-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EYBeNeJDu3b6ZMQHnsNVV8leFbkXmjj8PKDky3tk9KbDM/h+JQwb1SUDkHYvfFBj fmfFvBO9zP45yCPsv804HQ== 0000950124-97-001990.txt : 19970401 0000950124-97-001990.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950124-97-001990 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD 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: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20206 FILM NUMBER: 97569673 BUSINESS ADDRESS: STREET 1: 23855 RESEARCH DRIVE CITY: FARMINGTON HILLS STATE: MI ZIP: 48335 BUSINESS PHONE: 8104787710 MAIL ADDRESS: STREET 1: 23855 RESEARCH DR CITY: FARMINGTON HILLS STATE: MI ZIP: 48335 10-K 1 10-K 1 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 DECEMBER 31, 1996 [FEE REQUIRED] OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 or (I.R.S. Employer incorporation or organization) Identification No.) 47827 Halyard Drive Plymouth, Michigan 48170-2461 (313) 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 (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. [ ] 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 March 14, 1997, as reported by The Nasdaq Stock Market, was approximately $254,000,000 (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 March 14, 1997 was: 7,694,628. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following document, to the extent specified in this report, are incorporated by reference in the Part III of this report: Document Incorporated by reference in: ------------------------------ ----------------------------- Proxy Statement for 1997 Annual Meeting of Shareholders Part III, Items 10-13 2 PART I ITEM 1: DESCRIPTION OF BUSINESS GENERAL Perceptron, Inc. ("Perceptron" or the "Company") designs, manufactures and markets information based process measurement and guidance solutions which help customers improve performance by providing process control systems that precisely measure and monitor component parts for conformance to design intent, systems that guide robots to perform precise tasks on the assembly line and systems that address certain other applications. Perceptron's product offerings are designed to improve productivity, increase product quality and decrease costs in the manufacturing workplace. The Company has two distinct three-dimensional machine vision technologies: TriCam(TM) and LASAR(TM). The TriCam technology uses structured laser light triangulation techniques to obtain accurate three-dimensional measurements. This third-generation system, introduced in late 1993, is primarily used to measure formed parts for process control, to provide robot guidance for automated assembly tasks and to perform non-contact alignment functions. LASAR technology uses laser radar technology and provides accurate three-dimensional measurements of all points in a scene over a larger field of view than does TriCam. The systems that employ TriCam technology have been primarily sold to the automotive industry. However, these products have also been sold into other industries, such as the appliance industry and the forest and wood products industry. Over 500 of the Company's three-dimensional machine vision systems, incorporating over 11,000 non-contact sensors, have been installed worldwide. LASAR based systems have been sold primarily to the forest and wood products industry. Perceptron believes that there may be potential applications for the LASAR system in a number of diverse industries. The foregoing statement may be deemed to be a "forward looking statement" within the meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). See "Business Strategy" for a discussion of certain factors affecting the Company's expansion plans. Perceptron's design philosophy is to create systems which incorporate sophisticated proprietary software and hardware to minimize the need for customer application engineering. The Company's products are used by factory-floor personnel for in-line manufacturing or in other operating environments, are re-configurable and are amenable to networking. The systems provide graphical displays, in addition to numerical reports. From its incorporation in 1981 until August 1992, Perceptron's Common Stock ("Common Stock") was held by private investors. On August 20, 1992, the Company completed the Initial Public Offering ("IPO") of shares of its Common Stock. In 1995, the Company announced a three-for-two stock split of the Company's Common Stock in the form of a stock dividend payable on November 30, 1995 to shareholders of record on November 20, 1995. All reported historical information has been adjusted accordingly to reflect the impact of this stock split. On February 3, 1997, the Company consummated its acquisition of Autospect, Inc. ("Autospect") through the merger of a wholly owned subsidiary of the Company with and into Autospect for aggregate consideration consisting of 387,093 shares of Common Stock of the Company. Autospect, based in Ann Arbor, Michigan, designs, develops and manufactures information-based coatings inspection and defect detection systems primarily for use in the automotive industry. Historical financial information included in the Form 10-K for 1996 or prior periods does not include any financial results for Autospect, except where indicated. The Company recently signed letters of intent to acquire Trident