and a Total Liabilities to Tangible Net
Worth Ratio and require the Company to maintain certain levels of earnings
before interest, depreciation and amortization, and taxes.
The Company expects to spend approximately $1.0 million during fiscal year 2002
for capital equipment, although there is no binding commitment to do so. The
Company believes that available cash on hand and existing credit facilities will
be sufficient to fund anticipated fiscal year 2002 cash flow requirements. The
Company does not believe that inflation has significantly impacted historical
operations and does not expect any significant near-term inflationary impact.
For a discussion of certain contingencies relating to the Company's financial
position and results of operations, see Note 12 to the Consolidated Financial
Statements, "Contingencies".
MARKET RISK INFORMATION
Perceptron's primary market risks are related to foreign exchange rates and
interest rate risk in connection with its borrowings. The foreign exchange risk
is derived from sales by its international operations, which are primarily
located in Germany and The Netherlands and for which products are produced in
the U.S. During the periods presented the Company did not use any market risk
instruments for trading purposes.
FOREIGN CURRENCY RISK
The Company has foreign currency exchange risk in its international operations
arising from the time period between sales commitment and delivery for contracts
in non-U.S. currencies. For sales commitments entered into in the non-U.S.
currencies, the currency rate risk exposure is predominantly less than one year
with the majority in the 120 to 150 day range. At June 30, 2001, the Company's
percentage of sales commitments in non-U.S. currencies was 42% or $8.5 million.
The Company may use, from time to time, a limited hedging program to minimize
the impact of foreign currency fluctuations. As the Company exports products, it
may enter into limited hedging transactions relating to the accounts receivable
arising as a result of such shipment. These transactions involve the use of
forward contracts. During the periods presented the Company did not engage in
any hedging activities.
INTEREST RATE RISK
The Company is subject to interest rate risk in connection with borrowings under
its variable rate revolving line of credit and from fixed rate debt assumed in
conjunction with the purchase of ultrasound intellectual property in October
1998. The Company's exposure to interest rate risk arises primarily from changes
in the prime rate and changes in Eurodollar rates in the London interbank
market. The Company would not expect its operating results or cash flows to be
affected to any significant degree by a hypothetical 10 percent change in market
interest rates. See Note 9 of Notes to Consolidated Statements for a description
of the Company's outstanding debt.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, which
supersedes Accounting Principles Board Opinion ("APB") No. 16, Business
Combinations. SFAS 141 eliminates the pooling-of-interests method of accounting
for business combinations for transactions initiated after June 30, 2001. SFAS
141 also provides guidance on purchase accounting related to the recognition of
intangible assets and accounting for negative goodwill. This statement will not
have an impact on the Company's consolidated financial statements.
In July 2001, the FASB also issued SFAS No. 142, Goodwill and Intangible Assets,
which supersedes APB Opinion No. 17, Intangible Assets. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
statements. Other intangible assets will continue to be amortized over their
useful lives. SFAS 142 will apply to goodwill and intangible assets arising from
transactions completed before and after the Statement's effective date. SFAS 142
is effective for fiscal years beginning after December 15, 2001, but earlier
adoption is permitted. The Company is currently reviewing the Statement and has
not yet made a determination of the impact that adoption will have on its
consolidated financial statements.
SAFE HARBOR STATEMENT
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations may be "forward-looking statements" within
the meaning of the Securities Exchange Act of 1934, including the Company's
expectation as to fiscal 2002 and future revenue, order booking levels and
earnings levels and the impact of the Company's
17
18
cost reduction initiatives. The Company assumes no obligation for updating any
such forward-looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
statements. Actual results could differ materially from those in the
forward-looking statements due to a number of uncertainties, including, but not
limited to, the dependence of the Company's revenue on a number of sizable
orders from a small number of customers, the timing of orders and shipments
which can cause the Company to experience significant fluctuations in its
quarterly and annual revenue and operating results, timely receipt of required
supplies and components which could result in delays in anticipated shipments,
general product demand and market acceptance risks, the ability of the Company
to successfully compete with alternative and similar technologies, the timing
and continuation of the automotive industry's retooling programs, the ability of
the Company to resolve technical issues inherent in the development of new
products and technologies, the impact of lumber prices on capital spending in
the Forest Products industry, the ability of the Company to identify and satisfy
market needs, general product development and commercialization difficulties,
the ability of the Company to attract and retain key personnel, especially
technical personnel, the quality and cost of competitive products already in
existence or developed in the future, the level of interest existing and
potential new customers may have in new products and technologies generally,
rapid or unexpected technological changes, the effect of economic conditions,
particularly economic conditions in the domestic and worldwide Automotive and
Forest Products industries, both of which have from time to time been subject to
cyclical downturns due to the level of demand for, or supply of, the products
produced by companies in these industries, variations in the amount of cost
savings anticipated from the cost reduction initiatives and the impact of cost
reduction initiatives on the Company's revenues, order bookings and earnings.
The Company's expectations regarding future bookings are based upon oral
discussions with customers and are subject to change based upon a wide variety
of factors, including economic conditions and system implementation delays.
Certain of these new orders have been delayed in the past and could be delayed
in the future. Because the Company's products are typically integrated into
larger systems or lines, the timing of new orders are dependent on the timing of
completion of the overall system or line. In addition, because the Company's
products have shorter lead times than other components and are required later in
the process, orders for the Company's products tend to be given later in the
integration process.
ITEM 7A: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Information required pursuant to this item is incorporated by reference herein
from Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Risk Information".
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Accountants..................................................... 19
Consolidated Financial Statements:
Balance Sheets - June 30, 2001, 2000 and 1999..................................... 20
Statements of Income for the twelve months ended June 30, 2001 and 2000, the six
months ended June 30, 1999 and the year ended December 31, 1998................... 21
Statements of Cash Flows for the twelve months ended June 30, 2001 and 2000,
the six months ended June 30, 1999 and the year ended December 31, 1998........... 22
Statements of Shareholders' Equity for the twelve months ended June 30, 2001 and
2000, the six months ended June 30, 1999 and the year ended December 31, 1998..... 23
Notes to Consolidated Financial Statements........................................ 24
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19
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Perceptron, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Perceptron, Inc. and
its subsidiaries ("the Company") at June 30, 2001, June 30, 2000 and June 30,
1999, and the results of their operations and their cash flows for the years
ended June 30, 2001 and June 30, 2000, for the six months ended June 30, 1999
and for the year ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule referred to in item 14(A)(2) for
the years ended June 30, 2001 and June 30, 2000, for the six months ended June
30, 1999 and for the year ended December 31, 1998 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, during the year
ended June 30, 2001, the Company changed its method of recognizing revenue.
PricewaterhouseCoopers LLP
Detroit, Michigan
August 15, 2001 except as to Note 9 for which the date
is September 24, 2001.
19
20
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT, JUNE 30,
(In Thousands, except per share amount) 2001 2000 1999
-------------- -------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,680 $ 5,947 $ 4,205
Receivables:
Billed receivables, net of allowance for doubtful accounts 20,981 26,507 21,128
of $734, $268 and $218, respectively
Unbilled and other receivables 4,435 6,126 4,611
Inventories, net of reserves of $2,038, $1,200 and $600, respectively 16,011 12,582 12,323
Deferred taxes and other current assets 1,246 1,564 1,307
-------------- -------------- --------------
Total current assets 49,353 52,726 43,574
-------------- -------------- --------------
PROPERTY AND EQUIPMENT
Building and land 6,032 6,004 5,990
Machinery and equipment 10,045 9,598 9,774
Furniture and fixtures 1,253 1,195 1,469
-------------- -------------- --------------
17,330 16,797 17,233
Less - Accumulated depreciation and amortization (7,549) (6,125) (6,121)
-------------- -------------- --------------
Net property and equipment 9,781 10,672 11,112
-------------- -------------- --------------
OTHER ASSETS
Intangible assets, net of accumulated amortization 1,482 1,313 1,692
of $1,134, $660 and $279, respectively
Deferred tax asset and other 6,903 1,516 4,956
-------------- -------------- --------------
Total other assets 7,834 2,829 6,648
-------------- -------------- --------------
TOTAL ASSETS $ 67,519 $ 66,227 $ 61,334
============== ============== ==============
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,401 $ 4,549 $ 3,550
Accrued liabilities and expenses 3,858 4,503 4,256
Deferred revenue (Note 2) 2,588 139 363
Notes payable (Note 9) 13,615 - -
Income taxes payable 273 87 633
Accrued compensation 449 2,785 203
-------------- -------------- --------------
Total current liabilities 26,184 12,063 9,005
-------------- -------------- --------------
LONG-TERM LIABILITIES
Notes payable (Note 9) 1,040 4,595 4,265
-------------- -------------- --------------
Total long-term liabilities 1,040 4,595 4,265
-------------- -------------- --------------
Total liabilities 27,224 16,658 13,270
-------------- -------------- --------------
SHAREHOLDERS' EQUITY
Preferred stock - no par value, authorized 1,000 shares, issued none - - -
Common stock, $0.01 par value, authorized 19,000 shares, issued
and outstanding 8,185, 8,170, and 8,169, respectively 82 82 82
Accumulated other comprehensive income (loss) (5,505) (3,723) (3,340)
Additional paid-in capital 41,056 41,010 40,979
Retained earnings 4,662 12,200 10,343
-------------- -------------- --------------
Total shareholders' equity 40,295 49,569 48,064
-------------- -------------- --------------
TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $ 67,519 $ 66,227 $ 61,334
============== ============== ==============
The notes to the consolidated financial statements are an integral part of these
statements.
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21
PERCEPTRON, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
TWELVE MONTHS ENDED SIX MONTHS TWELVE MONTHS
JUNE 30, ENDED ENDED
(In Thousands, Except Per Share Amounts) 2001 2000 JUNE 30, 1999 DECEMBER 31, 1998
--------------- --------------- --------------- -----------------
NET SALES $ 50,714 $ 69,821 $ 21,256 $ 49,635
COST OF SALES 26,121 31,232 10,768 22,442
--------------- --------------- --------------- ---------------
GROSS PROFIT 24,593 38,589 10,488 27,193
OPERATING EXPENSES
Selling, general and administrative 19,319 21,815 10,693 20,113
Engineering, research and development 13,821 13,115 6,455 11,384
Restructuring Charge (Note 3) 900 - - -
Non-cash intangible asset write-off (Note 8) - - - 1,472
--------------- --------------- --------------- ---------------
Total operating expenses 34,040 34,930 17,148 32,969
--------------- --------------- --------------- ---------------
OPERATING INCOME (LOSS) (9,447) 3,659 (6,660) (5,776)
--------------- --------------- --------------- ---------------
OTHER INCOME AND (DEDUCTIONS)
Interest expense (769) (424) (93) (193)
Interest income 232 191 93 842
Foreign currency gain (loss) (250) (30) (18) (23)
Other (Note 5) 223 (102) (671) 7
--------------- --------------- --------------- ---------------
Total other income (deductions) (564) (365) (689) 633
--------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES (10,011) 3,294 (7,349) (5,143)
INCOME TAX EXPENSE (BENEFIT) (3,806) 1,437 (2,489) (1,804)
--------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (6,205) 1,857 (4,860) (3,339)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF $764 OF TAXES (NOTE 2) (1,333) - - -
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (7,538) $ 1,857 $ (4,860) $ (3,339)
=============== =============== =============== ===============
EARNINGS (LOSS) PER SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
BASIC $ (0.76) $ 0.23 $ (0.59) $ (0.41)
DILUTED $ (0.76) $ 0.23 $ (0.59) $ (0.41)
EARNINGS (LOSS) PER SHARE OF CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
BASIC $ (0.16) $ - $ - $ -
DILUTED $ (0.16) $ - $ - $ -
EARNINGS (LOSS) PER SHARE
BASIC $ (0.92) $ 0.23 $ (0.59) $ (0.41)
DILUTED $ (0.92) $ 0.23 $ (0.59) $ (0.41)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 8,178 8,170 8,185 8,239
DILUTED 8,178 8,199 8,185 8,239
The notes to the consolidated financial statements are an integral part of these
statements.
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22
PERCEPTRON, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
TWELVE MONTHS ENDED SIX MONTHS TWELVE MONTHS
JUNE 30, ENDED ENDED
(In Thousands) 2001 2000 JUNE 30, 1999 DECEMBER 31, 1998
------------ ------------ ------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (7,538) $ 1,857 $ (4,860) $ (3,339)
Adjustments to reconcile net income (loss) to net cash provided from
(used for) operating activities:
Depreciation and amortization 2,076 2,293 1,268 2,488
Deferred income taxes (4,931) 2,325 (1,950) (3,190)
Non-cash write-off of intangible asset (Note 8) - - - 1,472
Other 29 31 18 -
Changes in assets and liabilities, exclusive of changes shown
separately 2,934 (3,369) 2,141 (4,393)
------------ ------------ ------------ ------------
Net cash provided from (used for) operating activities (7,430) 3,137 (3,383) (6,962)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of short-term debt 27,060 17,585 8,847 2,000
Repayment of short-term debt (17,000) (17,255) (5,622) (2,000)
Repurchase of company stock - - (257) (1,642)
Proceeds from stock plans 46 31 - 1,212
------------ ------------ ------------ ------------
Net cash provided from (used for) financing activities 10,106 361 2,968 (430)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,652) (1,456) (995) (2,400)
Sales and maturities of marketable securities - - - 2,000
Sale (purchase) of assets (Note 8) 270 - - (1,114)
------------ ------------ ------------ ------------
Net cash (used for) investing activities (1,382) (1,456) (995) (1,514)
------------ ------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (561) (300) (138) 211
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 733 1,742 (1,548) (8,695)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,947 4,205 5,753 14,448
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,680 $ 5,947 $ 4,205 $ 5,753
============ ============ ============ ============
CHANGES IN ASSETS AND LIABILITIES, EXCLUSIVE OF CHANGES SHOWN SEPARATELY
Billed, unbilled and other receivables, net $ 5,996 $ (7,028) $ 4,310 $ (667)
Inventories (3,428) (259) (959) (3,262)
Accounts payable 852 999 (220) 687
Other current assets and liabilities (486) 2,919 (990) (1,151)
------------ ------------ ------------ ------------
$ 2,934 $ (3,369) $ 2,141 $ (4,393)
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 714 $ 371 $ 93 $ 6
Cash paid during the year for income taxes 230 1,031 322 1,288
Non-cash transactions:
Intangible assets acquired by assumption of note payable (Note 8) - - - 1,040
The notes to the consolidated financial statements are an integral part of these
statements.
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23
PERCEPTRON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER ADDITIONAL RETAINED TOTAL
COMMON STOCK COMPREHENSIVE PAID-IN EARNINGS SHAREHOLDERS'
(In Thousands) SHARES AMOUNT INCOME CAPITAL (DEFICIT) EQUITY
-------------------------------------------------------------------------------
BALANCES, JANUARY 1, 1998 8,207 $ 82 $(2,411) $ 41,666 $ 18,542 $ 57,879
Comprehensive income (loss)
Net loss (3,339) (3,339)
Other comprehensive income
Foreign currency translation adjustments 742 742
--------------
Total comprehensive income (loss) (2,597)
--------------
Stock options exercised, net of shares tendered 135 1 988 989
Tax benefit relating to stock option plans 223 223
Stock repurchased (123) (1) (1,641) (1,642)
------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 8,219 $ 82 $(1,669) $ 41,236 $ 15,203 $ 54,852
==============================================================================
Comprehensive income (loss)
Net loss (4,860) (4,860)
Other comprehensive income
Foreign currency translation adjustments (1,671) (1,671)
--------------
Total comprehensive income (loss) (6,531)
--------------
Stock repurchased (50) - (257) (257)
------------------------------------------------------------------------------
BALANCES, JUNE 30, 1999 8,169 $ 82 $(3,340) $ 40,979 $ 10,343 $ 48,064
==============================================================================
Comprehensive income
Net income 1,857 1,857
Other comprehensive income
Foreign currency translation adjustments (383) (383)
--------------
Total comprehensive income 1,474
--------------
Stock plans 1 - 31 31
------------------------------------------------------------------------------
BALANCES, JUNE 30, 2000 8,170 $ 82 $(3,723) $ 41,010 $ 12,200 $ 49,569
==============================================================================
Comprehensive income (loss)
Net loss (7,538) (7,538)
Other comprehensive income
Foreign currency translation adjustments (1,782) (1,782)
--------------
Total comprehensive income (loss) (9,320)
--------------
Stock plans 15 - 46 46
------------------------------------------------------------------------------
BALANCES, JUNE 30, 2001 8,185 $ 82 $(5,505) $ 41,056 $ 4,662 $ 40,295
==============================================================================
The notes to the consolidated financial statements are an integral part of these
statements.
23
24
PERCEPTRON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Perceptron, Inc. and its wholly-owned subsidiaries (collectively, the "Company")
are involved in the design, development, manufacture, and marketing of
information-based measurement and inspection focused solutions for process
improvements primarily for the automotive and forest products industries.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
On June 24, 1999, the Company elected to change its reporting period from a
calendar year ending December 31, to a fiscal year ending June 30. As a result,
the financial statements include the six-month transition period January 1, 1999
through June 30, 1999.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts for prior
periods have been reclassified to conform to the current period presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's wholly-owned foreign subsidiaries have
been translated in accordance with Statement of Financial Accounting Standards
("SFAS") No. 52, with the functional currency being the local currency in the
foreign country. Under this standard, translation adjustments are accumulated in
a separate component of shareholders' equity. Gains and losses on foreign
currency transactions are included in the consolidated statement of income under
"Other Income and Deductions".
CONCENTRATION OF CREDIT RISK
The Company markets and sells its products primarily to automotive assembly
companies and to system integrators or original equipment manufacturers
("OEMs"), who in turn sell to automotive assembly companies. The Company also
markets and sells its forest products to lumber mills and to OEMs, who in turn,
sell to end-users. The Company's accounts receivable are principally from a
small number of large customers. The Company performs ongoing credit evaluations
of its customers. To date, the Company has not experienced any significant
losses related to the collection of accounts receivable.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with maturities of
three months or less to be cash equivalents. Fair value approximates carrying
value because of the short maturity of the cash equivalents. Those with a
greater life are recorded as marketable securities.
PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment are recorded at cost. Depreciation related to machinery
and equipment and furniture and fixtures is primarily computed on a
straight-line basis over estimated useful lives ranging from 3 to 10 years.
Depreciation on buildings is computed on a straight-line basis over 37 1/2
years. Intangible assets are being amortized generally over 5 years.
When assets are retired, the costs of such assets and related accumulated
depreciation or amortization are eliminated from the respective accounts, and
the resulting gain or loss is reflected in the consolidated statement of income.
WARRANTY
Automotive industry systems carry a three year warranty for parts and a one year
warranty for labor and travel related to warranty. Forest Products industry
systems carry a three-year warranty for parts for systems that do not
incorporate lasar scanners. Lasar scanning systems carry a one-year warranty for
parts. Labor and travel are not covered by warranty in the
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Forest Products industry. The Company provides a reserve for warranty based on
its experience. If a special circumstance arises requiring a higher level of
warranty, the Company would make a special warranty provision commensurate with
the facts.
INVENTORIES
Inventory is stated at the lower of cost or market. The cost of inventory is
determined by the first-in, first-out ("FIFO") method. The Company provides a
reserve for obsolescence to recognize the effects of engineering change orders
and other matters that affect the value of the inventory. When the related
inventory is disposed of, the obsolescence reserve is released. Inventory, net
of reserves, is comprised of the following (in thousands):
AT JUNE 30,
-------------------------------------------
2001 2000 1999
------------ ------------ ------------
Component parts $ 8,507 $ 7,214 $ 6,553
Work in process 1,627 1,204 1,683
Finished goods 5,877 4,164 4,087
------------ ------------ ------------
Total $16,011 $12,582 $12,323
============ ============ ============
EARNINGS PER SHARE
Basic earnings per share ("EPS") is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Other
obligations, such as stock options and warrants, are considered to be
potentially dilutive common shares. Diluted EPS assumes the issuance of
potential dilutive common shares outstanding during the period and adjusts for
any changes in income and the repurchase of common shares that would have
occurred from the assumed issuance unless such effect is anti-dilutive. A
reconciliation of both calculations is shown below (in thousands, except per
share amounts).
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, DECEMBER 31,
2001 2000 1999 1998
------------ ------------ ------------------- -----------------------
Income (loss) before cumulative
effect of change in accounting
principle $ (6,205) $ 1,857 $ (4,860) $ (3,339)
Cumulative effect of change in
accounting principle (1,333) - - -
------------ ------------ ------------ -------------
Net income (loss) $ (7,538) $ 1,857 $ (4,860) $ (3,339)
============ ============ ============ =============
Weighted average common shares:
Basic shares 8,178 8,170 8,185 8,239
Effect of dilutive securities:
Stock options and warrants - 29 - -
------------ ------------ ------------ -------------
Diluted Shares 8,178 8,199 8,185 8,239
============ ============ ============ =============
Basic earnings (loss) per share:
Before cumulative effect of
change in accounting principle $ (0.76) $ 0.23 $ (0.59) $ (0.41)
Cumulative effect of change in
accounting principle (0.16) - - -
After cumulative effect of change ------------ ------------ ------------ -------------
in accounting principle $ (0.92) $ 0.23 $ (0.59) $ (0.41)
============ ============ ============ =============
Diluted earnings (loss) per share:
Before cumulative effect of
change in accounting principle $ (0.76) $ 0.23 $ (0.59) $ (0.41)
Cumulative effect of change in
accounting principle (0.16) - - -
After cumulative effect of change ------------ ------------ ------------ -------------
in accounting principle $ (0.92) $ 0.23 $ (0.59) $ (0.41)
============ ============ ============ =============
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Options to purchase 1,426,000, 1,161,000, 1,188,000 and 914,000 shares of common
stock were outstanding in the twelve months ended June 30, 2001 and 2000, six
months ended June 30, 1999 and the year ended December 31, 1998, respectively,
and were not included in the computation of diluted EPS because the effect would
have been anti-dilutive.
REVENUE RECOGNITION
Revenue related to products is recognized upon shipment when title and risk of
loss has passed to the customer, there is persuasive evidence of an arrangement,
the sales price is fixed or determinable, collection of the related receivable
is reasonably assured and customer acceptance criteria have been successfully
demonstrated. For multiple element arrangements, the Company defers the greater
of the fair value of any undelivered elements of the contract, such as
installation services, or the portion of the sales price of the contract which
is not payable until the undelivered elements are completed. See also Note 2,
"Change in Accounting Principle".
RESEARCH AND DEVELOPMENT
Research and development costs, including software development costs, are
expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES
The Company evaluates the carrying value of long-lived and intangible assets and
long-lived assets to be disposed of for potential impairment on an ongoing
basis. The Company considers projected future undiscounted cash flows or fair
values, as appropriate, compared with carrying amounts, trends and other
circumstances in making such estimates and evaluations. If an impairment is
indicated, the carrying amount of the asset or intangible is adjusted based on
its fair value.
FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which include cash,
marketable securities, accounts receivable, accounts payable, and amounts due to
banks or other lenders, approximate their fair values at June 30, 2001, 2000 and
1999. Fair values have been determined through information obtained from market
sources and management estimates.
2. CHANGE IN ACCOUNTING PRINCIPLE
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain areas of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. Historically, the Company recognized revenue from the sales of
products upon shipment, and accrued for any costs of installation not completed.
The Company accounted for contractual acceptance terms based upon probable
achievement of meeting the acceptance criteria. Under the new accounting method
adopted retroactive to July 1, 2000, the Company recognizes the portion of
revenue from the sales of products upon shipment when both title and risk of
loss pass to the customer and defers the greater of the fair value or the
contractual holdback of any undelivered elements, such as installation services,
until the undelivered elements are completed. During the fourth quarter of
fiscal 2001, the Company implemented the SEC's SAB 101 guidelines, retroactive
to the beginning of the year. This was reported as a cumulative effect of a
change in accounting principle as of July 1, 2000. The cumulative effect of the
change in accounting principle on prior years resulted in a charge to income of
$1.3 million (net of income taxes of $764,000) or $.16 per diluted share which
has been included in income for the fiscal year ending June 30, 2001. For the
fiscal year ending June 30, 2001, the Company recognized $2.1 million in revenue
that is included in the cumulative effect adjustment as of July 1, 2000.
Implementing SAB 101 also had the effect of deferring sales of $1.9 million that
historically would have been recorded in fiscal 2001. The overall impact of SAB
101 on income before the cumulative effect of the accounting change for fiscal
2001 was a decrease of $192,000. The results for the first three-quarters of the
fiscal year ending June 30, 2001 have been restated in accordance with SAB 101
(see Note 17, Selected Quarterly Financial Data). Actual and pro forma amounts
for fiscal year 2000 are shown below for comparative purposes. Pro forma amounts
for the periods prior to July 1, 1999 have not been presented as the effect of
the change in accounting principle could not be reasonably determined.
Twelve Months Ended
June 30, 2000
(in thousands, except per share amounts) Reported Pro forma
-------------------- --------------------
Net Sales $69,821 $68,952
Gross Profit 38,589 37,798
Income before income taxes 3,294 2,503
Income tax expense 1,437 1,092
Net income 1,857 1,411
Earnings per share
Basic $ 0.23 $ 0.17
Diluted $ 0.23 $ 0.17
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3. RESTRUCTURING CHARGE
The Company recorded a $2.2 million restructuring charge during fiscal 2001.
Approximately $1.3 million of the charge was recorded to engineering, research
and development and related to reserving for write-offs of inventory and capital
assets that were purchased to support product development projects that were
either stopped or put on hold and for which it was determined that alternative
uses were no longer available. The balance totaling $900,000 was recorded as a
restructuring charge, of which, approximately 60% represented accrued separation
costs and 40% related primarily to closing leased facilities.
4. TRANSITION PERIOD COMPARATIVE FINANCIAL INFORMATION
The following table presents certain unaudited financial information that has
been restated from a calendar year basis to a fiscal year basis as a result of
the Company's change to a fiscal year ending June 30 (in thousands, except per
share amounts):
Six Months Ended June 30, Twelve Months Ended June 30,
1999 1998 2000 1999
---------------- ----------------- ---------------- -----------------
(unaudited) (unaudited)
Net Sales $ 21,256 $ 18,310 $ 69,821 $ 52,581
Gross Profit 10,488 9,458 38,589 28,223
Income (loss) before income taxes (7,349) (4,768) 3,294 (7,724)
Income tax expense (benefit) (2,489) (1,597) 1,437 (2,696)
Net income (loss) (4,860) (3,171) 1,857 (5,028)
Earnings (loss) per share
Basic (0.59) (0.38) 0.23 (0.61)
Diluted (0.59) (0.38) 0.23 (0.61)
Weighted average common shares outstanding
Basic 8,185 8,250 8,170 8,218
Diluted 8,185 8,250 8,199 8,218
5. LITIGATION EXPENSES
During the six months ended June 30, 1999, the Company expensed $671,000 of
legal expenses related to a civil action for which the Company was awarded a
favorable judgement (see Note 12). The Company is in the process of trying to
collect on this judgement.
6. MARKETABLE SECURITIES
The Company had no marketable securities at June 30, 2001, June 30, 2000 and
June 30, 1999. In 1998, proceeds from sales of available for sale securities
were $2,000,000; no gross gains or losses were realized on those sales.
7. LEASES
The following is a summary, as of June 30, 2001, of the future minimum annual
lease payments required under the Company's operating leases having initial or
remaining non-cancelable terms in excess of one year (in thousands):
FISCAL YEAR OPERATING
-------------- --------------
2002 $ 1,240
2003 601
2004 400
2005 311
2006 126
2007 and beyond -
--------------
Total minimum lease payments $ 2,678
==============
Rental expense for operating leases in the twelve months ended June 30, 2001 and
2000, six months ended June 30, 1999 and calendar year 1998 was $1,380,000,
$1,428,000, $725,000 and $1,318,000, respectively.
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8. INTANGIBLE ASSETS
In October 1998, the Company purchased the assets, including ultrasound
intellectual property, of Sonic Industries, Inc. and Sonic Technologies, Inc.
("Sonic") and assumed certain liabilities and long-term debt (see Note 9).
Intangible assets, including goodwill, totaled $1,848,000 and are being
amortized over five years.
During 1998, the Company developed a new suite of non-contact three-dimensional
measurement technologies, which superseded certain existing technologies
recorded as intangible assets. As a result, the carrying value of these
intangible assets was evaluated for impairment. This evaluation resulted in a
write-off of intangible assets with a net book value of $1,472,000 in 1998.
9. SHORT-TERM AND LONG-TERM NOTES PAYABLE
At June 30, 2001, the Company's principal bank had agreed to provide short-term
credit facilities of 1.0 million Deutsche marks and $1.0 million Canadian
dollars. These facilities were available to finance working capital needs and
equipment purchases or capital leases. Interest on any borrowings was based at
the bank's prime rate (6.5% as of September 13, 2001). These credit facilities
expired on July 31, 2001. The Company had no borrowings outstanding under these
credit facilities at June 30, 2001. In September 2001, the Company entered into
a collateral-based $1.5 million line of credit that expires August 31, 2002. The
line of credit can be used to finance working capital needs and for general
corporate purposes. Any borrowings will bear interest at 1/4% above the bank's
prime rate (6.5% as of September 13, 2001). The aggregate principal amount
outstanding at any one time cannot exceed the lesser of $1.5 million or the
borrowing base, which is 50% of finished goods inventory located in the United
States.
At June 30, 2001, the Company had a $15.0 million Revolving Credit Agreement
(Credit Agreement) that expires on July 31, 2002. The Credit Agreement was
replaced in September 2001 (see paragraph below). The Credit Agreement
prohibited the Company from paying dividends. In addition, the Credit Agreement
contained various financial covenants that, among other things, restricted
dividend payments by requiring the Company to maintain a Fixed Charge Coverage
Ratio and a Total Liabilities to Tangible Net Worth Ratio and required the
Company to maintain certain levels of earnings before interest, taxes,
depreciation and amortization ("EBITDA"). The Company's EBITDA for the twelve
months ended June 30, 2001 was below the level required by the financial
covenant. The Company's bank waived the covenant default through June 30, 2001.
The Company had $13.6 million outstanding under the Credit Agreement at June 30,
2001.
In September 2001, the Company replaced its existing $15.0 million Credit
Agreement with a new $17.0 million collateral-based Revolving Line of Credit
Agreement (Revolver) that expires on August 31, 2003. Proceeds under the
Revolver may be used for working capital and general corporate purposes and can
be designated as a Floating Rate Loan or as a Eurodollar Rate loan when the
Company achieves a ratio of funded debt to earnings before interest, taxes,
depreciation, and amortization of less than 5:1. Interest on Floating Rate
borrowings is calculated daily at 1/2% below the bank's prime rate (6.5% as of
September 13, 2001) and is payable on the last day of each month. Interest on
Eurodollar Rate borrowings is calculated at a Eurodollar Rate for the period
chosen (approximately 5.0% as of September 13, 2001) and is payable on the last
day of the applicable period. Quarterly, the Company pays a commitment fee of
1/4% per annum on the daily unused portion of the Revolver. The aggregate
principal amount outstanding at any one time cannot exceed the lesser of
$17.0 million or the borrowing base which is comprised of 80% of eligible
accounts receivable billed in the United States, aged up to 180 days, 35% of
raw material located in the United States, and $4.8 million representing 80%
of the appraised value of the Company's real property located in Plymouth,
Michigan. The collateral for the Revolver is substantially all U.S. assets of
the Company and a pledge of 65% of the common stock of Perceptron BV owned by
the Company. The Revolver prohibits the Company from paying dividends. In
addition, the Revolver contains various financial covenants that, among other
things, restrict dividend payments by requiring the Company to maintain a
Fixed Charge Coverage Ratio and a Total Liabilities to Tangible Net Worth
Ratio and require the Company to maintain certain levels of earnings before
interest, depreciation and amortization, and taxes.
In conjunction with the Company's October 1, 1998 purchase of Sonic assets,
discussed in Note 8, the Company assumed a long-term note payable totaling
$1,040,000. The note is payable in full on November 1, 2003 and requires
quarterly payments of interest at 7.5% per annum on the outstanding principal
balance. The note may be prepaid without penalty in whole or in part at anytime.
10. COMMITMENTS AND OTHER
As part of the purchase of the Sonic intellectual property (see Note 8), the
Company agreed to pay contingent royalty payments on sales using the Sonic
technology over a five-year period beginning October 1, 1998. The purchase
agreement was amended in October 2000 to extend the contingent royalty period by
one year to October 1, 2004. The maximum total amount of royalties is capped at
$6 million on sales of $90 million. The Company has prepaid approximately $1.9
million of
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the contingent royalty payments generally through the assumption of liabilities
in connection with the acquisition of the Sonic assets. These prepaid royalties
generally offset the first contingent royalties due.
The Company has received a National Institute for Science and Technology -
Advanced Technology Program award to participate in a joint venture to develop a
robot guidance system for powertrain assembly automation. The Company's in-kind
development contribution is approximately $500,000 over a four-year period that
began in 1998. The joint venture is administered by the National Center for
Manufacturing Sciences and includes a major automotive manufacturer.
The Company may use, from time to time, a limited hedging program to minimize
the impact of foreign currency fluctuations. As the Company exports product, it
may enter into limited hedging transactions relating to the accounts receivable
arising as a result of such shipment. These transactions involve the use of
forward contracts. During the periods presented, the Company did not engage in
any hedging activities.
11. INFORMATION ABOUT MAJOR CUSTOMERS
The Company sells its products directly to both domestic and international
automotive assembly companies. During the twelve months ended June 30, 2001, 22%
of net sales were derived from three automotive companies. During the twelve
months ended June 30, 2000, six months ended June 30, 1999, and calendar year
1998, 35%, 25% and 22% of net sales, respectively, were derived from these same
three automotive companies. The Company also sells to system integrators or
OEMs, who in turn sell to these same automotive companies. For the twelve months
ended June 30, 2001 and 2000, six months ended June 30, 1999 and for the year
ended December 31, 1998, approximately 8%, 11%, 8% and 13% of net sales,
respectively, were to system integrators and OEMs for the benefit of the same
three automotive companies. During the twelve months ended June 30, 2001, sales
to General Motors were 11.8% of the Company's total net sales.
12. CONTINGENCIES
The Company may, from time to time, be subject to legal proceedings and claims.
Litigation involves many uncertainties. Management is currently unaware of any
significant pending litigation affecting the Company, other than the matters
discussed below.
On December 11, 1998, a jury in a civil case in the U.S. District Court for the
Eastern District of Michigan returned a favorable judgement for the Company and
awarded damages of over $732,000. The suit, filed by the Company in June 1996,
charged Sensor Adaptive Machines, Inc. ("SAMI") with violation of a covenant not
to compete. SAMI filed counterclaims against the Company alleging, in part, that
the Company was engaged in unlawful monopolization and tortious interference
with business practice and sought damages. In response to a motion for summary
disposition filed by the Company, the counterclaim for unlawful monopolization
was dismissed by the court in June 1998. The jury found that the remaining
counterclaims were without merit. On March 4, 1999, the Company's motion for
interest was granted. SAMI's appeal of the judgement including the counterclaims
against the Company was denied by the U.S. Court of Appeals for the Sixth
Circuit. The Company has instituted legal action to collect the judgement. SAMI
is subject to bankruptcy proceedings in Canada.