Systems, Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose"). The closing of these acquisitions is subject to a number of factors, including the negotiation, approval and execution of definitive documents and completion of satisfactory due diligence. The proposed consideration for these acquisitions will be shares of Common Stock of the Company, aggregating less than 5% of the outstanding Common Stock. Trident is a full service systems integrator for the solid woods sector of the forest and wood products industry, providing applications that address a wide spectrum of mill processes. Trident and the Company are currently parties to a sales agreement pursuant to which Trident purchases TriCam and LASAR based systems from the Company for integration into systems sold by Trident to the forest and wood products industry. Nanoose, based in British Columbia, Canada, is a software design and engineering company, specializing in industrial scanning and optimization systems primarily for the forest and wood products industry. Optimization software written by Nanoose is an important element of the systems sold by Trident to the forest and wood products industry. This software accepts scanner information from the Company's TriCam and LASAR systems. 2 3 The Company was incorporated in Michigan in 1981. Its headquarters are located at 47827 Halyard Drive, Plymouth, Michigan 48170-2461, (313) 414-6100. The Company also has operations in Munich, Germany; Rotterdam, The Netherlands; Sao Paulo, Brazil and Nagoya, Japan. PRODUCT OVERVIEW TriCam and LASAR. The Company's two families of laser based three-dimensional machine vision systems, TriCam and LASAR, use solid-state lasers, proprietary high speed electronics and optics to capture three-dimensional images. The captured images are then converted into dimensions or locations by proprietary digital signal processing electronics and a sophisticated rectification process. Perceptron's products provide its customers with solutions for a variety of applications. The TriCam family of products uses structured laser light triangulation techniques for obtaining accurate three-dimensional measurements. LASAR sensors incorporate a completely different technology, known as light detection and ranging (LIDAR or laser radar), to obtain three-dimensional imagery. In such imagery, the distance (range) to every point in the image is directly indicated, thus providing the basis for modeling and measuring an entire scene. TriCam based systems are currently used to measure large formed parts for process control, to provide robot guidance for automated assembly tasks, to provide non-contact measurement capability for wheel alignment systems in automotive assembly plants and for certain applications in non-automotive industries. The Company's LASAR sensors provide accurate three-dimensional images over a larger field of view than does TriCam. With the increased emphasis on continuous improvement in manufacturing as a fundamental strategy to simultaneously reduce cost and improve quality, manufacturers are recognizing the need for sophisticated process control systems. Capabilities provided by Perceptron products include the following: Measurement. The Company's products are used for in-process measurement of manufacturing performance. The Company's products first locate the process mean relative to design intent, and then measure any part-to-part variation to determine the process range. To rapidly accomplish both of these tasks, measurements must be taken in-process, at line speed rates, with sufficient accuracy to analyze and control the process performance to ensure that the manufactured part is as close to design intent as possible. Deviation from design intent or part-to-part variation in a process result in lower quality and increased cost. Guidance. In many applications, a manufacturing workpiece must be visually and accurately located to guide a robot or an unmanned vehicle to perform its tasks. Autospect. Autospect's products, based primarily on machine vision technology, are used to measure the quality of painted surfaces. The in-line Quality Measurement System (QMS) provides paint process control and trend analysis of the shininess, reflection clarity and smoothness of the painted surface. The in-line Industrial Dirt Counter (IDC) inspects the painted surface for dirt and provides data, such as size, location, and amount of the defects, for both repair information and process trend analysis. Autospect also markets two lighting systems that aid inspectors in the location and repair of painted surface defects. MARKETS To date, the Company has focused its primary marketing efforts on the automotive industry. In January 1996, the Company entered into a sales agreement with Trident Systems, Inc. ("Trident") by which Trident purchases TriCam and LASAR based systems for integration into systems to be sold by Trident to the forest and wood products industry. See "Research and Development". Since December 31, 1995, the Company has received a total of $4.8 million of orders from Trident Systems, Inc. for a combination of TriCam and LASAR sensors. The Company believes that there may be potential applications for its three-dimensional machine vision systems in non-automotive industries as diverse as appliances, forest and wood products, robot and autonomous vehicle guidance, and others. The foregoing statement is a "forward looking statement" within the meaning of the Exchange Act. See "Business Strategy" for a discussion of certain factors affecting the Company's expansion plans. 