On September 25, 1998, the U.S. District Court for the Eastern District of
Michigan dismissed, with prejudice, a suit filed against the Company by Speroni,
S.p.A. ("Speroni") which alleged tortious interference in conjunction with
exclusive distributorship contracts covering the sale of the P-1000 products in
Italy and France. Speroni's appeal of the dismissal was denied by the Federal
Court of Appeals. The suit alleged tortious interference in conjunction with
exclusive distributorship contracts covering the sale of P-1000 products in
Italy and France between Perceptron B.V., a wholly-owned subsidiary of the
Company, and Speroni. Perceptron B.V. terminated the exclusive distributorship
contracts in 1997 for breach of contract by Speroni and has sought arbitration
of this matter with the International Chamber of Commerce International Court of
Arbitration ("ICC"), to confirm the terminations and to award damages. Speroni
has filed counterclaims with the ICC alleging breach of the exclusive
distributorship contracts and seeking damages of $6.5 million. On February 12,
2001, the arbitrator determined that 1) Speroni breached its duty to properly
inform Perceptron B.V., but did not act in bad faith, and so Perceptron B.V. did
not satisfy the conditions required under French law and Italian law to
rightfully terminate the distributorship agreements without prior notice; and 2)
Perceptron B.V. did not breach its agreements with Speroni by providing certain
information to a customer of both Perceptron B.V. and Speroni and by submitting
a bid to a customer of both Perceptron B.V. and Speroni outside of Speroni's
territories, but did not act in good faith in not informing Speroni of these
activities. Damages, if any, on the claims on which the arbitrator found in
favor of Speroni shall be decided in the second phase of the arbitration
proceedings. The Company intends to vigorously defend against any damage claim
made against it by Speroni.
The Company is a party to a suit filed by Analog Technologies, Inc. ("Analog")
on October 8, 1999 in the Circuit Court for the County of Oakland, Michigan. The
suit alleges that the Company breached a non-disclosure agreement and
misappropriated Analog's confidential information and trade secrets in
connection with the Company's development of a potential new product. The
potential new product involved is one of a number of new products under
development by the Company, which have not been discussed in the Company's
filings with the Securities and Exchange Commission. On February 15, 2000, the
Oakland
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County Circuit Court denied Analog's motion for preliminary injunction against
the Company. Analog also seeks unspecified compensatory damages in excess of
$25,000. The Company believes that Analog's claims are without merit and intends
to vigorously defend Analog's claims.
The Company has been informed that certain of its customers have received
allegations of possible patent infringement involving processes and methods used
in the Company's products. Certain of these customers, including one customer
who was a party to a patent infringement suit relating to this matter, have
settled such claims. Management believes, however, that the processes used in
the Company's products were independently developed without utilizing any
previously patented process or technology. Because of the uncertainty
surrounding the nature of any possible infringement and the validity of any such
claim or any possible customer claim for indemnity relating to claims against
these customers, it is not possible to estimate the ultimate effect, if any, of
this matter on the Company's financial statements.
13. 401(K) PLAN
The Company has a 401(k) tax deferred savings plan that covers all eligible
employees. The Company may make discretionary contributions to the plan. The
Company's contributions during the twelve months ended June 30, 2001 and 2000,
six months ended June 30, 1999, and the calendar year 1998, were $334,093,
$456,000, $218,000 and $439,000, respectively.
14. STOCK OPTION PLANS
The Company maintains 1992 and 1998 Stock Option Plans covering substantially
all company employees and certain other key persons and a Director Stock Option
Plan covering all non-employee directors. The 1992 and Director Plans are
administered by a committee of the Board of Directors. The 1998 Plan is
administered by the President of the Company. Activity under these Plans is
shown in the following table:
TWELVE MONTHS ENDED TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1998
---------------------- ----------------------- ------------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
----------- --------- ---------- ------------ ------------ ----------- ---------- ----------
Shares subject to option
Outstanding at beginning of period 1,345,258 $ 14.77 1,286,391 $ 17.56 1,239,186 $ 19.14 1,088,765 $21.39
New grants (based on fair value of
common stock at dates of grant) 835,916 1.80 375,625 3.92 148,200 4.91 397,399 8.72
Exercised - - - - - - (134,931) 7.28
Terminated and expired (254,525) 12.07 (316,758) 13.22 (100,995) 18.28 (112,047) 22.89
Outstanding at end of period 1,926,649 9.48 1,345,258 14.77 1,286,391 17.56 1,239,186 19.14
Exercisable at end of period 799,726 17.98 669,410 20.88 525,054 22.46 4,668,824 23.00
The following table summarizes information about stock options at June 30, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ------------------------------
WEIGHTED AVERAGE
RANGE OF REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
-------------------- ------------ ------------------ ------------------ --------- ----------------
$ 1.42 6,500 9.91 years $ 1.42 0 $ 0.00
$ 1.52 to $ 1.53 606,816 9.51 years 1.53 0 0.00
$ 1.72 to $ 4.65 487,216 8.45 years 3.63 122,896 4.06
$ 5.05 to $ 33.96 826,117 5.72 years 18.83 676,830 20.51
-------------------- --------- ---------- --------- -------- ---------
$ 1.42 to $ 33.96 1,926,649 7.62 years $ 9.48 799,726 $ 17.98
-------------------- --------- ---------- --------- -------- ---------
Option prices for options granted under these Plans must not be less than fair
market value of the Company's stock on the date of grant. At June 30, 2001,
options covering 799,726 shares were exercisable and options covering 690,200
shares were available for future grants under these plans.
Options outstanding under the 1992 and 1998 Stock Option Plans generally become
exercisable at 25% per year beginning one year after the date of grant and
expire ten years after the date of grant. Options outstanding under the Director
Stock Option Plan are either an initial option or an annual option. Initial
options of 15,000 shares are granted as of the date the non-employee director is
first elected to the Board of Directors and become exercisable in full on the
first anniversary of the
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date of grant. Annual options are granted as of the date of the respective
annual meeting to each non-employee director serving at least six months prior
to the annual meeting and become exercisable in three annual increments of 33
1/3% after the date of grant and expire ten years from the date of grant. In
1999, the Directors Stock Option Plan was amended to increase the amount of the
annual options from 1,500 to 3,000 shares of Common Stock for grants beginning
in the year 2000, to eliminate the annual option grant for 1,500 shares in 1999
and to provide for a one time grant to each Director at the time of the 1999
Annual Meeting of an additional option to purchase 10,000 shares of Common
Stock.
The estimated fair value as of the date options were granted during the twelve
months ended June 30, 2001 and 2000, six months ended June 30, 1999 and calendar
year 1998, using the Black-Scholes option-pricing model was as follows:
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, DECEMBER 31,
2001 2000 1999 1998
------------- ------------- -------------- -----------------
Weighted average estimated fair
value per share of options
granted during the year $ 1.28 $ 3.44 $ 3.96 $ 5.57
Assumptions:
Amortized dividend yield - - - -
Common stock price volatility 121.36% 96.85% 94.17% 73.69%
Risk-free rate of return 4.63% 6.75% 6.00% 0.43%
Expected option term (in years) 5 5 5 5
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1996 financial statements, but elected to
continue to measure compensation cost using the intrinsic value method, in
accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock options has been recognized
under the provisions of APB 25. If compensation cost had been determined based
on the estimated fair value of options granted during the twelve months ended
June 30, 2001 and 2000, six months ended June 30, 1999 and year 1998, consistent
with the methodology in SFAS 123, the Company's net income and income per share
would have been adjusted to the pro forma amounts indicated below (in thousands
except per share amounts):
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, DECEMBER 31,
2001 2000 1999 1998
-------------- --------------- ---------------- -------------------
Net income (loss)
As reported $ (7,538) $ 1,857 $ (4,860) $ (3,339)
Pro forma $ (8,447) $ (111) $ (6,062) $ (5,377)
Earnings (loss) per share - diluted
As reported $ (0.92) $ 0.23 $ (0.59) $ (0.41)
Pro forma $ (1.03) $ (0.01) $ (0.74) $ (0.65)
15. INCOME TAXES
Income before income taxes for U.S. and foreign operations was as follows (in
thousands):
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, DECEMBER 31,
2001 2000 1999 1998
-------------- --------------- -------------- -----------------
U.S. $ (10,875) $ 58 $ (8,289) $ (7,881)
Foreign 864 3,236 940 2,738
-------------- --------------- -------------- -----------------
Total $ (10,011) $ 3,294 $ (7,349) $ (5,143)
============== =============== ============== =================
31
32
The income tax provision (benefit) reflected in the statement of income consists
of the following (in thousands):
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, DECEMBER 31,
2001 2000 1999 1998
-------------- -------------- ---------------- -------------------
Current provision (benefit):
U.S. federal $ (3,612) $ 70 $ - $ -
Foreign (194) 1,367 389 1,366
Deferred taxes - - (2,878) (3,170)
-------------- -------------- --------------- -----------------
Total provision (benefit) $ (3,806) $ 1,437 $ (2,489) $ (1,804)
============== ============== =============== =================
The Company's deferred tax assets are substantially represented by the tax
benefit of net operating losses and the tax benefit of future deductions
represented by reserves for bad debts, warranty expenses and inventory
obsolescence. The components of deferred tax assets were as follows (in
thousands):
AT JUNE 30, AT JUNE 30, AT DECEMBER 31,
2001 2000 1999 1998
--------------- -------------- ---------------- -----------------
Benefit of net operating losses $ 6,831 $ 3,229 $ 4,892 $ 2,202
Other, principally reserves 825 (734) 65 175
--------------- -------------- ---------------- -----------------
Deferred tax asset $ 7,656 $ 2,495 $ 4,957 $ 2,377
=============== ============== ================ =================
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, DECEMBER 31,
2001 2000 1999 1998
--------------- -------------- ---------------- -------------------
Rate reconciliation:
Provision at U.S. statutory rate (34.0)% 34.0% (34.0)% (34.0)%
Net effect of taxes on foreign
activities (4.0)% 9.6% 0.1 % (1.0)%
--------------- -------------- ---------------- -----------------
Effective tax rate (38.0)% 43.6% (33.9)% (35.0)%
=============== ============== ================ =================
No provision was made with respect to retained earnings as of June 30, 2001 that
have been retained for use by foreign subsidiaries. It is not practicable to
estimate the amount of unrecognized deferred tax liability for the undistributed
foreign earnings. At June 30, 2001, the Company had net operating losses for
Federal income tax purposes of $6,831,000 that expire in 2020, 2021 and 2022.
16. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has two reportable segments: Automotive and Industrial Businesses.
The Automotive Business segment designs, manufactures, and markets
information-based measurement and inspection focused solutions for process
improvements within the automotive industry. The Industrial Businesses segment
uses the same technology and primarily contains the Forest Products business
unit. The accounting policies of the segments are the same as those described in
the summary of significant policies. The Company evaluates performance based on
operating income. Company-wide costs are allocated between the segments based on
revenues and/or labor as deemed appropriate. The Company primarily accounts for
geographic sales and transfers based on cost plus a transfer fee and/or royalty
fees.
32
33
The Company's reportable segments are strategic business units that offer
similar products and services to different industries. They have separate
management teams because each business unit requires different marketing
strategies. The business units were created as a result of a combination of
existing businesses and acquisitions.
REPORTABLE SEGMENTS ($000'S) AUTOMOTIVE INDUSTRIAL BUSINESSES CONSOLIDATED
------------------- ---------------------------- ------------------
TWELVE MONTHS ENDED JUNE 30, 2001
Net sales $ 40,230 $ 10,484 $ 50,714
Depreciation and amortization 1,419 657 2,076
Operating income (loss) (1,944) (7,503) (9,447)
Assets 58,633 8,886 67,519
Capital expenditures 1,081 571 1,652
TWELVE MONTHS ENDED JUNE 30, 2000
Net sales $ 55,473 $ 14,348 $ 69,821
Depreciation and amortization 1,676 617 2,293
Operating income (loss) 7,081 (3,422) 3,659
Assets 57,190 9,037 66,227
Capital expenditures 1,228 228 1,456
SIX MONTHS ENDED JUNE 30, 1999
Net sales $ 17,977 $ 3,279 $ 21,256
Depreciation and amortization 977 291 1,268
Operating income (loss) (3,357) (3,303) (6,660)
Assets 53,370 7,964 61,334
Capital expenditures 754 241 995
TWELVE MONTHS ENDED DECEMBER 31, 1998
Net sales $ 39,555 $ 10,080 $ 49,635
Depreciation and amortization 2,191 297 2,488
Operating income (loss) (4,425) (1,351) (5,776)
Assets 58,654 7,754 66,408
Capital expenditures 2,080 320 2,400
The Company operates in two primary geographic areas: Domestic (United States)
and International (primarily Europe, with limited operations in Canada, Asia and
South America).
GEOGRAPHICAL REGIONS (000'S) DOMESTIC INTERNATIONAL(1) CONSOLIDATED
------------------- ---------------------------- ------------------
TWELVE MONTHS ENDED JUNE 30, 2001
Net external sales $ 30,864 $ 19,850 $ 50,714
Identifiable assets 43,602 23,917 67,519
TWELVE MONTHS ENDED JUNE 30, 2000
Net external sales $ 53,396 $ 16,425 $ 69,821
Identifiable assets 47,424 18,803 66,227
SIX MONTHS ENDED JUNE 30, 1999
Net external sales $ 12,416 $ 8,840 $ 21,256
Identifiable assets 42,366 18,968 61,334
TWELVE MONTHS ENDED DECEMBER 31, 1998
Net external sales $ 34,731 $ 14,904 $ 49,635
Identifiable assets 49,080 17,328 66,408
--------------
(1) The Company's German subsidiary had net external sales of $13.2 million,
$13.3 million, $5.8 million and $11.0 million in the twelve months ended
June 30, 2001 and 2000, six months ended June 30, 1999 and twelve months
ended December 31, 1998, respectively. Total assets of the Company's
German subsidiary were $14.9 million, $10.5 million, $11.5 million and
$10.7 million as of June 30, 2001 and 2000, June 30, 1999, and December
31, 1998, respectively.
33
34
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for the fiscal years ended June 30,
2001 and 2000, are as follows (in thousands, except per share amounts):
QUARTER ENDED
------------------------------------------------------------
FISCAL YEAR 2001 (RESTATED)(a) 9-30-00 12-31-00 3-31-01 6-30-01
------------ ------------- ------------ ------------
Net sales $ 8,436 $ 16,911 $ 11,393 $ 13,974
Gross profit 3,932 7,833 4,752 8,076
Net income (loss) before cumulative
effect of change in accounting principle (2,459) 410 (3,393) (763)
Cumulative effect of change in accounting
principle (1,333) - - -
Net income (loss) (3,792) 410 (3,393)(b) (763)(b)
Earnings (loss) per share before cumulative
effect of change in accounting principle
Basic (0.30) 0.05 (0.41) (0.09)
Diluted (0.30) 0.05 (0.41) (0.09)
Earnings (loss) per share
Basic (0.46) 0.05 (0.41) (0.09)
Diluted (0.46) 0.05 (0.41) (0.09)
FISCAL YEAR 2001 (AS PREVIOUSLY REPORTED)(a) 9-30-00 12-31-00 3-31-01
------------ ------------- ------------
Net sales $ 8,011 $ 17,569 $ 11,466
Gross profit 3,517 8,603 4,889
Net income (loss) (2,713) 882 (3,376)(b)
Basic earnings (loss) per share (0.33) 0.11 (0.41)
Diluted earnings (loss) per share (0.33) 0.11 (0.41)
FISCAL YEAR 2000 (AS REPORTED)(a) 9-30-99 12-31-99 3-31-00 6-30-00
------------ ------------- ------------ ------------
Net sales $ 18,471 $ 18,533 $ 13,721 $ 19,096
Gross profit 10,382 10,270 7,503 10,434
Net income (loss) 1,128 959 (447) 217
Basic earnings (loss) per share 0.14 0.12 (0.05) 0.03
Diluted earnings (loss) per share 0.14 0.12 (0.05) 0.03
FISCAL YEAR 2000 (PROFORMA)(a) 9-30-99 12-31-99 3-31-00 6-30-00
------------ ------------- ------------ ------------
Net sales $ 17,972 $ 18,701 $ 13,394 $ 18,885
Gross profit 10,053 10,477 7,176 10,092
Net income (loss) 942 1,076 (631) 25
Basic earnings (loss) per share 0.12 0.13 (0.08) -
Diluted earnings (loss) per share 0.12 0.13 (0.08) -
a) During the fourth quarter of fiscal 2001, the Company implemented the
Securities and Exchange Commission's Staff Accounting Bulletin 101 (SAB
101) guidelines retroactive to the beginning of the year. As a result of
this implementation, the Company changed its method of revenue recognition
and reported a cumulative effect of a change in accounting as of July 1,
2000 (see Note 2). The quarterly financial information for fiscal 2001 was
restated in accordance with SAB 101. Quarterly information as previously
reported has been shown for comparative purposes. The quarterly information
for fiscal 2000 has also been presented on both an as reported basis and on
a pro forma basis to show the effects of the change in accounting principle
on a comparative basis.
b) In the third and fourth quarters of fiscal 2001, the company recorded
restructuring charges of $1.6 million and $0.6 million, respectively (see
Note 3).
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
No response to Item 9 is required.
34
35
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the captions "Matters to Come before
the Meeting - Proposal 1: Election of Directors", "Further Information -
Executive Officers" and "Further Information - Share Ownership of Management and
Certain Shareholders" of the registrant's proxy statement for 2001 Annual
Meeting of Shareholders (the "Proxy Statement") is incorporated herein by
reference.
ITEM 11: EXECUTIVE COMPENSATION
The information contained under the caption "Further Information -
Compensation of Directors and Executive Officers" of the Proxy Statement is
incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the captions "Further Information -
Share Ownership of Management and Certain Shareholders - Principal Shareholders"
and "Further Information - Share Ownership of Management and Certain
Shareholders - Beneficial Ownership by Directors and Executive Officers" of the
Proxy Statement is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No response to Item 13 is required.
35
36
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
A. Financial Statements and Schedules Filed
1. Financial Statements - see Item 8 of this report.
2. Financial Statement Schedule - the schedule filed with this
report is listed on page 38.
3. Exhibits - the exhibits filed with this report are listed
on pages 40 through 43.
B. Reports on Form 8-K: The Company's current report on Form 8-K,
dated August 15, 2001, which disclosed information under Item
9 concerning the Company's disclosure of its teleconference of
Wednesday, August 15, 2001, regarding the Company's fiscal
2001 results.
36
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
PERCEPTRON, INC.
(Registrant)
By: /S/ Alfred A. Pease
-------------------------------------
Alfred A. Pease, Chairman, President
and Chief Executive Officer
Date: September 24, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/S/ Alfred A. Pease Chairman of the Board, September 24, 2001
---------------------------- President, Chief Executive Officer
Alfred A. Pease
/S/ John J. Garber Vice President and Chief September 24, 2001
---------------------------- Financial Officer (Principal Financial Officer)
John J. Garber
/S/ Sylvia M. Smith Controller (Principal Accounting Officer) September 24, 2001
----------------------------
Sylvia M. Smith
/S/ David J. Beattie Director September 24, 2001
----------------------------
David J. Beattie
/S/ Philip J. DeCocco Director September 24, 2001
----------------------------
Philip J. DeCocco
/S/ W. Richard Marz Director September 24, 2001
----------------------------
W. Richard Marz
/S/ Robert S. Oswald Director September 24, 2001
----------------------------
Robert S. Oswald
/S/ Terryll R. Smith Director September 24, 2001
----------------------------
Terryll R. Smith
37
38
PERCEPTRON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS SCHEDULE
Financial Statements Schedule:
Designation Description Page
----------- ----------- ----
Schedule II Valuation and qualifying accounts 39
The schedules not filed are omitted because they are not required, the
information required to be contained therein is disclosed elsewhere in the
financial statements or the amounts involved are not sufficient to require
submission.
38
39
PERCEPTRON, INC. AND SUBSIDIARIES
SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
CHARGED TO
BEGINNING COSTS AND ENDING
BALANCE EXPENSES CHARGE-OFFS BALANCE
----------------- --------------- ---------------- ---------------
DECEMBER 31, 1998
--------------------------
Allowance for doubtful accounts $ 175,000 $ 98,000 $ 73,000 $ 200,000
Inventory reserves $ 860,000 $ 47,000 $ 388,000 $ 519,000
JUNE 30, 1999(1)
--------------------------
Allowance for doubtful accounts $ 200,000 $ 458,000 $ 440,000 $ 218,000
Inventory reserves $ 519,000 $ 245,000 $ 164,000 $ 600,000
JUNE 30, 2000
--------------------------
Allowance for doubtful accounts $ 218,000 $ 194,000 $ 144,000 $ 268,000
Inventory reserves $ 600,000 $ 1,039,000 $ 439,000 $1,200,000
JUNE 30, 2001
--------------------------
Allowance for doubtful accounts $ 268,000 $ 469,000 $ 3,000 $ 734,000
Inventory reserves $1,200,000 $ 1,039,000 $ 201,000 $2,038,000
----------------------------
(1) In 1999, the Company elected to change its reporting period from a calendar
year ending December 31 to a fiscal year ending June 30. As a result, 1999
represents a six-month transition period.
39
40
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS
3. Restated Articles of Incorporation and Bylaws.
3.1 Restated Articles of Incorporation, as amended to
date, are incorporated herein by reference to
Exhibit 3.1 of the Company's Report on Form 10-Q
for the Quarter Ended March 31, 1998.
3.2 Amended and Restated Bylaws, as amended to date,
are incorporated herein by reference to Exhibit 3.2
of the Company's Report on Form S-8 Registration
Statement, filed February 7, 2001.
4. Instruments Defining the Rights of Securities
Holders.
4.1 Articles IV, V and VI of the Company's Restated
Articles of Incorporation are incorporated
herein by reference to Exhibit 3.1 of the Company's
Report on Form 10-Q for the Quarter Ended
March 31, 1998.
4.2 Articles I, II, III, VI, VII, X and XI of the
Company's Amended and Restated Bylaws are
incorporated herein by reference to Exhibit 3.2 of
the Company's Report on Form S-8 Registration
Statement, filed February 7, 2001.
4.3 Credit Agreement, dated May 28, 1999, between
Perceptron, Inc. and Bank One, Michigan and First
Amendment to Credit Agreement, dated August 24,
1999 are incorporated herein by reference to
Exhibit 4.3 of the Company's Report on Form 10-K
for the Transition year ended June 30, 1999.
Other instruments, notes or extracts from
agreements defining the rights of holders of
long-term debt of the Company or its subsidiaries
have not been filed because (i) in each case the
total amount of long-term debt permitted thereunder
does not exceed 10% of the Company's consolidated
assets, and (ii) the Company hereby agrees that it
will furnish such instruments, notes and extracts
to the Securities and Exchange Commission upon its
request.
4.4 Form of certificate representing Rights (included
as Exhibit B to the Rights Agreement filed as
Exhibit 4.5) is incorporated herein by reference
to Exhibit 2 of the Company's Report on Form 8-K
filed March 24, 1998. Pursuant to the Rights
Agreement, Rights Certificates will not be mailed
until after the earlier of (i) the tenth business
day after the Shares Acquisition Date (or, if the
tenth day after the Shares Acquisition Date occurs
before the Record Date, the close of business on
the Record Date) (or, if such Shares Acquisition
Date results from the consummation of a Permitted
Offer, such later date as may be determined before
the Distribution Date, by action of the Board of
Directors, with the concurrence of a majority of
the Continuing Directors), or (ii) the tenth
business day (or such later date as may be
determined by the Board of Directors, with the
concurrence of a majority of the Continuing
Directors, prior to such time as any person
becomes an Acquiring Person) after the date of the
commencement of, or first public announcement of
the intent to commence, a tender or exchange offer
by any person or group of affiliated or associated
persons (other than the Company or certain
entities affiliated with or associated with the
Company), other than a tender or exchange offer
that is determined before the Distribution Date to
be a Permitted Offer, if, upon consummation
thereof, such person or group of affiliated or
associated persons would be the beneficial owner
of 15% or more of such outstanding shares of
Common Stock.
4.5 Rights Agreement, dated as of March 24, 1998,
between Perceptron, Inc. and American Stock
Transfer & Trust Company, as Rights Agent, is
incorporated herein by reference to Exhibit 2 of
the Company's Report on Form 8-K filed March 24,
1998.
40
41
4.6 Second Amendment to Credit Agreement, dated May
28, 1999, between Perceptron, Inc. and Bank One,
Michigan dated June 30, 2000, is incorporated by
reference to Exhibit 4.6 of the Company's Report
on Form 10-K for the Year Ended June 30, 2000.
4.7 Third Amendment to Credit Agreement, dated May 28,
1999, between Perceptron, Inc. and Bank One,
Michigan dated November 9, 2000, is incorporated
by reference to Exhibit 4.7 of the Company's Form
10-Q for the Quarter Ended September 30, 2000.
4.8 Fourth Amendment to Credit Agreement, dated May
28, 1999, between Perceptron, Inc. and Bank One,
Michigan dated February 8, 2001, is incorporated
by reference to Exhibit 4.8 of the Company's Form
10-Q for the Quarter Ended December 31, 2000.
4.9* Credit Agreement dated September 24, 2001, between
Perceptron, Inc. and Bank One, Michigan.
10. Material Contracts.
10.1 Registration Agreement, dated as of June 13, 1985,
as amended, among the Company and the Purchasers
identified therein, is incorporated by reference
to Exhibit 10.3 of the Company's Form S-1
Registration Statement (amended by Exhibit 10.2)
No. 33-47463.
10.2 Patent License Agreement, dated as of August 23,
1990, between the Company and Diffracto Limited,
is incorporated herein by reference to Exhibit
10.10 of the Company's Report on Form S-1
Registration Statement No. 33-47463.
10.3 Form of Proprietary Information and Inventions
Agreement between the Company and all of the
employees of the Company is incorporated herein by
reference to Exhibit 10.11 of the Company's Form
S-1 Registration Statement No. 33-47463.
10.4 Form of Confidentiality and Non-Disclosure
Agreement between the Company and certain vendors
and customers of the Company is incorporated
herein by reference to Exhibit 10.12 of the
Company's Form S-1 Registration Statement No.
33-47463.
10.5 Two Forms of Agreement Not to Compete between the
Company and certain officers of the Company, is
incorporated herein by reference to Exhibit 10.50
of the Company's Report on Form 10-Q for the
Quarter Ended June 30, 1996.
10.6@ Form of Non-Qualified Stock Option Agreements
under 1998 Global Team Member Stock Option Plan
after September 1, 1998 is incorporated by
reference to Exhibit 10.6 of the Company's Report
on Form 10-K for the Year Ended December 31, 1998.
10.7@ Amended and Restated 1992 Stock Option Plan is
incorporated herein by reference to Exhibit 10.53
of the Company's Report on Form 10-Q for the
Quarter Ended September 30, 1996.
10.8@ First Amendment to Amended and Restated 1992 Stock
Plan is incorporated by reference to Exhibit 10.39
of the Company's Report on Form 10-Q for the
Quarter Ended March 31, 1997.
10.9@ Form of Stock Option Agreements for July 1993
Stock Option Grants is incorporated herein by
reference to Exhibit 10.23 of the Company's Report
on Form 10-Q for the Quarter Ended September 30,
1993, and Exhibit 10.32 of the Company's Report on
Form 10-Q for the Quarter Ended March 31, 1994.
10.10@ Form of Stock Option Agreements for Performance
Options is incorporated herein by reference to
Exhibit 10.27 of the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1993.
The performance standards under these options were
waived effective March 2, 1994.
41
42
10.11@ First Amendments to Stock Option Agreements for
Performance Options is incorporated herein by
reference to Exhibit 10.20 of the Company's Annual
Report on Form 10-K for the Year Ended December
31, 1994.
10.12@ Form of Stock Option Agreements under 1992 Stock
Option Plan, (Team Members and Officers) prior to
February 9, 1995, is incorporated herein by
reference to Exhibit 10.28 of the Company's Annual
Report on Form 10-K for the Year Ended December
31, 1993.
10.13@ Forms of Master Amendments to Stock Option
Agreements (Team Members and Officers) under 1992
Stock Option Plan, prior to February 9, 1995 is
incorporated herein by reference to Exhibit 10.22
to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1994.
10.14@ Forms of Incentive Stock Option Agreements (Team
Members and Officers) under 1992 Stock Option Plan
after February 9, 1995 is incorporated by
reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the Year Ended December
31, 1994.
10.15@ Forms of Incentive Stock Option Agreements (Team
Members and Officers) and Non-Qualified Stock
Option Agreements under 1992 Stock Option Plan
after January 1, 1997, and Amendments to existing
Stock Option Agreements under the 1992 Stock
Option Plan is incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1996.
10.16@ Incentive Stock Option Agreement, dated February
14, 1996, between the Company and Alfred A. Pease
is incorporated by reference to Exhibit 10.29 of
the Company's Annual Report on Form 10-K for the
Year Ended December 31, 1995.
10.17@ Non-Qualified Stock Option Agreement, dated
February 14, 1996, between the Company and Alfred
A. Pease is incorporated by reference to Exhibit
10.30 of the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1995.
10.18@ Amended and Restated Directors Stock Option Plan
is incorporated by reference to Exhibit 10.56 to
the Company's Report on Form 10-Q for the Quarter
Ended September 30, 1996.
10.19@ Form of Non-Qualified Stock Option Agreements and
Amendments under the Director Stock Option Plan is
incorporated by reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the Year
Ended December 31, 1996.
10.20@ 1998 Global Team Member Stock Option Plan and Form
of Non-Qualified Stock Option Agreements under
such Plan is incorporated herein by reference to
Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1997.
10.21@ 1996 Management Bonus Plan is incorporated herein
by reference to Exhibit 10.34 to the Company's
Annual Report on Form 10-K for the Year Ended
December 31, 1996.
10.22@ 1997 Management Bonus Plan is incorporated herein
by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the Year Ended
December 31, 1997.
10.23@ Amended and Restated Employee Stock Purchase Plan
is incorporated by reference to Exhibit 10.54 of
the Company's Report on Form 10-Q for the Quarter
Ended September 30, 1996.
10.24@ Letter Agreement, dated February 14, 1996, between
the Company and Alfred A. Pease is incorporated
herein by reference to Exhibit 10.36 to the
Company's Annual Report on Form 10-K for the Year
Ended December 31, 1996.
42
43
10.25@ Forms of Incentive Stock Option Agreements
(Officers) and Non-Qualified Stock Option
Agreements (Officers) under 1992 Stock Option Plan
after September 1, 1998 is incorporated by
reference to Exhibit 10.25 of the Company's Report
on Form 10-K for the Year Ended December 31, 1998.
10.26@ Second Amendment to Amended and Restated 1992 Stock
Option Plan is incorporated by reference to Exhibit
10.26 of the Company's Report on Form 10-Q for the
Quarter Ended March 31, 1999.
10.27@ First Amendment to Amended and Restated Directors
Stock Option Plan is incorporated by reference to
Exhibit 10.27 of the Company's Report on Form 10-Q
for the Quarter Ended March 31, 1999.
10.28@ First Amendment to the 1998 Global Team Member
Stock Option Plan is incorporated by reference to
Exhibit 10.28 of the Company's Report on Form 10-K
for the Transition Period Ended June 30, 1999.
10.29@ Second Amendment to the 1998 Global Team Member
Stock Option Plan is incorporated by reference to
Exhibit 10.29 of the Company's Report on Form 10-K
for the Transition Period Ended June 30, 1999.
10.30@ Forms of Incentive Stock Option Agreements
(Officers) and Non-Qualified Stock Option
Agreements (Officers) under 1992 Stock Option Plan
after September 1, 1999 is incorporated by
reference to Exhibit 10.30 of the Company's Report
on Form 10-Q for the Quarter Ended September 30,
1999.
10.31@ Forms of Non-Qualified Stock Option Agreements
under 1998 Global Team Member Stock Option Plan
after September 1, 1999 is incorporated by
reference to Exhibit 10.31 of the Company's Report
on Form 10-Q for the Quarter Ended September 30,
1999.
10.32@ Forms of Non-Qualified Stock Option Agreements
under the Directors Stock Option Plan after
September 1, 1999 is incorporated by reference to
Exhibit 10.32 of the Company's Report on Form 10-Q
for the Quarter Ended December 31, 1999.
10.33@ Second Amendment to the Perceptron, Inc. Directors
Stock Option Plan (Amended and Restated October 31,
1996) is incorporated by reference to Exhibit 10.33
of the Company's Report on Form 10-Q for the
Quarter Ended March 31, 2000.
10.34@ 2000 Management Bonus Plan is incorporated by
reference to Exhibit 10.34 of the Company's
Report on Form 10-K for the Year Ended
June 30, 2000.
10.35@ Third Amendment to the 1998 Global Team Member
Stock Option Plan is incorporated by reference to
Exhibit 99.6 of the Company's Report on Form S-8
Registration Statement, filed February 7, 2001.
10.36*@ Third Amendment to Amended and Restated 1992 Stock
Option Plan.
21. A list of subsidiaries of the Company is
incorporated by reference to Exhibit 21 of the
Company's Report on Form 10-K for the Transition
Period Ended June 30, 1999.
23.* Consent of Experts.
------------------
* Filed with the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2001.
@ Indicates a management contract, compensatory plan or arrangement.
43
44
UNDERTAKING
The Company will furnish any exhibit to this report on Form 10-K to a
shareholder upon payment of a fee of $.10 per page for photocopying, postage and
handling expenses and upon written request made to:
Investor Relations
Perceptron, Inc.
47827 Halyard Drive
Plymouth, MI 48170-2461
44
EX-4.9
3
k65105ex4-9.txt
CREDIT AGREEMENT
1
EXHIBIT 4.9
CREDIT AGREEMENT
This Credit Agreement is dated September 24, 2001 (this "Agreement"), and is
between PERCEPTRON, INC., a Michigan corporation (the "Borrower"), whose address
is 47827 Halyard Drive, Plymouth, Michigan 48170, and BANK ONE, MICHIGAN, a
Michigan banking corporation (the "Bank"), whose address is 611 Woodward Avenue,
Detroit, Michigan 48226. The parties agree as follows:
ARTICLE 1 - DEFINITIONS
"Adjusted EBITDA" for any period means EBITDA for such period, plus Rental
Expense for such period, minus Capital Expenditures for such period, minus the
aggregate amount of all dividends, payments and other distributions (including,
without limitation, any such payments and distributions in connection with any
redemption, purchase, retirement or other acquisition of the Borrower's capital
stock ) paid, payable or otherwise accumulating with respect to any class of the
Borrower's capital stock.
"Advance" shall mean any Loan and any Letter of Credit Advance.
"Applicable Margin" means the percent per annum added to the Eurodollar Rate if
that rate is chosen by the Borrower, and as determined pursuant to Section 2.9
and by reference to the following matrix, based upon the ratio of the Funded
Debt of the Borrower to the EBITDA of the Borrower calculated in accordance with
Section 6.12 hereof:
Funded Debt/ Eurodollar
EBITDA Rate plus
Less than 5.00 to 1.00
but equal to or greater 1.625%
than
3.00 to 1.00
Less than 3.00 to 1.00
but greater than or 1.50%
equal to 1.00 to 1.00
Less than
1.00 to 1.00 1.25%
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"Borrowing Base Certificate" for any date shall mean an appropriately completed
report as of such date in substantially the form of Exhibit A hereto, certified
as true and correct as of such date by a duly authorized officer of the
Borrower.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Rate Loans, a day other than Saturday or Sunday on which
the Bank is open for business in Detroit and banks are open for business in New
York and on which dealings in United States dollars are carried on in the London
interbank market, and (ii) for all other purposes, a day other than Saturday or
Sunday on which the Bank is open for business in Detroit.
"Capital Expenditures" for any period means net capital expenditures of the
Borrower and its Subsidiaries for such period, as determined on a consolidated
basis in accordance with GAAP.
"Commitment" shall mean Facility A Commitment or Facility B Commitment.