3 4 PRODUCTS AND APPLICATIONS TriCam Applications. TriCam based three-dimensional machine vision systems are generally incorporated into application specific products used in the manufacture of large formed parts and assemblies, such as vehicles. Three TriCam products, described below, are currently in production. Other applications and products under development are described below under the caption "Research and Development". Assembly Process Control System (P-1000). The P-1000 system has been sold primarily to automotive manufacturers to measure large formed vehicle body parts and assembled vehicle bodies. This system, which has also been sold to the appliance industry, is used by manufacturers of large formed parts and assemblies for process control. Installed directly in the customer's manufacturing line, typically in connection with new model re-tooling programs, the P-1000 system rapidly measures critical dimensions and performs analyses to reduce part-to-part variation and deviations from design intent. By continually measuring and analyzing sources of variation, the manufacturer can more quickly identify and correct manufacturing process faults, thereby preventing defects from reaching the ultimate customer. Completing measurement and analysis tasks within a few seconds, the P-1000 enables customers to shorten the time it would otherwise take to launch a new product. In addition, the P-1000 enables customers to reduce cost and increase both quality and throughput by measuring and analyzing sources of variation to achieve continuous process improvement. Robot Guidance System for automated assembly (RGS). The RGS system, which is used for flexible assembly, incorporates TriCam sensors and high speed digital process electronics and proprietary software to provide robots three-dimensional visual guidance to perform a variety of automated assembly tasks. The RGS optically locates the position on an object and instructs a robot to perform work on the located object. This product was developed in cooperation with Mercedes-Benz, which provided specifications to enable the system to address a broad range of applications. Other automotive companies, including General Motors, Ford, Volvo, BMW and Opel, are currently using RGS systems. Worldwide, over 100 RGS systems have been installed to date. The RGS system is currently used primarily by automotive companies in the following applications, among others: windshield insertion, door assembly and installation, hood and trunk lid installation, fuel tank installation, fender mounting and instrument panel installation. Non-Contact Wheel Alignment System (NCA). The NCA system, which uses TriCam three-dimensional machine vision technology, was developed in close cooperation with Ford Motor Company, which helped fund and was instrumental in testing the technology. The NCA system is incorporated into original equipment manufacturers' ("OEM's") wheel alignment equipment. The NCA system offers a fast and accurate non-contact method to align wheels, which reduces costly in-plant maintenance of mechanical wheel alignment equipment. Since 1993, the Company, pursuant to a long-term licensing agreement with Schenck Komeg of Germany, has been supplying NCA systems to the automotive market in Europe, China and Taiwan. The Company recently amended its licensing agreement with Schenck Komeg to permit the Company to license others to sell the NCA in Europe and other markets currently covered by Schenck Komeg's license. The Company has recently entered into an agreement to supply Burke Porter with NCAs. 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. The Company has sold NCA systems to a number of domestic OEM's who installed these systems into various North American automotive assembly plants. To date, Perceptron has delivered over 90 NCA systems worldwide. Autospect Products. The QMS-I checks the painted surface quality of each car as it exits the paint oven, providing quality trend analysis and process control information by car color, model, shift, etc. With this information corrective action can be taken before quality drops below acceptable levels. The QMS-I interfaces with the Autospect "Paint Process Monitor" (PPM), a network that sends the trend data and quality data to the plant and corporate paint supervision. The QMS-Battery Portable (QMS-BP) is a hand held meter providing the same readings as the QMS-I and is used to monitor incoming parts, and is used in paint laboratories. The Industrial Dirt Counter (IDC), released in 1997, checks the amount of dirt and other defects that affect the painted surface quality. The system prints out a profile of the car and shows the location of the defects to assist in repair. The system also provides trend analysis and process control information to assist management in controlling the process. The IDC interfaces with the Autospect "Dirt Process Monitor" (DPM) which is a network that sends the trend and quality data to those responsible for supervision of the paint process. 