"Consolidated" or "consolidated" means, when used with reference to any
financial term in this Agreement, the aggregate for two or more persons of the
amounts signified by such term for all such Persons determined on a consolidated
basis in accordance with GAAP.
"Default" means an event described in Section 7.
"EBITDA" means, for any period, the operating income (before the deduction of
Interest Expense and income tax expense) of the Borrower and its Subsidiaries on
a consolidated basis for such period, plus each of the following with respect to
the Borrower and its Subsidiaries for such period to the extent utilized in
determining such income, without duplication: (i) depreciation and (ii)
amortization of deferred costs and other intangibles.
"Effective Date" shall mean September 24, 2001.
"Eligible Accounts Receivable" shall mean, as of any date, those trade accounts
receivable owned by the Borrower or any Guarantor which are payable in Dollars
and in which the Borrower or Guarantor has granted to the Bank a first-priority
perfected security interest pursuant to the Security Agreement, valued at the
face amount thereof less sales, excise or similar taxes and less returns,
discounts, claims, credits and allowances of any nature at any time issued,
owing, granted, outstanding, available or claimed, but shall not include any
such account receivable (a) that is not a bona fide existing obligation created
by the sale and actual delivery of inventory, goods or other property or the
furnishing of services or other good and sufficient consideration to customers
of the Borrower in the ordinary course of business, (b) that is more than 180
days past due or that remains outstanding more than 180 days after the earlier
of the date of the invoice or the shipment of the related inventory, goods or
other property or the furnishing of the related services or other consideration,
(c) that is subject to any dispute, contra-account, defense, offset or
counterclaim or any Lien (except those in favor of the Bank under the Security
Documents), or the inventory, goods, property, services or other consideration
of which such account receivable constitutes proceeds is subject to any such
Lien, (d) in respect of which the inventory, goods, property, services or other
consideration have been rejected or the amount is in dispute, (e) that is due
from any Affiliate or Subsidiary of the Borrower, (f) that has been classified
by the Borrower as doubtful or
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has otherwise failed to meet established or customary credit standards of the
Borrower, (g) that is payable by any person located outside the United States
(which shall not be deemed to include any territories of the United States) or
Canada and are not supported by letters of credit issued to the Bank by
commercial banks, and in form and substance, acceptable to the Bank, (h) with
respect to which any representation or warranty contained in Section 5.9 is
incorrect at any time, (i) that is payable by the United States or any of its
departments, agencies or instrumentalities or by any state or other governmental
entity, (j) that is payable by any person as to which 50% or more of the
aggregate amount of such accounts receivable payable by such person to the
Borrower do not otherwise constitute Eligible Accounts Receivable, (k) that is
payable by any person that is the subject of any proceeding seeking to
adjudicate it a bankrupt or insolvent or seeking liquidation, winding up or
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief or protection of debtors or seeking the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its property, or that is not generally paying its debts as they become due or
has admitted in writing its inability to pay its debts generally or has made a
general assignment for the benefit of creditors, (l) that is evidenced by a
promissory note or other instrument, (m) that is subordinate or junior in right
or priority of payment to any other obligation or claim, or (n) that for any
other reason is at any time reasonably deemed by the Bank to be ineligible.
"Eligible Inventory" shall mean, as of any date, that inventory owned by the
Borrower or any Guarantor that constitutes raw materials or finished goods in
which the Borrower or such Guarantor has granted to the Bank a first-priority
perfected security interest pursuant to the Security Agreement, valued at the
lower of cost or market on a FIFO, but shall not include any such inventory (a)
that does not constitute raw materials or finished goods readily salable or
usable in the business of the Borrower or such Guarantor, as the case may be,
(b) that is located outside the United States (which shall not be deemed to
include any territories of the United States), (c) that is subject to, or any
accounts or other proceeds resulting from the sale or other disposition thereof
could be subject to, any Lien (except those in favor of the Bank under the
Security Documents), including any sale on approval or sale or return
transaction or any consignment, (d) that is not in the possession of the
Borrower or Guarantor, (e) that is held for lease or is the subject of any
lease, (f) that is subject to any trademark, trade name or licensing
arrangement, or any law, rule or regulation, that could limit or impair the
ability of the Bank to promptly exercise all rights of the Bank under the
Security Documents, (g) if such inventory is located on premises not owned by
the Borrower or Guarantor and the landlord or other owner of such premises shall
not have waived its distraint, lien and similar rights with respect to such
inventory and shall not have agreed to permit the Bank to enter such premises
pursuant to a waiver and agreement of such person in favor of and in form and
substance acceptable to the Bank, (h) with respect to which any insurance
proceeds are not payable to the Bank as a loss payee or are payable to any loss
payee other than the Bank or the Borrower or the Guarantor, as the case may be,
or (i) that for any other reason is at any time reasonably deemed by the Bank to
be ineligible.
"Environmental Certificate" shall mean an appropriately completed environmental
certificate in the form of Exhibit B attached hereto, delivered by the Borrower,
certified as true and correct as of such date by an executive officer of the
Borrower acceptable to the Bank.
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"Eurodollar Base Rate" means the rate determined by the Bank to be the rate at
which deposits in U.S. dollars are offered to the Bank by first class banks in
the London interbank market at approximately 11 a.m. (London time) two Business
Days prior to the first day of that Eurodollar Interest Period, in the
approximate amount of the relevant Eurodollar Rate Loan and having a maturity
approximately equal to that Eurodollar Interest Period.
"Eurodollar Interest Period" means a period of one, two or three months
commencing on a Business Day selected by the Borrower pursuant to this
Agreement. The Eurodollar Interest Period ends on the day which corresponds
numerically to that date one, two or three months thereafter. If there is no
numerically corresponding day in the next, second or third succeeding month,
that Eurodollar Interest Period ends on the last Business Day of the relevant
month. If a Eurodollar Interest Period would otherwise end on a day which is not
a Business Day, that Eurodollar Interest Period ends on the next succeeding
Business Day, unless that Business Day falls in a new month in which case that
Eurodollar Interest Period ends on the immediately preceding Business Day.
"Eurodollar Rate" means the sum of (i) the quotient of (a) the Eurodollar Base
Rate applicable to that Eurodollar Interest Period divided by (b) one minus the
Reserve Requirement (expressed as a decimal) applicable to that Eurodollar
Interest Period plus (ii) the Applicable Margin per annum. The Eurodollar Rate
will be rounded, if necessary, to the next higher 1/16 of 1%.
"Existing Credit Agreement" shall mean the credit agreement dated as of May 28,
1999 between the Borrower and the Bank, as amended prior to the date hereof.
"Facility A" means the credit facility described in Section 2.1(a).
"Facility A Advance" means each Facility A Loan and each Letter of Credit issued
under Facility A.
"Facility A Borrowing Base" means, as of any date, the sum of (a) an amount
equal to 80% of the value of Eligible Accounts Receivable plus (b) an amount
equal to 35% of the value of Eligible Inventory constituting raw material,
provided, that, the total amount of reliance under this clause (b) plus the
reliance on the Facility B Borrowing Base may not exceed $5,000,000, plus (b) an
amount equal to $4,800,000, representing 80% of the appraised value of the
Mortgaged Property.
"Facility A Commitment" means the obligation of the Bank (a) to make Facility A
Loans not exceeding $17,000,000 minus any outstanding Letters of Credit, and (b)
to issue Letters of Credit not exceeding $1,000,000 so long as the aggregate of
the Letters of Credit plus the outstanding balance of Loans does not exceed
$17,000,000, as such amount may be reduced from time to time pursuant to Section
2.2.
"Facility A Loan" means each Loan made by the Bank under Facility A.
"Facility A Note" means a promissory note in substantially the form of Exhibit
C-1 evidencing the Facility A Loans, duly executed and delivered to the Bank by
the Borrower, including any amendment or replacement.
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"Facility B" means the credit facility described in Section 2.1(b).
"Facility B Borrowing Base" means, as of any date, an amount equal to 50% of the
value of Eligible Inventory constituting finished goods, provided, that, the
total amount of reliance in Facility B Borrowing Base plus the reliance on raw
material Eligble Inventory in the Facility A Borrowing Base may not exceed
$5,000,000.
"Facility B Commitment" means the obligation of the Bank to make Facility B
Loans not exceeding $1,500,000, as such amount may be reduced from time to time
pursuant to Section 2.2.
"Facility B Loan" means each Loan made by the Bank under Facility B.
"Facility B Note" means a promissory note in substantially the form of Exhibit
C-2 evidencing the Facility B Loans, duly executed and delivered to the Bank by
the Borrower, including any amendment or replacement.
"Fixed Charge Coverage Ratio" means the ratio of Adjusted EBITDA to Fixed
Charges.
"Fixed Charges" for any period means the sum, without duplication, of the
following for such period, determined for the Borrower and its Subsidiaries on a
consolidated basis: (i) Interest Expense, plus (ii) Rental Expense, plus (iii)
income tax expense, plus (iv) the aggregate amount of all dividends, payments
and other distributions (including, without limitation, any such payments and
distributions in connection with any redemption, purchase, retirement or other
acquisition of the Borrower's capital stock) paid, payable or otherwise
accumulating with respect to any class of the Borrower's capital stock, plus (v)
all scheduled payments of principal or other sums paid or payable by the
Borrower and its Subsidiaries in respect of Funded Debt.
"Floating Rate" means a rate per annum equal to (a) with respect to Facility A,
the difference of (i) the Prime Rate minus (ii) 1/2% per annum, and (b) with
respect to Facility B, the sum of (i) the Prime Rate plus (ii) 1/4% per annum,
in each case changing when and as the Prime Rate changes.
"Funded Debt" of any Person means, without duplication, all indebtedness of such
Person to the Bank, all lease obligations of such person which, in accordance
with GAAP, are or should be capitalized on the books of such Person, and all
other indebtedness of such Person for borrowed money or that otherwise bears
interest.
"GAAP" means, as of the date of determination, generally accepted accounting
principles, consistently applied.
"Guaranties" shall mean the guaranties entered into by each of the Guarantors
for the benefit of the Bank pursuant to this Agreement in the form of Exhibit D
attached hereto, as amended or modified from time to time.
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"Guarantor" shall mean each domestic Subsidiary of the Borrower and each person
otherwise becoming a domestic Subsidiary of the Borrower, or otherwise entering
into a Guaranty, from time to time.
"Interest Expense" means, for any period and in respect of any Person, the
interest expense of such Person in respect of such period, determined in
accordance with GAAP.
"Interest Period" means a Eurodollar Interest Period.
"Lending Installation" means any office, branch, subsidiary or affiliate of the
Bank.
"Letter of Credit" means a standby letter of credit issued by the Bank for the
account of the Borrower, as amended or renewed.
"Letter of Credit Advance" means the issuance of a Letter of Credit hereunder.
"Letter of Credit Documents" means all applications, reimbursement and security
agreements given by the Borrower to the Bank in the Bank's standard form for any
Letter of Credit, and any amendment or renewal.
"Lien" means any security interest, mortgage, pledge, lien, claim, charge,
encumbrance, title retention agreement, lessor's interest under a capitalized
lease or analogous instrument, in, of or on any Person's assets or properties in
favor of any other Person.
"Loan" means any loan made (or any conversion or continuation of any loan) by
the Bank to the Borrower pursuant to this Agreement and the Notes.
"Loan Documents" means, collectively, this Agreement, the Notes, the Security
Documents and all agreements, instruments and documents executed pursuant hereto
at any time.
"Material Adverse Effect" means with respect to any matter that that matter (i)
could reasonably be expected to materially and adversely affect the business,
properties, condition (financial or otherwise), or results of operations of the
Borrower and its Subsidiaries, taken as a whole, or (ii) has been brought by or
before any court or arbitrator or any governmental body, agency or official, and
draws into question the validity or enforceability of any material provision of
this Agreement, the Notes or any of the Letter of Credit Documents.
"Mortgage" shall mean the mortgage entered into by the Borrower for the benefit
of the Bank, as amended or modified from time to time, granting a first mortgage
lien on Mortgaged Property.
"Mortgaged Property" shall mean the real property located at 47827 Halyard
Drive, Plymouth, Michigan.
"Note" means each Facility A Note and Facility B Note.
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"Obligations" means all unpaid principal of and accrued and unpaid interest on
the Notes, all accrued and unpaid facility fees, all outstanding Letters of
Credit, and all other obligations of the Borrower to the Bank arising under this
Agreement, the Notes, and the Letter of Credit Documents.
"Perceptron GmbH" shall mean Perceptron GmbH, a corporation organized and
existing under the laws of Germany.
"Permitted Liens" shall mean all Liens permitted pursuant to Section 6.7 hereof.
"Person" means any corporation, natural person, firm, limited liability company,
joint venture, partnership, trust, unincorporated organization, enterprise,
government or any department or agency of any government.
"Pledge Agreement" shall mean each pledge agreement entered into by the Borrower
or any Subsidiary for the benefit of the Bank pursuant to this Agreement, in
form and substance satisfactory to the Bank, as amended or modified from time to
time.
"Prime Rate" means a rate per annum equal to the prime rate of interest
announced from time to time by the Bank or its parent (which is not necessarily
the lowest rate charged to any customer), changing when and as said prime rate
changes.
"Rate Option" means the Floating Rate or, with respect to Facility A only, the
Eurodollar Rate.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System from time to time in effect and includes any successor or other
regulation or official interpretation of the Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"Rental Expense" for any period means the maximum amount of all rents and other
payments (exclusive of property taxes, property and liability insurance premiums
and maintenance costs) paid or required to be paid by the Borrower during such
period under any operating lease in respect of which the Borrower is obligated
as a lessee or user.
"Reserve Requirement" means with respect to a Eurodollar Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Section" means a numbered section of this Agreement, unless another document is
specifically referenced.
"Security Agreement" shall mean each security agreement entered into by the
Borrower or any Guarantor for the benefit of the Bank, as amended or modified
from time to time.
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"Security Documents" shall mean, collectively, the Mortgage, the Security
Agreements, the Pledge Agreements, the Guaranties, the Environmental
Certificates and all other related agreements and documents, including financing
statements and similar documents, delivered pursuant to this Agreement or
otherwise entered into by any person to secure the Advances.
"Subsidiary" means any Person more than 50% of the outstanding voting securities
or other voting interests of which are at the time owned or controlled, directly
or indirectly, by the Borrower or by one or more Subsidiaries or by the Borrower
and one or more Subsidiaries, or any similar business organization which is so
owned or controlled.
"Termination Date" means the earlier to occur of (a) with respect to Facility A,
August 31, 2003, and, with respect to Facility B, August 31, 2002 and (b) the
date on which a Commitment shall be terminated pursuant to Section 2.2 or
Section 8.1.
"Unmatured Default" means an event which but for the lapse of time or the giving
of notice, or both, would constitute a Default.
"Tangible Net Worth" means, as of any date, (a) the amount of any capital stock,
paid in capital and similar equity accounts plus (or minus in the case of a
deficit) the capital surplus and retained earnings and the amount of any foreign
currency translation adjustment account shown as a capital account, less (b) the
net book value of all items of the following character which are included in
assets: (i) goodwill, including, without limitation, the excess of cost over
book value of any asset, (ii) organization or experimental expenses, (iii)
unamortized debt discount and expense, (iv) patents, trademarks, trade names and
copyrights, (v) treasury stock, (vi) net deferred taxes and deferred charges,
(vii) franchises, licenses and permits, and (viii) other assets which are deemed
intangible assets under GAAP; all as determined for the Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP.
"Total Liabilities" means, as of any date, the following, as determined for the
Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP:
all obligations which, in accordance with GAAP, are or should be classified as
liabilities on a balance sheet and all contingent liabilities.
The foregoing definitions are applicable to both the singular and plural forms
of the defined terms. All computations required hereunder and all financial
terms used herein shall be made or construed in accordance with GAAP unless such
principles are inconsistent with the express requirements of this Agreement.
ARTICLE 2 - THE LOANS
2.1 COMMITMENTS TO LEND. From and including the date of this Agreement and
prior to the Termination Date, the Bank agrees, on the terms of this Agreement:
A) To make Facility A Loans to and, issue Letters of Credit for the
account of, the Borrower from time to time in amounts not exceeding, in the
aggregate at any one time outstanding, the amount determined pursuant to Section
2.1(c). Notwithstanding anything in this
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Agreement to the contrary, the Bank may decline to issue any requested Letter of
Credit on the basis that the beneficiary, the purpose of issuance or the terms
or the conditions of drawing are unacceptable to it in its reasonable
discretion.
B) To make Facility B Loans to the Borrower from time to time in
amounts not exceeding, in the aggregate at any one time outstanding, the amount
determined pursuant to Section 2.1(c).
C) Notwithstanding anything in this Agreement to the contrary, (i) the
aggregate principal amount of the Facility A Advances made by the Bank at any
time outstanding shall not exceed the lesser of (a) amount of the Facility A
Commitment as of the date any such Facility A Advance is made, or (b) the
Facility A Borrowing Base pursuant to the Borrowing Base Certificate as of the
close of business on the last date of the month next preceding the date any such
Facility A Advance is made, and (ii) the aggregate principal amount of the
Facility B Loans made by the Bank at any time outstanding shall not exceed the
lesser of (a) amount of the Facility B Commitment as of the date any such
Facility B Loan is made, or (b) the Facility B Borrowing Base pursuant to the
Borrowing Base Certificate as of the close of business on the last date of the
month next preceding the date any such Loan is made,. If the Advances at any
time exceed the amount allowed under this Section 2.1(c), the Borrower shall
immediately prepay the relevant Loans by an amount equal to or greater than such
excess as required pursuant to the Borrowing Base Certificate.