4 5 The Lightwave and Swirl Detection Lighting Systems aid the inspection of painted surfaces, helping the inspectors to find and repair surface defects in a more efficient and reliable manner. Lightwave is distributed by Autospect in North America pursuant to the terms of a distributor agreement with a foreign entity. PROPRIETARY SOFTWARE MODULES The heart of the Company's products are a number of sophisticated proprietary software modules which enable the Company to provide easy-to-use, customer-configurable, application specific products. The software modules are provided in four integrated levels: Level I. The first level of software implementing machine vision algorithms convert the digital images from the sensors into meaningful dimensional information. This software also performs the complex coordinate transformation and calibration functions required for the high resolution and accuracy of the measurement results offered by Perceptron's products. Level II. The second level analyzes the dimensional information and presents it in an assortment of reports to provide process status information at a glance. Additional software modules further analyze the information and provide it in the form of histograms, Pareto diagrams, X-bar and Range charts and other useful process control formats. Level III. The third level provides ease of use proprietary software for customer set up. Through a graphical CRT interface, the system operator can completely configure the system, telling it what to measure, where to measure, how to measure and how to display the measurements. This sophisticated software capability, which management believes adds significant value to Perceptron products, offers customers the ability to re-configure the system rapidly and easily. Level IV. The fourth level provides network access and database management capabilities in a client/server environment within a plant (intra-plant communications) and between plants via remote access (inter-plant communications). This capability provides wide distribution of the data presentation obtained from Level II software. BUSINESS STRATEGY The Company seeks to expand its customer base and markets. To do this, the Company has embraced a four-pronged strategy: - Increase the number of automotive plants served annually. Many automotive assembly plants continue to use off-line, sampling measuring techniques which the Company believes places such plants at a competitive disadvantage to those that use Perceptron equipment, which, in the case of the P-1000, is in-line and measures 100% of the manufactured parts. Perceptron intends to continue to work with automotive customers to help them achieve even greater efficiencies in their processes. - Increase product sales within a given automotive plant through derivative products. The RGS and the NCA systems are examples of derivative products that meet additional needs of automotive customers. In addition, the Company's recent acquisition of Autospect expands the product line offered by the Company at a given automotive plant to include the paint line. The Company plans to continue to introduce new products, such as those described below under the caption "Research and Development". - Expand customer base to include first tier suppliers to the automotive industry. The Company believes opportunities exist with these suppliers as they begin to conform to the new quality standards of the international automotive companies. Toward this strategy, an order totaling $2.8 million was received in December 1996 from a major first-tier supplier. - Migrate existing and future information-based machine vision technologies into new markets. Perceptron is increasing its activity with potential customers and evaluating potential applications for its products in industries as diverse as appliance assembly, forest and wood products, steel processing, robot guidance and others. Sales in non-automotive markets totaled approximately 5% of the 1996 net sales. The foregoing statements may be deemed to be "forward looking statements" within the meaning of the Exchange Act. The Company's ability to expand its customer base and markets and to successfully execute the strategies set forth above involves a number of uncertainties, including, but not limited to, 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, the ability of the Company to resolve technical 5 6 issues inherent in the development of new products and technologies, the ability of the Company to identify and satisfy market needs, general product development and commercialization difficulties, the continuation or acceleration of the automotive industries' retooling programs, rapid or unexpected technological changes, general product demand and market acceptance risks, the ability of the Company to successfully compete with alternative and similar technologies, the ability of the Company to negotiate satisfactory acquisition agreements with Trident and Nanoose and risks inherent in completing and integrating acquisitions generally, and the effect of economic conditions. There can be no assurance that the Company will be able to expand its customer base and markets or successfully execute the strategies set forth above. SALES AND MARKETING To date, the Company has marketed its systems either directly to the end users of the Company's systems, or to system integrators, value-added resellers (VAR's) or original equipment manufacturers (OEM's) who in turn sell to the same end users. The Company's direct marketing efforts are conducted 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' senior executives. The Company intends to continue this marketing strategy for its assembly process control systems (P-1000), and for products offered by Autospect. With respect to the RGS system for robot guidance, the NCA system for wheel alignment and sales to the forest and wood products industry, the Company's marketing strategy is focused primarily on sales to system integrators, OEM's and VAR's 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 OEM's. 