2.2 FEES AND REDUCTION OF THE COMMITMENTS. The Borrower agrees to pay to
the Bank on or before the Effective Date a facility fee in the amount of $16,500
for this Agreement (comprised of a $15,000 facility fee for Facility A and a
$1,500 facility fee for Facility B). In addition, the Borrower agrees to pay a
commitment fee of 1/4% per annum on the daily unused amount of the Facility A
Commitment from the date of this Agreement to and including the Revolving Credit
Termination Date, payable on the last day of each quarter and on the Revolving
Credit Termination Date. The Borrower may permanently reduce a Commitment in
whole, or in part in integral multiples of $100,000, upon at least ten Business
Days' written notice to the Bank, which must specify the amount of any reduction
and the relevant Commitment which it intends to reduce, but the amount of the
Commitment may not be reduced below the outstanding principal amount of the
Loans and Letters of Credit outstanding under such Commitment. All accrued
commitment fees are payable on the effective date of any termination of the
obligations of the Bank to make Facility A Loans.
2.3 LOANS. Subject to the terms of this Agreement, the Borrower may borrow,
repay and reborrow at any time prior to the Termination Date. The Loans may be
Floating Rate Loans or, with respect to Facility A only, Eurodollar Rate Loans,
or a combination of them, selected by the Borrower in accordance with Section
2.4. The Loans must be repaid in full on the Termination Date. The Bank may book
the Loans at any Lending Installation. The Borrower may from time to time prepay
outstanding Floating Rate Loans in whole or in part without penalty or premium.
A Eurodollar Rate Loan may not be paid prior to the last day of the applicable
Interest Period.
2.4 METHOD OF SELECTING RATE OPTIONS AND INTEREST PERIODS. The Borrower may
select the Rate Option and Interest Period applicable to each Loan from time to
time. The Borrower must
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give the Bank an irrevocable borrowing notice not later than 3:30 p.m. Detroit
time on the borrowing date of each Floating Rate Loan and 10:00 a.m. Detroit
time three Business Days before the borrowing date for each Eurodollar Rate
Loan, specifying:
(i) the borrowing date of that Loan, which must be a Business Day,
(ii) the amount of that Loan,
(iii) the Rate Option selected for that Loan, and
(iv) in the case of each Eurodollar Rate Loan, the Interest Period
applicable to it.
Each Eurodollar Rate Loan will bear interest on the outstanding principal amount
for each day during the Interest Period applicable to it from and including the
first day of that Interest Period to (but not including) the last day of that
Interest Period at the interest rate determined as applicable to that Eurodollar
Rate Loan. If at the end of an Interest Period for an outstanding Eurodollar
Rate Loan, the Borrower has failed to select a new Rate Option or to pay that
Loan, then that Loan will be converted to a Floating Rate Loan on and after the
last day of the Interest Period until paid or until the effective date of a new
Rate Option with respect to it is selected by the Borrower. An outstanding
Floating Rate Loan may be converted to a Eurodollar Rate Loan at any time
subject to the notice provisions applicable to the type of Loan selected. The
Borrower may not select a Eurodollar Rate for a Loan if (x) there exists a
Default or Unmatured Default or (y) the Ratio (as defined in Section 2.9) as of
the most recent Determination Date (as defined in Section 2.9) is equal to or
greater than 5.0 to 1.0. The Borrower may not select an Interest Period which
would end after the Termination Date. Each Eurodollar Rate Loan must be in the
minimum amount of $1,000,000 (and in multiples of $100,000 if in excess of the
minimum).
2.5 RATES APPLICABLE AFTER DEFAULT. If any Loan is not paid at maturity, whether
by acceleration or otherwise, (i) each Eurodollar Rate Loan will bear interest
for the remainder of the applicable Interest Period at the rate otherwise
applicable to that Interest Period plus 3% per annum, and (ii) each Floating
Rate Loan will bear interest at a rate per annum equal to the Floating Rate
otherwise applicable to the Floating Rate Loan plus 3% per annum. During the
continuance of any other Default, the Bank may, at its option, by notice to the
Borrower, declare that (a) each Eurodollar Rate Loan will bear interest for the
remainder of the applicable Interest Period at the rate otherwise applicable to
that Interest Period plus 3% per annum, and (b) each Floating Rate Loan will
bear interest at a rate per annum equal to the Floating Rate otherwise
applicable to the Floating Rate Loan plus 3% per annum.
2.6 METHOD OF PAYMENT. All payments of principal, interest, and fees must be
made in immediately available funds to the Bank at the Bank's address specified
pursuant to Section 9.5, or at any other Lending Installation of the Bank
specified in writing by the Bank to the Borrower, by noon (local time) on the
date when due. The Bank is authorized to charge the account of the Borrower
maintained with it for each payment of principal, interest and fees as it
becomes due.
2.7 NOTE; TELEPHONIC NOTICES. The Bank is authorized to record on its books the
date, amount, Rate Option and Interest Period of each Loan, and the date and
amount of each principal
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payment made under the Notes. These records govern absent manifest error,
provided that neither the failure to record nor any error in that record affects
the Borrower's obligations under the Notes. The Borrower authorizes the Bank to
extend Loans and effect Rate Option selections based on telephonic notices made
by any person or persons the Bank in good faith believes to be acting on behalf
of the Borrower. The Borrower agrees to deliver promptly to the Bank a written
confirmation, if that confirmation is requested by the Bank, of each telephonic
notice, signed by an authorized officer of the Borrower. If the written
confirmation differs in any material respect from the action taken by the Bank,
the records of the Bank govern, absent manifest error.
2.8 INTEREST PAYMENT DATES; INTEREST BASIS. Interest accrued on the Loans is
payable (i) for Floating Rate Loans, on the last day of each month, (ii) for
Eurodollar Rate Loans, on the last day of its applicable Interest Period and
(iii) for all Loans, on any date on which the Loan is paid or prepaid, whether
due to acceleration or otherwise. Interest accrued on each Eurodollar Rate Loan,
if any, having an Interest Period longer than three months is also payable on
the last day of each three-month interval during that Interest Period. Interest
and commitment fees are calculated for actual days elapsed on the basis of a
360-day year. Interest is payable for the day a Loan is made but not for the day
of any payment on the amount paid if payment is received prior to noon (local
time) at the place of payment. If any payment of principal of or interest on a
Loan becomes due on a day which is not a Business Day, that payment must be made
on the next succeeding Business Day and, in the case of a principal payment,
that extension of time is included in computing interest.
2.9 APPLICABLE MARGIN ADJUSTMENTS. The Applicable Margin is determined based on
the ratio (the "Ratio") of (i) the Funded Debt of the Borrower as of each fiscal
quarter end (each a "Determination Date") to (ii) the EBITDA of the Borrower for
the four consecutive fiscal quarters then ending, and the pricing matrix in the
definition of Applicable Margin. Each determination and adjustment will only be
applied prospectively, and is made irrespective of any other interest rate
adjustment. Each adjustment, if any, of the Applicable Margin based upon the
Ratio as of each Determination Date shall be made as of the first day of the
second calendar quarter following such Determination Date. Without limiting any
of the other rights and remedies of the Bank under this Agreement, in the event
the Borrower shall fail to deliver the financial statements required under
Section 6.1 when required for any Determination Date, the Applicable Margin
shall be adjusted to, or remain at, as the case may be, the highest level set
forth in the definition of the term "Applicable Margin" until such time as such
financial statements are so delivered and demonstrate that the Applicable Margin
should be set at a different level in accordance with such definition and this
Section 2.9.
2.10 LETTERS OF CREDIT. Subject to the terms of this Agreement, the Borrower may
request Letters of Credit at any time prior to the Termination Date. Each
request must be in the form of the Letter of Credit Documents. Each Letter of
Credit must expire on the earlier of the Termination Date or twelve months after
its issuance date.
2.11 LETTER OF CREDIT COMMISSIONS. Each Letter of Credit is subject to a
commission in the amount equal to the greater of $250 or 1% per annum of the
face amount plus the costs of issuance.
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2.12 BORROWING BASE ADJUSTMENTS. The Borrower agrees that if at any time any
trade account receivable or any inventory of the Borrower or any Guarantor fails
to constitute Eligible Account Receivable, eligible Unbilled Accounts Receivable
or Eligible Inventory, as the case may be, for any reason, the Bank may, at any
time and notwithstanding any prior classification of eligibility, classify such
asset or property as ineligible and exclude the same from the computation of the
Facility A Borrowing Base or the Facility B Borrowering Base, as the case may
be, without in any way impairing the rights of the Bank in and to the same under
any Security Agreement.
2.13 SECURITY AND COLLATERAL. To secure the payment when due of the Notes
and all other obligations of the Borrower under this Agreement to the Bank, the
Borrower shall execute and deliver, or cause to be executed and delivered, to
the Bank Security Documents granting the following:
i) Security interests in all present and future accounts, inventory,
general intangibles, chattel paper, instruments, equipment, fixtures, and all
other personal property of the Borrower.
ii) Mortgage liens on the Mortgaged Property.
iii) Guarantees of each Guarantor.
iv) Security interests in all present and future accounts, inventory,
general intangibles, chattel paper, instruments, equipment, fixtures, and all
other personal property of the Guarantors.
v) Pledge of 65% of the stock of Perceptron BV owned by the Borrower
and a pledge of 100% of the stock of Perceptron GmbH owned by Perceptron BV,
which shall be completed within 45 days after the Effective Date by execution
and delivery of Pledge Agreements or similar documents as required by the
applicable foreign jurisdictions to create a first priority perfected pledge of
such stock.
vi) All other security and collateral described in the Security
Documents.
2.14 AMENDMENT AND RESTATEMENT. This Agreement amends and restates the
Existing Credit Agreement as of the Effective Date. All Obligations (as defined
in the Existing Credit Agreement) outstanding under the Existing Credit
Agreement shall constitute Obligations under this Agreement. The Obligations and
other liabilities pursuant hereto are issued in exchange and replacement for the
Obligations (as defined in the Existing Credit Agreement) and other liabilities
under the Existing Credit Agreement, shall not be a novation or satisfaction
thereof and shall be entitled to the same collateral with the same priority.
ARTICLE 3 - CHANGE IN CIRCUMSTANCES
3.1 YIELD PROTECTION. If any change after the date of this Agreement
(whether or not now contemplated) in any law or governmental or
quasi-governmental rule, regulation, policy,
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guideline or directive (whether or not having the force of law), or change after
the date of this Agreement (whether or not now contemplated) in any
interpretation of them, or compliance by the Bank with any of them after any
such change becomes effective,
(i) subjects the Bank or any applicable Lending Installation to any tax,
duty, charge or withholding on or from payments due from the Borrower (excluding
taxation of the overall net income of the Bank or applicable Lending
Installation), or changes the basis of taxation of payments to the Bank in
respect of its Loans or other amounts due to it under this Agreement, or
(ii) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, the Bank or any
applicable Lending Installation (other than reserves and assessments taken into
account in determining the interest rate applicable to Eurodollar Rate Loans),
or
(iii) imposes any other condition the result of which is to increase the
cost to the Bank or any applicable Lending Installation of making, funding or
maintaining loans or reduces any amount receivable by the Bank or any applicable
Lending Installation in connection with loans, or requires the Bank or any
applicable Lending Installation to make any payment calculated by reference to
the amount of loans held or interest received by it, by an amount deemed
material by the Bank, or
(iv) affects the amount of capital required or expected to be maintained by
the Bank or any Lending Installation or any corporation controlling the Bank,
and the Bank determines the amount of capital required is increased by or based
on the existence of this Agreement or its obligation to make Loans under this
Agreement or of commitments of this type,
then, within 15 days of the Bank's demand, the Borrower must pay the Bank that
portion of the increased expense incurred (including, in the case of Section
3.1(iv), any reduction in the rate of return on capital to an amount below that
which it could have achieved but for the law, rule, regulation, policy,
guideline or directive, and after taking into account the Bank's policies as to
capital adequacy) or reduction in amounts received which the Bank determines is
attributable to making, funding and maintaining its Loans and its Commitments
(after taking into account the Bank's policies with respect to capital
adequacy). The Bank represents that it does not know of any amount that would be
payable under this Section 3.1 as of the date of this Agreement, although there
may be current laws or regulations that may cause an amount to be payable
hereunder after the date of this Agreement. The Bank will not assess amounts
under this Section 3.1 unless the Bank is generally charging such amounts to the
majority of its similarly situated customers.
3.2 AVAILABILITY OF RATE OPTIONS. If the Bank determines that maintenance of its
Eurodollar Rate Loans at a suitable Lending Installation would violate any
applicable law, rule, regulation or directive, whether or not having the force
of law, or if the Bank determines that (i) deposits of a type and maturity
appropriate to match fund Eurodollar Rate Loans are not available to it, or (ii)
a Rate Option does not accurately reflect the cost of making or maintaining a
Loan at that Rate Option, then the Bank may suspend the availability of the
affected Rate Option (other than the
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Floating Rate) and require any Eurodollar Rate Loans outstanding under an
affected Rate Option to be, at the Borrower's option, either repaid or converted
to an unaffected Rate Option.
3.3 FUNDING INDEMNIFICATION. If any payment of a Eurodollar Rate Loan occurs on
a date which is not the last day of the applicable Interest Period, whether
because of acceleration, prepayment or otherwise, or a Eurodollar Rate Loan is
not made on the date specified by the Borrower for any reason other than default
by the Bank, the Borrower indemnifies the Bank for any loss or cost incurred by
it resulting from these facts, including without limitation any loss or cost in
liquidating or employing deposits acquired to fund or maintain the Eurodollar
Rate Loan.
3.4 BANK STATEMENTS; SURVIVAL OF INDEMNITY. To the extent reasonably possible,
the Bank will designate an alternate Lending Installation with respect to
Eurodollar Rate Loans to reduce any liability of the Borrower to the Bank under
Section 3.1 or to avoid the unavailability of a Rate Option under Section 3.2,
so long as that designation is not disadvantageous to the Bank. The Bank will
deliver a written statement as to the amount due, if any, under Section 3.1 or
3.3. That written statement will set forth in reasonable detail the calculations
upon which the Bank determined the amount, and is final, conclusive and binding
on the Borrower in the absence of manifest error. Determination of amounts
payable under those Sections in connection with a Eurodollar Rate Loan will be
calculated as though the Bank funded its Eurodollar Rate Loan through the
purchase of a deposit of the type and maturity corresponding to the deposit used
as a reference in determining the Eurodollar Rate applicable to that Loan,
whether in fact that is the case or not. Unless otherwise provided in this
Agreement, the amount specified in the written statement is payable on demand
after receipt by the Borrower of the written statement. The obligations of the
Borrower under Sections 3.1 and 3.3 survive payment of the Obligations and
termination of this Agreement.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 INITIAL LOAN OR LETTER OF CREDIT. The Bank is not required to make the
initial Loan or issue the initial Letter of Credit under this Agreement unless
the Borrower has furnished, or cause to be furnished, to the Bank the following
documents and completed the following matters, in form and substance
satisfactory to the Bank:
A) CHARTER DOCUMENTS. Certificates of recent date of the appropriate
authority or official of the Borrower's and each Guarantor's respective state of
incorporation (listing all charter documents of the Borrower and each Guarantor,
respectively, on file in that office if such listing is available) and
certifying as to the good standing and corporate existence of the Borrower and
each Guarantor, respectively, together with copies of such charter documents of
the Borrower and each Guarantor, certified as of a recent date by such authority
or official and certified as true and correct as of the Effective Date by a duly
authorized officer of the Borrower;
B) BY-LAWS AND CORPORATE AUTHORIZATIONS. Copies of the by-laws of the
Borrower and each Guarantor together with all authorizing resolutions and
evidence of other corporate action taken by the Borrower and each Guarantor to
authorize the execution, delivery
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and performance by the Borrower and each Guarantor of this Agreement, the Notes
and the Security Documents to which the Borrower and such Guarantor,
respectively is a party and the consummation by the Borrower and such Guarantor,
respectively of the transactions contemplated hereby, certified as true and
correct as of the Effective Date by a duly authorized officer of the Borrower
and each Guarantor, respectively;
C) INCUMBENCY CERTIFICATE. Certificates of incumbency of the Borrower and
each Guarantor containing, and attesting to the genuineness of, the signatures
of those officers authorized to act on behalf of the Borrower and such Guarantor
in connection with this Agreement, the Notes and the Security Documents to which
the Borrower or such Guarantor is a party and the consummation by the Borrower
and such Guarantor of the transactions contemplated hereby, certified as true
and correct as of the Effective Date by a duly authorized officer of the
Borrower and each Guarantor;
D) NOTES. The Notes duly executed on behalf of the Borrower for the Bank;
E) SECURITY DOCUMENTS. The Security Documents duly executed on behalf of
the Borrower and each Guarantor, as the case may be, granting to the Bank (or
confirming any Security Document previously granted to the Bank) the collateral
and security intended to be provided pursuant to Section 2.13, together with:
i) RECORDING, FILING, ETC. Evidence of the recordation, filing and
other action (including payment of any applicable taxes or fees) in such
jurisdictions as the Bank may deem necessary or appropriate with respect to
the Security Documents, including the filing of financing statements and
similar documents which the Bank may deem necessary or appropriate to
create, preserve or perfect the liens, security interests and other rights
intended to be granted to the Bank thereunder, together with Uniform
Commercial Code record searches in such offices as the Bank may request;
ii) TITLE INSURANCE. Policy of mortgage title insurance, issued by an
insurer and in amounts satisfactory to the Bank insuring the interest of
the Bank under the Mortgage without standard exceptions and without any
special exceptions not acceptable to the Bank and containing such further
endorsements, affirmative coverage and other terms as the Bank may request;
iii) SURVEYS. Survey of the property subject to the Mortgage made by a
land surveyor licensed in the State in which such property is located and
acceptable to the Bank complying with the Minimum Standard Detail
Requirements for Land Title Surveys as adopted by the American Title
Association and the American Congress on Surveying and Mapping and showing
such details as the Bank may request, including flood zone certification,
certified to the Bank and the issuer of such mortgage title insurance
policy in form acceptable to the Bank;
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iv) LEASED PROPERTY; LANDLORD WAIVERS. A schedule setting forth all
real property leased by the Borrower and each Guarantor certified as true
and correct as of the Effective Date by a duly authorized officer of the
Borrower, and the Borrower agrees to use its best efforts to obtain an
agreement of each landlord under such leases, in form and substance
acceptable to the Bank, waiving its distraint, lien and similar rights with
respect to any property subject to the Security Documents and agreeing to
permit the Bank to enter such premises in connection therewith; provided,
that Borrower shall not be required to obtain such landlord waiver with
respect to any leased location which is operated as a sales office or where
the value of the Borrower's assets is immaterial, in the discretion of the
Bank;
v) CASUALTY AND OTHER INSURANCE. Evidence that the casualty and other
insurance required pursuant to Section 5.1(c), each Security Agreement and
paragraph 4 of the Mortgage is in full force and effect; and
F) ENVIRONMENTAL CERTIFICATE. An Environmental Certificate;
G) LEGAL OPINIONS. The favorable written opinion of counsel for the
Borrower and each Guarantor in form and substance satisfactory to the Bank;
H) CONSENTS, APPROVALS, ETC. Copies of all governmental and nongovernmental
consents, approvals, authorizations, declarations, registrations or filings, if
any, required on the part of the Borrower or any Guarantor in connection with
the execution, delivery and performance of this Agreement, the Notes, the
Security Documents or the transactions contemplated hereby or as a condition to
the legality, validity or enforceability of this Agreement, the Notes or any of
the Security Documents, certified as true and correct and in full force and
effect as of the Effective Date by a duly authorized officer of the Borrower,
or, if none are required, a certificate of such officer to that effect;
I) FEES. The facility fee described in Section 2.3;
J) PERCEPTRON GMBH LETTERS OF CREDIT. Perceptron GmbH shall have provided
cash collateral to secure all outstanding letters of credit issued by Bank One,
NA, or an affiliate, for the account of Perceptron GmbH which have an expiry
date greater than ninety (90) days after the Effective Date; and
K) Such other documents, and completion of such other matters, as the Bank
may reasonably request.