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 year ended December 31, 1996, approximately 67% of total revenues were derived from three domestic automotive companies (General Motors, Ford and Chrysler). For the years ended December 1995 and 1994, approximately 64% and 83%, respectively, of total revenues were derived from the same three customers. Approximately 85% of 1996 revenues for Autospect were derived from the same three domestic auto companies. CUSTOMER SUPPORT The Company's support program for automotive customers begins at the pre-sales phase with customer consultation regarding strategic dimensional control strategy for vehicle production. The outcome of this consultation is incorporated into the Company's sales proposals. In selected instances, particularly with respect to the P-1000 assembly process control system and the RGS system, the Company's application and project engineering group works closely with the customers' tooling engineers. The customer education group offers extended technical education for the customers' plant personnel in metrology and process control techniques. Extended education contracts generally continue for 12 months. The Company provides similar support to the system integrators, VAR's and OEM's who resell the Company's systems to end users. Ongoing hardware and software enhancements to the Company's installed products are provided through service contracts or through individual purchase orders. The Company strives to achieve total customer satisfaction through account teams that provide customers with dedicated sales, customer service, application and project engineering and customer education staff. Autospect supports its customers with pre-sales consultation regarding process control and cost saving benefits derived from the use of its products. After sale of the products, the Autospect Product Engineering and Installation Team works closely with the customer to efficiently integrate the system into the plant, and after installation, to train the customer's personnel on the use and maintenance of the system. After installation, Autospect personnel monitor the system's operation and provide preventative maintenance. 6 7 RESEARCH AND DEVELOPMENT 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 has announced three products which are in late stages of development: Optical Checking Fixture (OCF). The OCF is a non-contact three-dimensional surface scanner, which employs TriCam technology. The Company plans to market OCF to both automotive and non-automotive customers for use as a process control device to precisely measure and monitor large formed parts (stamped or molded) for conformance to design intent. The Company has sold and installed three of the initial versions of this system in automotive customer facilities, and beta testing is continuing. LASAR. LASAR is a three-dimensional machine vision system that employs laser radar technology and provides three-dimensional images over a field of view that is an order of magnitude larger than those covered by TriCam. Perceptron continues to more fully develop the current version of the LASAR system. The Company is currently evaluating a number of different applications within industries as diverse as forest and wood products, robot guidance and others. Dimensional Data Management (DDM). The DDM, which is in beta testing, is a computer system that consolidates in-line measurement data and provides data analysis tools to help identify, trace, and eliminate sources of process variation and deviation from design intent. The DDM product consists of both server and client software. The server collects and stores dimensional data in a single database from Perceptron measurement systems and other measurement devices. The client software provides multiple users, both local and remote, with the capability of monitoring and analyzing dimensional data. 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. In 1993, the Company was awarded a $1.22 million NIST-ATP grant from the United States Department of Commerce for software development related to high-speed image processing techniques for three-dimensional machine vision systems. This grant, now completed, provided the Company $0.4 million in 1994, $0.6 million in 1995, and $0.2 million in 1996. The Company includes all development costs incurred internally and subcontracted to an independent research organization and to a university in engineering, research and development expense, and offsets these costs with any reimbursements due from NIST. Work under this grant has supplied the Company with a substantial repertoire of widely usable and tested machine vision algorithm components for use with its TriCam and LASAR products. In late 1995, Autospect