4.2 EACH LOAN. The Bank is not required to make any Loan or issue any Letter of
Credit, unless on the applicable borrowing date (i) there exists no Default or
Unmatured Default, (ii) the warranties contained in Article 5 are true and
correct as of such borrowing date, and (iii) all legal matters incident to
making the Loan or issuing the Letter of Credit, as the case may be, including
without limitation executed and delivered Letter of Credit Documents, are
reasonably satisfactory to the Bank and its counsel.
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ARTICLE 5 - WARRANTIES
The Borrower warrants to the Bank that:
5.1 CORPORATE EXISTENCE AND STANDING. Each of the Borrower and the Subsidiaries
is a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has all requisite authority to
conduct its business in each jurisdiction in which its business is conducted
except where the failure to have that authority would not have a Material
Adverse Effect.
5.2 AUTHORIZATION AND VALIDITY. Each of the Borrower and the Guarantors has the
corporate power and authority and legal right to execute and deliver this
Agreement, the Notes and the Security Documents to which it is a party and to
perform its obligations under them. The execution and delivery by the Borrower
and the Guarantors of this Agreement, the Notes and the Security Documents to
which it is a party and the performance of its obligations under them have been
duly authorized by proper corporate proceedings, and this Agreement, the Notes
and the Security Documents to which it is a party each constitute legal, valid
and binding obligations of the Borrower or the Guarantor, as the case may be,
enforceable against the Borrower or the Guarantor, as the case may be, in
accordance with their respective terms.
5.3 NO CONFLICT; GOVERNMENT CONSENT. Neither the execution and delivery by the
Borrower or any Subsidiary of this Agreement, the Notes and the Security
Documents, nor the consummation of the transactions described in them, nor
compliance with their provisions will violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on the Borrower or any
Subsidiary, or the Borrower's or any Subsidiary's articles of incorporation or
bylaws, or the provisions of any indenture, instrument or agreement to which the
Borrower or any Subsidiary is a party or is subject, or by which it or its
property is bound, or conflict with or constitute a default under any indenture,
instrument or agreement, or result in the creation or imposition of any Lien in,
of or on the property of the Borrower or a Subsidiary pursuant to the terms of
any indenture, instrument or agreement. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, or other action in respect of, any governmental or public body or
authority, or any subdivision of them, is required to authorize, or is required
in connection with the execution, delivery and performance of, or the legality,
validity, binding effect or enforceability of, this Agreement, the Notes or any
Security Document.
5.4 FINANCIAL STATEMENTS. The June 30, 2000 consolidated financial statements of
the Borrower and the Subsidiaries previously delivered to the Bank were prepared
in accordance with GAAP in effect on the date those statements were prepared and
fairly present the consolidated financial condition and operations of the
Borrower and the Subsidiaries at that date and the consolidated results of their
operations for the period then ended.
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5.5 MATERIAL ADVERSE CHANGE. Since June 30, 2000, there has been no material
adverse change in the business, properties, condition (financial or otherwise)
or results of operations of the Borrower and its Subsidiaries, taken as a whole,
other than what has been disclosed in official filings with the Securities and
Exchange Commission, copies of which have been made available to the Bank, and
other than such other information contained in written financial projections
delivered to the Bank prior to the Effective Date.
5.6 LITIGATION AND CONTINGENT OBLIGATIONS. Except as disclosed on Schedule 5.6
attached to this Agreement, there is no litigation, arbitration, governmental
investigation, proceeding or inquiry pending or, to the knowledge of any of
their officers, threatened against or affecting the Borrower or any Subsidiary
which is reasonably likely to have a Material Adverse Effect. The Borrower has
no material contingent obligations not provided for or disclosed in the
financial statements referred to in Section 5.4.
5.7 REGULATION U. Margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System) constitutes less than 25% of those
assets of the Borrower and its Subsidiaries which are subject to any limitation
on sale, pledge, or other restriction under this Agreement.
5.8 COMPLIANCE WITH LAWS. The Borrower and its Subsidiaries have complied in all
material respects with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency of them, having jurisdiction over the conduct of their respective
businesses or the ownership of their respective properties, except to the extent
that the failure to so qualify would not have a Material Adverse Effect.
5.9 TITLE TO PROPERTY; LIEN PRIORITY. The Borrower and its Subsidiaries have
good marketable title to each of their respective properties and assets, subject
to no Liens except Permitted Liens. The Security Documents grant to the Bank
first priority enforceable security interests which are not void or voidable in
all assets of the Borrower and the Guarantors.
ARTICLE 6 - COVENANTS
During the term of this Agreement, unless the Bank otherwise consents in
writing:
6.1 FINANCIAL REPORTING. The Borrower will maintain, for itself and each
Subsidiary, a system of accounting established and administered in accordance
with GAAP, and furnish to the Bank:
(i) Within 90 days after the close of each of its fiscal years, an
unqualified (except for qualifications relating to changes in accounting
principles or practices reflecting changes in GAAP and required or approved by
the Borrower's independent certified public accountants) audit report certified
by independent certified public accountants, reasonably acceptable to the Bank,
prepared in accordance with GAAP on a consolidated basis for itself and the
Subsidiaries, including a consolidated balance sheet as of the end of that
period, related consolidated
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statements of income and shareholders' equity, and a consolidated statement of
cash flows, together with the related consolidating worksheets for the income
statement and balance sheet certified by the chief financial officer of the
Borrower, and a certificate, in form and substance reasonably satisfactory to
the Bank, of the chief financial officer of the Borrower to the effect that a
computation (which computation shall accompany such certificate and shall be in
form and substance reasonably satisfactory to the Bank) showing compliance with
Sections 6.12, 6.13, 6.14 and 6.15 is in conformity with the requirements of
this Agreement.
(ii) Within 60 days after the close of the first three quarterly periods of
each of its fiscal years, for itself and the Subsidiaries, a consolidated
unaudited balance sheet as of the close of each such period and consolidated
statements of income and cash flows for the period from the beginning of that
fiscal year to the end of that quarter, all certified by the chief financial
officer of the Borrower, together with the related consolidating worksheets for
the income statement and balance sheet certified by the chief financial officer
of the Borrower, and a certificate, in form and substance satisfactory to the
Bank, of the chief financial officer of the Borrower to the effect that a
computation (which computation shall accompany such certificate and shall be in
form and substance reasonably satisfactory to the Bank) showing compliance with
Sections 6.12, 6.13, 6.14 and 6.15 is in conformity with the requirements of
this Agreement.
(iii) Within 60 days after the close of each of its quarterly periods of
each of its fiscal years, for Perceptron GmbH, a compiled unaudited balance
sheet as of the close of each such period and compiled statements of income and
cash flows for the period from the beginning of that fiscal year to the end of
that quarter, all certified by the chief financial officer of Perceptron GmbH,
together with the related compiled worksheets for the income statement and
balance sheet certified by the chief financial officer of Perceptron GmbH.
(iv) As soon as available and in any event not later than 30 days after the
close of each quarterly period of each of its fiscal years, the Borrower's
financial projections for the immediately following 12 months, in form and
detail satisfactory to the Bank.
(iv) No later than the 20th day of each month, a Borrowing Base Certificate
prepared as of the close of business on the last day of the preceding month,
together with supporting schedules, in form and detail satisfactory to the Bank,
setting forth such information as the Bank may request with respect to the
aging, value, location and other information relating to the computation of the
Borrowing Base and the eligibility of any property or assets included in such
computation, certified as true and correct by the chief financial officer of the
Borrower.
(v) As soon as available and in any event within 20 calendar days after the
end of each calendar month, a report of the Borrower's domestic accounts
receivable, including without limitation the amount, age and account debtor for
each domestic account receivable, a report setting forth a summary and aging of
Borrower's domestic accounts payable and a report of all domestic inventory of
the Borrower, all in form and substance satisfactory to the Bank.
(vi) Promptly upon furnishing it to its shareholders, copies of all
financial statements, reports and proxy statements so furnished.
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(vii) Promptly upon filing them, copies of all registration statements and
annual, quarterly, monthly or other regular reports which the Borrower or any
Subsidiary files with the Securities and Exchange Commission.
(viii) Any other information (including non-financial information) which
the Bank or any Lending Installation from time to time reasonably requests.
6.2 USE OF PROCEEDS. The Borrower will, and will cause each Subsidiary to, use
the Letters of Credit and proceeds of the Loans for general corporate purposes.
The Borrower may not, nor may it permit any Subsidiary to, use any of the
Letters of Credit or proceeds of the Loans to purchase or carry any "margin
stock" (as defined in Regulation U).
6.3 CONDUCT OF BUSINESS. The Borrower will, and will cause each Subsidiary to,
carry on and conduct its business in substantially the same manner and in
substantially the same fields of enterprise as it is presently conducted, and do
all things necessary to remain duly incorporated, validly existing and in good
standing as a domestic corporation in its jurisdiction of incorporation and
maintain all requisite authority to conduct its business in each jurisdiction in
which its business is conducted, except that, without limiting the requirements
of Section 6.15, the Borrower may dissolve or otherwise terminate the separate
existence of a Subsidiary if that dissolution or termination would not have a
Material Adverse Effect.
6.4 TAXES. The Borrower will, and will cause each Subsidiary to, timely file
complete and correct United States federal and applicable foreign, state and
local tax returns required by law, and pay when due all taxes, assessments and
governmental charges and levies on it or its income, profits or property, except
those which are being contested in good faith by appropriate proceedings and
with respect to which adequate reserves have been set aside.
6.5 COMPLIANCE WITH LAWS. The Borrower will, and will cause each Subsidiary to,
comply in all material respects with all laws, rules, regulations, orders,
writs, judgments, injunctions, decrees or awards to which it may be subject,
except to the extent such noncompliance would not have a Material Adverse
Effect.
6.6 MERGER. Neither the Borrower nor any Subsidiary will merge or consolidate
with or into any other Person unless the Borrower or such Subsidiary is the
legally surviving corporation and, after giving effect to the merger or
consolidation, no Default or Unmatured Default exists.
6.7 LIENS. The Borrower will not, nor will it permit any Subsidiary to, create,
incur, or suffer to exist any Lien in, of or on the property of the Borrower or
any Subsidiary, except:
(i) Liens for taxes, assessments or governmental charges or levies on its
property if they are not at the time delinquent or if they can be paid later
without penalty, or are being contested in good faith and by appropriate
proceedings.
(ii) Liens imposed by law, such as carriers', warehousemen's and mechanics'
liens and other similar liens arising in the ordinary course of business which
secure payment of obligations
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not more than 60 days past due or which are being contested in good faith by
appropriate proceedings and for which adequate reserves have been set aside on
its books.
(iii) Liens arising out of pledges or deposits under worker's compensation
laws, unemployment insurance, old age pensions, or other social security or
retirement benefits, or similar legislation.
(iv) Good faith deposits in connection with bids, tenders, contracts or
leases to which the Borrower or any of its Subsidiaries is a party for a purpose
other than borrowing money or obtaining credit, including rent security
deposits.
(v) Pledges or deposits to secure public or statutory obligations of the
Borrower or any of its Subsidiaries, or surety, customs or appeal bonds to which
the Borrower or any of its Subsidiaries is a party.
(vi) Liens affecting real property which constitute minor survey exceptions
or defects or irregularities in title, minor encumbrances, easements or
reservations of, or rights of others for, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of such real property, provided that all of the
foregoing, in the aggregate, do not at any time materially detract from the
value of said properties or materially impair their use in the operation of the
businesses of the Borrower or any of its Subsidiaries.
(vii) Any Lien created to secure payment of a portion of the purchase price
of, or existing at the time of acquisition of, any tangible fixed asset acquired
by the Borrower or any of its Subsidiaries may be created or suffered to exist
upon such fixed asset if the outstanding principal amount of the indebtedness
secured by such Lien does not at any time exceed the purchase price paid by the
Borrower or such Subsidiary for such fixed asset and such indebtedness secured
by such Liens is permitted under Section 6.9; provided that such Lien does not
encumber any other asset at any time owned by the Borrower or such Subsidiary,
and provided, further, that not more than one such Lien shall encumber any such
fixed asset at any one time.
(viii) Judgment and other similar liens, the existence of which judgment
does not constitute a Default under Section 7.8.
(ix) Other Liens securing Permitted Debt.
(x) Liens existing on the date of this Agreement as described on Schedule
6.7 attached hereto.
6.8 NOTICE OF DEFAULT. The Borrower will, and will cause each Subsidiary to,
give prompt notice in writing to the Bank of the occurrence of any Default or
Unmatured Default and of any other development, financial or otherwise, which
might have a Material Adverse Effect or might materially adversely affect the
ability of the Borrower to repay the Obligations.
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6.9 DEBT. The Borrower will not, nor will it permit any Subsidiary to, incur or
permit to remain outstanding, debt for borrowed money or installment obligations
in an aggregate principal amount which, together with undertakings of others
guaranteed by the Borrower or for which the Borrower otherwise is secondarily
liable, exceeds $200,000 at any time, except the following ("Permitted Debt"):
(i) indebtedness owing to the Bank or, with respect to the Subsidiaries, any of
the Bank's affiliates, (ii) indebtedness of any Subsidiary of the Borrower owing
to any other Subsidiary of the Borrower, and (iii) other indebtedness reflected
in the latest financial statement of the Borrower furnished to the Bank prior to
execution of this Agreement and not to be paid with proceeds of borrowings under
this Agreement. For purposes of this covenant, the sale of any accounts
receivable is deemed the incurring of debt for borrowed money. Nothing in this
Section shall prohibit trade accounts payable and receivable between the
Borrower and its Subsidiaries or between any Subsidiary of the Borrower and any
other Subsidiary of the Borrower arising in the ordinary course of business and
on terms not less favorable to the Borrower than those which could be obtained
if the related transaction were an arm's length transaction with a person other
than an affiliate.
6.10 GUARANTIES. The Borrower will not, nor will it permit any Subsidiary to,
guarantee or otherwise become or remain secondarily liable on the undertaking of
another in an aggregate amount which, together with the aggregate outstanding
principal amount of debt for borrowed money and other installment obligations of
the Borrower and its Subsidiaries, exceeds $200,000 at any time, except for (i)
endorsement of drafts for deposit and collection in the ordinary course of
business and (ii) guaranties by the Subsidiaries of the Borrower of any
Permitted Debt owing by the Borrower or by any other Subsidiary of the Borrower.
6.11 ADVANCES AND INVESTMENTS. The Borrower will not, nor will it permit any
Subsidiary to, purchase or acquire any securities of, or make any loans or
advances to, or investments in, any Person, except (i) obligations of the United
States Government, open market commercial paper rated one of the top two ratings
by a rating agency of recognized standing, or certificates of deposit in insured
financial institutions, and (ii) loans and advances by any Subsidiary of the
Borrower to any other Subsidiary of the Borrower and advances (without any
repayment obligation) by any Subsidiary of the Borrower to the Borrower. Nothing
in this Section shall prohibit trade accounts payable and receivable between the
Borrower and its Subsidiaries or between any Subsidiary of the Borrower and any
other Subsidiary of the Borrower arising in the ordinary course of business and
on terms not less favorable to the Borrower than those which could be obtained
if the related transaction were an arm's length transaction with a person other
than an affiliate.
6.12 FUNDED DEBT TO EBITDA RATIO. The Borrower will not permit or suffer the
ratio of (i) the Funded Debt of the Borrower as of the fiscal quarter end
corresponding to the determination date to (ii) the EBITDA of the Borrower for
the period of four consecutive fiscal quarters of the Borrower then ending to
exceed (A) 19.00 to 1.00 as of March 31, 2002, (B) 6.00 to 1.00 as of June 30,
2002, (C) 5.00 to 1.00 as of September 30, 2002 and December 31, 2002, and (D)
4.00 to 1.00 as of March 30, 2003 and as of the last day of each subsequent
fiscal quarter of the Borrower thereafter.