received a $1.8 million NIST grant which will provide funding of $600,000 per year over three years for development of a system to measure the thickness of wet film (e.g. paint). Prototype testing of this system has begun. As of March 14, 1997, 64 persons employed by the Company are focused primarily on research, development and engineering relating to three-dimensional machine vision systems and related software. The Company's laser based systems use sophisticated proprietary software technology, coupled with state-of-the-art hardware. The Company believes that continued leadership in software development is crucial for maintaining and expanding its market position. For the three years ended December 31, 1994, 1995 and 1996, the Company's research, development and engineering expenses were $3.8 million, $4.5 million, and $5.9 million, respectively. In addition to investing directly in R&D, the Company has developed close relationships with the University of Michigan and other research organizations which are recognized as technological leaders. The Company is a member of the Auto Body Consortium (the "ABC"), a group of ten companies in automotive-related businesses and two universities, sponsored by Michigan Future, Inc. a non-profit corporation. Dwight D. Carlson, Vice Chairman of the Board of Directors of the Company, is also Chairman of Board of Michigan Future, Inc. The ABC has created a number of programs to develop improvements in measurement technology and process control techniques for automotive applications. 7 8 BACKLOG As of December 31, 1996, the Company had a backlog of $21.0 million, compared to $16.3 million as of December 31, 1995. 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 backlog by December 31, 1997. MANUFACTURING AND SUPPLIERS The Company's manufacturing operations consist primarily of final assembly and test, together with integrating the Company's software with individual components, including printed circuit boards, which are manufactured by third parties according to Company developed designs. With a low level of vertical integration, the Company believes it gains significant manufacturing flexibility, while minimizing total product costs. Since its inception the Company has strived to continuously improve its proprietary sensor calibration process. This process technology, primarily software-based, allows each sensor to be calibrated throughout its measurable space to rectify any inherent manufacturing errors. The Company believes that this proprietary software reduces the need that would otherwise exist for capital investment in sensor manufacturing. The Company purchases a number of component parts and assemblies from single source suppliers. With respect to most of its components, the Company believes that alternate suppliers are readily available. 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 The Company's European operations have contributed approximately 11%, 31%, and 23% of the Company's revenues during the years ended 1994, 1995, and 1996, 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. Prior to June 23, 1994, a minority shareholder (Cementia S.A.) held a 12.5% equity interest in Perceptron B.V., which was converted into 197,802 shares of Common Stock of Perceptron, Inc. on that date. The Company currently employs twenty-one people in its European operations. Autospect currently offers its products internationally through distributors in Europe. In 1990, the Company began operating a Joint Project Office with Sumitomo, located in Nagoya, Japan. The Joint Project Office is currently staffed by five persons, three employed by the Company and two employed by Sumitomo. Pursuant to an agreement with the Company, Sumitomo engages in sales and marketing efforts in Asia on behalf of the Company, and earns commissions on any sales in Asia. For the years ended December 31, 1994, 1995 and 1996, the Company's Asian operations generated net sales of $0.5 million, $1.4 million, and $1.1 million, respectively. The Company is in the process of establishing a sales 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 11 to the Consolidated Financial Statements, "Foreign Operations". On November 26, 1996, the Company's German subsidiary acquired the assets of a division of HGV Vosseler GmbH ("HGV") engaged in the development and sale of non-contact three-dimensional measurement systems for aggregate consideration consisting of 82,150 shares of Common Stock of the Company and DM 300,000. The assets acquired include certain patents, patent applications and other intellectual property, hardware, software, customer lists, and a non-competition agreement. COMPETITION The Company is not aware of any other entity having three-dimensional machine vision systems that are as advanced, in terms of completeness of the solutions provided, as those offered by the Company and sold into those markets that the Company serves. The Company is, however, aware of a number of companies that sell similar and/or alternative technologies and methods into the same markets. 