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6.13 EBITDA. The Borrower will not permit its EBITDA to be less than (i)
($7,400,000) for the period from July 1, 2000 through the end of its fiscal
quarter ending on or about June 30, 2001, (ii) ($1,400,000) for the period from
July 1, 2001 through the end of its fiscal quarter ending on or about September
30, 2001, (iii) $700,000 for the period from July 1, 2001 through the end of its
fiscal quarter ending on or about December 31, 2001, (iv) $1,800,000 for the
period from July 1, 2001 through the end of its fiscal quarter ending on or
about March 31, 2002, (v) $3,000,000 for the period from July 1, 2001 through
the end of its fiscal quarter ending on or about June 30, 2002, (vi) ($400,000)
for the period from July 1, 2002 through the end of its fiscal quarter ending on
or about September 30, 2002, (vii) $1,700,000 for the period from July 1, 2002
through the end of its fiscal quarter ending on or about December 31, 2002,
(viii) $2,800,000 for the period from July 1, 2002 through the end of its fiscal
quarter ending on or about March 31, 2003 and (ix) $4,000,000 for the period
from July 1, 2002 through the end of its fiscal quarter ending on or about June
30, 2003.
6.14 FIXED CHARGE COVERAGE RATIO. The Borrower will not permit its Fixed Charge
Coverage Ratio to be less than (i) 0.00 to 1.00 as of the fiscal quarter end of
the Borrower corresponding to March 31, 2002, and (ii) 1.20 to 1.0 as of the
fiscal quarter end of the Borrower corresponding to June 30, 2002 and as of each
subsequent fiscal quarter end of the Borrower; such ratio to be determined as of
each fiscal quarter end of the Borrower (commencing with the fiscal quarter end
corresponding to March 31, 2002) for the period of four consecutive fiscal
quarters of the Borrower then ending
6.15 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. The Borrower will not permit
the ratio of Total Liabilities to Tangible Net Worth to exceed 0.90 to 1.00 at
any time.
6.16 DISPOSITION OF ASSETS. The Borrower will not, nor will it permit any
Subsidiary to, sell, lease, license, transfer, assign or otherwise dispose of
all or a substantial portion of its business, assets, rights, revenues or
property, real, personal or mixed, tangible or intangible, whether in one or a
series of transactions, other than (i) inventory sold in the ordinary course of
business upon customary credit terms, (ii) sales of scrap or obsolete material
or equipment and (iii) transfers between Subsidiaries of the Borrower.
6.17 DIVIDENDS. The Borrower will not make, pay, declare or authorize any
dividend, payment or other distribution in respect of any class of its capital
stock or any dividend, payment or distribution in connection with the
redemption, purchase, retirement or other acquisition, directly or indirectly,
of any shares of its capital stock, other than such dividends, payments or other
distributions to the extent payable solely in shares of the capital stock of the
Borrower. For purposes of this Section 6.16, "capital stock" shall include
capital stock and any securities exchangeable for or convertible into capital
stock and any warrants, rights or other options to purchase or otherwise acquire
capital stock or such securities.
6.18 NEGATIVE PLEDGE LIMITATION. The Borrower will not enter into any agreement,
with any person other than the Bank pursuant hereto, which prohibits or limits
the ability of the Borrower or any Subsidiary to create, incur, assume or suffer
to exist any Lien upon any of its assets, rights, revenues or property, real,
personal or mixed, tangible or intangible, whether now owned or hereafter
acquired.
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6.19 ADDITIONAL SECURITY AND COLLATERAL. Promptly (i) execute and deliver and
cause each Subsidiary of the Borrower and the Guarantors to execute and deliver,
additional Security Documents, within 30 days after request therefor by the
Bank, sufficient to grant to the Bank liens and security interests in any after
acquired property of the type described in Section 2.13, and (ii) cause each
person becoming a Subsidiary of the Borrower or any Guarantor from time to time
to execute and deliver to the Bank, within 30 days after such person becomes a
Subsidiary, a Guaranty and Security Documents, together with other related
documents described in Section 4.1, sufficient to grant to the Bank liens and
security interests in all collateral of the type described in Section 2.13. The
Borrower shall notify the Bank, within 10 days after the occurrence thereof, of
the acquisition of any property by the Borrower or any Guarantor that is not
subject to the existing Security Documents, any person's becoming a Subsidiary
and any other event or condition that may require additional action of any
nature in order to preserve the effectiveness and perfected status of the liens
and security interests of the Bank with respect to such property pursuant to the
Security Documents.
ARTICLE 7 - DEFAULTS
The occurrence of any one or more of the following events constitutes a Default:
7.1 Any warranty made or deemed made by or on behalf of the Borrower or any
Subsidiary to the Bank under or in connection any Loan Document, any Loan, any
Letter of Credit or any certificate or information delivered in connection with
any Loan Document is materially false on the date as of which it is made.
7.2 The principal of any Note is not paid when due, or any interest or any fee
or other obligations under this Agreement, the Notes or any other Loan Document
are not paid within three days after they become due.
7.3 The Borrower or any Subsidiary breaches any of the terms of Article 6 and,
with respect to any breach under 6.1, 6.3, 6.4, 6.5, 6.7, 6.8, 6.9, 6.10, 6.11
or 6.18, such breach is not remedied within 10 days.
7.4 The Borrower or any Subsidiary breaches (other than a breach which
constitutes a Default under Section 7.1, 7.2 or 7.3) any of the terms of this
Agreement and such breach is not remedied within thirty days after written
notice from the Bank or the Borrower or any Subsidiary breaches any other
agreement with the Bank or any of its affiliates or any default occurs under any
other agreement with the Bank or any of its affiliates and such breach or
default is not remedied within any grace period provided with respect thereto
and after any required notices have been given by the Bank or such affiliate.
7.5 The Borrower or any Subsidiary fails to pay any debt for borrowed money when
due, which individually or together with other such debt as to which any such
failure exists has an
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aggregate outstanding principal amount in excess of $100,000; or the Borrower or
any Subsidiary defaults in the performance of any term contained in any
agreement under which that debt was created or is governed, the effect of which
is to cause, or to permit the holder or holders of that debt to cause, that debt
to become due prior to its stated maturity; or any debt of the Borrower or any
Subsidiary is declared to be due and payable or required to be prepaid or
repurchased (other than by a regularly scheduled payment) prior to its stated
maturity, which individually or together with other such debt as to which any
such failure exists has an aggregate outstanding principal amount in excess of
$100,000; or the Borrower or any Subsidiary does not pay, or admits in writing
its inability to pay, its debts generally as they become due.
7.6 The Borrower or any Subsidiary (i) has an order for relief entered with
respect to it under present or future Federal bankruptcy laws, (ii) makes an
assignment for the benefit of creditors, (iii) applies for, seeks, consents to,
or acquiesces in, the appointment of a receiver, custodian, trustee, examiner,
liquidator or similar official for it or any substantial part of its property,
(iv) institutes any proceeding seeking an order for relief under present or
future Federal bankruptcy laws, or seeking to adjudicate it a bankrupt or
insolvent, or seeking dissolution, winding up, liquidation, reorganization,
arrangement, adjustment or composition of it or its debts under any law relating
to bankruptcy, insolvency or reorganization or relief of debtors, or fails to
file an answer or other pleading denying the material allegations of any such
proceeding filed against it, (v) takes any corporate action to authorize or
effect any of the foregoing actions set forth in this Section 7.6 or (vi) fails
to contest in good faith any appointment or proceeding described in Section 7.7.
7.7 Without the application, approval or consent of the Borrower or any
Subsidiary, a receiver, trustee, examiner, liquidator or similar official is
appointed for the Borrower or any Subsidiary or any substantial part of its
property, or a proceeding described in Section 7.6(iv) is instituted against the
Borrower or any Subsidiary and that appointment continues undischarged or those
proceedings continue undismissed or unstayed for a period of 60 consecutive
days.
7.8 The Borrower or any Subsidiary shall fail within 30 days to pay, bond or
otherwise discharge any judgment or order for the payment of money in excess of
$500,000, which is not stayed on appeal or otherwise being appropriately
contested in good faith or is not fully insured against, within the applicable
period of limitations for appealing such judgment or order and prior to the
denial of any such appeal.
7.9 Any reportable event (as defined in Section 4043 of ERISA) occurs in
connection with any plan (as defined in ERISA) which results in or could result
in a Material Adverse Effect and such reportable event is not corrected within
30 days after the occurrence thereof.
7.10 Any Person, or two or more Persons acting in concert, acquires beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934) of 30% or more of the
outstanding shares of the Borrower's voting stock.
7.11 Any event of default described in any Loan Document shall have occurred and
be continuing, or any material provision of any Loan Document shall at any time
for any reason
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cease to be valid and binding and enforceable against any obligor thereunder, or
the validity, binding effect or enforceability thereof shall be contested by any
person, or any obligor, shall deny that it has any or further liability or
obligation thereunder, or any Loan Document shall be terminated, invalidated or
set aside, or be declared ineffective or inoperative or in any way cease to give
or provide to the Bank the benefits purported to be created thereby.
ARTICLE 8 - ACCELERATION; REMEDIES; AND AMENDMENTS
8.1 ACCELERATION. If any Default described in Section 7.6 or 7.7 occurs with
respect to the Borrower, the Commitment and the obligation of the Bank to make
Loans automatically terminates and the Obligations are immediately due and
payable without any election or action on the part of the Bank. If any other
Default occurs, the Bank may terminate or suspend the Commitment and its
obligation to make Loans, or declare the Obligations due and payable, or both,
whereupon the Obligations are immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which the Borrower expressly
waives.
8.2 PRESERVATION OF RIGHTS. No delay or omission of the Bank to exercise any
right under this Agreement or any Note impairs that right nor can it be
construed to waive any Default or acquiesce in any Default, and the making of a
Loan notwithstanding the existence of a Default or the inability of the Borrower
to satisfy the conditions precedent to that Loan does not constitute a waiver or
acquiescence. Any single or partial exercise of any right does not preclude any
other or further exercise of it or the exercise of any other right, and no
waiver, amendment or other variation of the terms of this Agreement or any Note
is valid unless in writing signed by the Bank and the Borrower and then only to
the extent that writing specifies. All remedies contained in this Agreement and
the Notes or by law afforded are cumulative and all are available to the Bank
until the Obligations have been paid in full.
8.3 AMENDMENTS. Subject to the provisions of this Article 8, the Bank and the
Borrower may enter into agreements supplementing this Agreement for the purpose
of adding or modifying this Agreement, the Notes or any other Loan Document or
changing in any manner the rights of the Bank or the Borrower or waiving any
Default.
8.4 SETOFF. In addition to and without limiting any rights of the Bank under
applicable law, if the Borrower becomes insolvent, howsoever evidenced, or any
Default occurs, any and all deposits (including all account balances, whether
provisional or final and whether or not collected or available) and any other
debt at any time held or owing by the Bank to or for the credit or account of
the Borrower may be offset and applied toward the payment of the Obligations
owing to the Bank, whether or all or any part of the Obligations are then due.
ARTICLE 9 - GENERAL PROVISIONS
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9.1 SURVIVAL OF WARRANTIES. All warranties of the Borrower contained in this
Agreement survive the delivery of the Notes and the making of the Loans and the
issuance of Letters of Credit.
9.2 TAXES. Any taxes (excluding income taxes) or other similar assessments or
charges payable or ruled payable by any governmental authority in respect of
this Agreement and the Note must be paid by the Borrower, together with interest
and penalties, if any.
9.3 EXPENSES; INDEMNIFICATION. The Borrower must reimburse the Bank for any
costs, internal charges and out-of-pocket expenses (including reasonable
attorneys' fees and time charges of attorneys for the Bank, who may be employees
of the Bank) paid or incurred by the Bank in connection with the preparation,
review, execution, delivery, amendment, modification; administration, collection
and enforcement of this Agreement and the other Loan Documents; provided that
attorneys fees in connection with the preparation and negotiation of the Loan
Documents up and until the Effective Date shall not exceed an amount to be
agreed upon between the Borrower and the Bank's counsel plus costs. The Borrower
further indemnifies the Bank, its directors, officers and employees against all
losses, claims, damages, penalties, judgments, liabilities and expenses
(including without limitation all expenses of litigation or preparation for
litigation whether or not the Bank is a party) which any of them pay or incur
arising out of or relating to this Agreement or any other Loan Document, the
transactions described in this Agreement or the direct or indirect application
or proposed application of the proceeds of any Loan, provided, however, that the
Borrower shall not be required to indemnify the Bank or any such other person,
to the extent, but only to the extent, that such losses, claims, damages,
penalties, judgments, liabilities or expenses are of a type generally borne by
lenders in the ordinary course of business and are not material in amount in the
aggregate, or which are attributable to the gross negligence or willful
misconduct of the Bank. The obligations of the Borrower under this Section
survive the termination of this Agreement.
9.4 SUCCESSORS AND ASSIGNS. The terms of this Agreement and the other Loan
Documents bind and benefit the Borrower and the Bank and their respective
successors and assigns, except that the Borrower has no right to assign its
rights or obligations under this Agreement or any other Loan Documents. The Bank
may, in the ordinary course of its commercial banking business and in accordance
with applicable law, at any time sell to one or more banks or other entities
participating interests in any Loan, the Notes or the Commitments. The Bank may,
with the consent of the Borrower, which consent may not be unreasonably
withheld, assign to one or more banks or other entities all or any part of its
rights and obligations under this Agreement, the Notes or the Loan Documents,
and the Borrower releases the Bank for the amount so assigned.
9.5 GIVING NOTICE. Except as otherwise permitted by Section 2.7 with respect to
borrowing notices, all notices, requests and other communications to any party
must be in writing (including bank wire, telex, facsimile transmission or
similar writing) and must be given to a party: (y) in the case of the Borrower
or the Bank, at its address, facsimile number or telex number set forth on the
signature page below, or (z) in the case of any party, whatever other address,
facsimile number or telex number that party specifies for the purpose, by notice
to the other. Each notice, request or other communication is effective (i) if
given by telex, when it is transmitted to the telex number specified in this
Section and the appropriate answerback is received, (ii) if given by
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facsimile transmission, when transmitted to the facsimile number specified in
this Section and confirmation of receipt is received, (iii) if given by mail, 72
hours after that communication is deposited in the mails with first class
postage prepaid, addressed as required, or (iv) if given by any other means,
when delivered at the address specified in this Section. However, notices to the
Bank under Article 2 are not effective until received.
ARTICLE 10 - GOVERNING LAW; JURISDICTION; JURY TRIAL WAIVER
10.1 CHOICE OF LAW. This Agreement and the Notes are to be construed in
accordance with the internal laws (but not the law of conflicts) of Michigan.
10.2 CONSENT TO JURISDICTION. The Borrower irrevocably submits to the
non-exclusive jurisdiction of any United States federal or Michigan state court
sitting in Michigan in any action or proceeding arising out of or relating to
any Loan, and the Borrower irrevocably agrees that all such claims may be heard
and determined in any such court and irrevocably waives any present and future
objection it may have as to the venue of any action or proceeding brought in
that court, or that that court is an inconvenient forum. Any judicial proceeding
by the Borrower against the Bank or any affiliate of the Bank involving,
directly or indirectly, any matter in any way arising out of, related to, or
connected with any Loan must be brought only in a court in Michigan.
10.3 WAIVER OF JURY TRIAL. The Bank and the Borrower knowingly and voluntarily
waive any right either of them to have to a trial by jury in any proceeding
(whether sounding in contract or tort) which is in any way connected with this
or any related agreement, or the relationship established under them. This
provision may only be modified in a written instrument executed by the Bank and
the Borrower.
[The rest of this page intentionally left blank.]
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EXECUTED as of the date first written above.
BORROWER: BANK:
PERCEPTRON, INC. BANK ONE, MICHIGAN
By: /S/ John Garber By: /S/ Donna Boris
--------------------------- -------------------------
John Garber Donna Boris
Its: Chief Financial Officer Its: Vice President
--------------------------- -------------------------
By: /S/ Sylvia Smith
---------------------------
Sylvia Smith
Its: Controller
ADDRESS FOR NOTICES: ADDRESS FOR NOTICES:
47827 Halyard 38601 Twelve Mile Road
Plymouth, Michigan 48170 Farmington Hills, Michigan 48331
Phone: (734) 414-4816 Phone: (248) 488-0652
Fax: (734) 414-4840 Fax: (248) 488-0634
Attention: John Garber Attention: Donna Boris
ANNARBOR 7-3498 11783-8-2
29
EX-10.36
4
k65105ex10-36.txt
3RD AMEND/RESTATED 1992 STOCK OPTION PLAN
1
EXHIBIT 10.36
THIRD AMENDMENT TO THE
PERCEPTRON, INC. 1992 STOCK OPTION PLAN
(AMENDED AND RESTATED OCTOBER 31, 1996)
Pursuant to the Amendment provisions in Section 9.2 of the Perceptron,
Inc. 1992 Stock Option Plan ("Plan") and the approval of the Board of Directors
of Perceptron, Inc. ("Company"), the Plan is hereby amended as set forth below.
1. Subject to shareholder approval, Section 10 of the Plan (Effective
Date and Duration) shall be amended and restated in its entirety to read as
follows:
SECTION 10 EFFECTIVE DATE AND DURATION. This Plan shall become
effective beginning April 21, 1992, subject to the approval of the
shareholders of the Company as required by Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, and Section 422A of the
Code. No options may be granted under this plan subsequent to April 20,
2012.
THIS THIRD AMENDMENT is hereby adopted as of August 10, 2001.
PERCEPTRON, INC.
By: /s/ Alfred A. Pease
---------------------------------
Alfred A. Pease, Chairman,
President and Chief Executive
Officer
EX-23
5
k65105ex23.txt
CONSENT OF EXPERTS
1
EXHIBIT 23
[PRICEWATERHOUSECOOPERS LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-63666, 33-63664, 33-85656, 33-93910,
333-00444, 333-00446, 333-65001, 333-65007, 333-92643, 333-92645, 333-92647 and
333-55164) and on Form S-3 (File Nos. 33-78594, 333-24239 and 333-29263) of
Perceptron, Inc. and Subsidiaries of our report dated August 15, 2001 except as
to Note 9 for which the date is September 24, 2001, relating to the financial
statements and financial statement schedule, which appears in this Annual
Report on Form 10-K.
PricewaterhouseCoopers LLP
Detroit, Michigan
September 25, 2001