8 9 In 1990, the Company purchased certain assets from Diffracto Corporation ("Diffracto") of Canada, a former direct competitor, and entered into agreements pursuant to which Diffracto and certain Diffracto employees agreed not to compete with the Company for a period of five years in certain product areas ("Diffracto non-compete agreements"). These agreements expired in July 1995. The assets acquired by the Company from Diffracto include the designs and technology incorporated into the Diffracto "Z Sensor" gauging systems, as well as a paid up non-exclusive license for fifty-five U.S. patents, forty-six of which are still in force. In June 1996, the Company filed suit against Diffracto and certain of the parties subject to the Diffracto Non-compete Agreements alleging breaches of the Diffracto Non-compete Agreements prior to their expiration and that products currently offered and sold by such persons use the technology acquired by Perceptron in violation of Diffracto's agreements with the Company. The Company believes that the principal competitive factor in Autospect's markets is the total capability as a process control system and that Autospect's products compete favorably with similar and alternative technologies in this regard. The Company is aware of one foreign and one domestic competitor for Autospect's portable version of its QMS products and one domestic competitor for the lighting system. The Company is not aware of any direct competition for Autospects' other products. The Company believes that there may be other entities, some of whom 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. PATENTS, TRADE SECRETS AND CONFIDENTIALITY AGREEMENTS The Company considers its software and hardware to be proprietary and seeks to protect its technology through a combination of patents, copyrights, trade secrets, confidentiality and other agreements. The Company deems its patents and patent applications to be materially important to its business. However, the Company also believes that its success depends upon its trade secrets and proprietary know-how, innovative skills, technical competence and marketing abilities of its employees. There can be no assurance that any of the above measures will be adequate to protect this proprietary technology. The Company, including Autospect, owns nine U.S. patents and ten 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 corresponding foreign patents in Canada, Europe, and Japan. The Vosseller acquisition also adds several patent applications in foreign locations. These U.S. patents expire from 2002 through 2010 and the Company's existing foreign patent rights expire from 2008 through 2011. 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. One such customer is currently engaged in litigation relating to such matter. This customer has notified various companies from which it has purchased such equipment, including the Company, that it expects the suppliers of such equipment to indemnify such customer, on a pro-rata basis, for expenses and damages, if any, incurred in this matter. Management believes, however, that the processes and methods used in the Company's products were independently developed by the Company 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, it is not possible to estimate the ultimate effect, if any, this matter may have upon the Company's financial position and results of operations. On March 13, 1996, a complaint was filed naming the Company as a defendant, along with Trident and Nanoose, in an action alleging that the Company's TriCam sensor violates a patent held by the plaintiff and seeking preliminary and permanent injunctions and damages. Management believes that its TriCam sensor was independently developed without utilizing any previously patented process or technology and intends to vigorously defend its position. The Company has registered, and continues to register, various trade names and trademarks, including PERCEPTRON, DATACAM, LASAR, VERISTAR, and TRICAM, among others, which are used in connection with the conduct of its business. Autospect has applied for registration of the AUTOSPECT trade name. 9 10 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. EMPLOYEES As of March 14, 1997, the Company employed 203 persons. Of these persons, 64 were in research, development and engineering, 32 in sales, marketing and support, 90 in operations, applications and project engineering and 17 in general administration and finance. None of the employees are covered by a collective bargaining agreement and the Company believes its relations with its employees to be good. At present, Autospect employs 36 persons. ITEM 2: FACILITIES Perceptron's principal facilities consist of a 70,000 square foot building located in Plymouth, Michigan, owned by the Company. Autospect conducts its operations from a 20,500 square foot leased facility in Ann Arbor, Michigan. In addition, the Company leases a 3,500 square foot facility in Munich, Germany, a 1,000 square foot facility in Rotterdam, The Netherlands, an office in Brazil and utilizes the Joint Project Office facility in Nagoya, Japan provided by Sumitomo. The Company believes that its current facilities are sufficient to accommodate its requirement through 1997. ITEM 3: LEGAL PROCEEDINGS On March 13, 1996, a complaint was filed in the United States District Court, Western District of Washington, by Applied Scanning Technology, Inc. naming the Company as a defendant, along with two other co-defendants (Trident Systems, Inc. and Nanoose Systems Corporation), in an action alleging that the Company's TriCam sensor violates a patent held by the plaintiff and seeking preliminary and permanent injunctions and damages. Management believes that its TriCam sensor was independently developed without utilizing any previously patented process or technology and intends to vigorously defend its position. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No response to Item 4 is required. 10 11 PART II ITEM 5: MARKET FOR THE REGISTRANTS'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 periods indicated:
Period Prices --------------------------------------------------------- ------ Low High ------ ------ 1995 --------------------------------------------------------- First Quarter ........................................... $9.83 $15.33 Second Quarter .......................................... $11.00 $14.50 Third Quarter ........................................... $13.17 $19.33 Fourth Quarter .......................................... $14.33 $24.83 1996 --------------------------------------------------------- First Quarter ........................................... $17.75 $27.00 Second Quarter .......................................... $25.50 $39.00 Third Quarter ........................................... $24.50 $37.75 Fourth Quarter .......................................... $23.50 $37.50 1997 --------------------------------------------------------- First Quarter (January 1, 1997 through March 14, 1997) .. $31.75 $38.13
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. The Company is prohibited under the terms of its bank line of credit from the payment of cash dividends or from purchasing or retiring any of its capital stock without written consent from its bank. The approximate number of shareholders of record on March 14, 1997, was 330. On November 26, 1996, the Company issued 82,150 shares of its Common Stock in connection with the acquisition by its German subsidiary of certain assets of a division of HGV Vosseler GmbH ("Vosseler"). The issuance was made pursuant to Regulation D promulgated under the Securities Act of 1933, as amended. Vosseler is engaged in the development and sale of non-contact three dimensional measurement systems. 11 12 ITEM 6: SELECTED CONSOLIDATED FINANCIAL INFORMATION PERCEPTRON, INC. AND SUBSIDIARIES (In thousands, except per share data)
Years Ended December 31, -------------------------------------------------------- Statement of Operations Data(2): 1996 1995 1994 1993 1992 ---------- ------------ ------------ ------- ------- (as restated) Net sales $49,679 $37,291 $27,835 $17,022 $14,462 Gross profit 30,690 23,116 16,807 10,045 8,528 Income from operations(1) 10,178 7,388 5,720 2,907 2,267 Net income before provision for income tax(1) 10,964 7,927 5,839 2,702 1,824 Net income(1) 7,894 8,409 5,839 2,702 1,824 Net income per weighted average common and common equivalent share(1) $1.03 $1.16 $.83 $.45 $.37 Weighted average common and common equivalent shares 7,636 7,258 6,998 5,973 4,908
As of December 31, -------------------------------------------------------- Balance Sheet Data: 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------ Working capital $35,089 $27,831 $18,620 $12,605 $6,555 Total assets 56,896 38,581 24,507 16,138 8,966 Shareholders' equity 46,504 30,358 19,737 13,451 7,251
- --------------- (1) Excluding amounts for non-cash stock option compensation expense (See Note 2 to the Consolidated Financial Statements), the reported amounts would have been:
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Income from operations 13,380 8,765 5,720 2,907 2,267 Net income before provision for income tax 14,166 9,304 5,839 2,702 1,824 Net income 9,916 9,304 5,839 2,702 1,824 Net income per weighted average common and common equivalent share $1.30 $1.28 $.83 $.45 $.37
(2) No cash dividends have been declared or paid during the periods presented. 12 13 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Perceptron, Inc. ("Perceptron" or the "Company") was founded in September 1981, and operated as a development stage company through 1982. From 1983 through 1987, the Company continued to incur significant product development expenses as it redesigned and modified the initial triangulation based three-dimensional machine vision system using laser technology in response to customer input. The Company commenced production and shipment of its initial products in 1984. In early 1988, the Company introduced its second-generation (DataCam) system, and in late 1993, released the third-generation (TriCam) version of its three-dimensional machine vision system. The Company also offers its proprietary LASAR based three-dimensional machine vision system, which employs laser radar technology and generates three-dimensional images over a larger field of view than do TriCam based systems. The Company's products have been sold primarily to North American, European and Asian automobile manufacturers. Sales to automotive customers typically depend on new model re-tooling programs. Accordingly, sales may vary significantly among customers on a year-to-year and quarter-to-quarter basis. On November 26, 1996, the Company's German subsidiary acquired the assets of a division of HGV Vosseler GmbH ("Vosseler") engaged in the development and sale of non-contact three-dimensional measurement systems for aggregate consideration consisting of 82,150 shares of Common Stock and DM 300,000 and recorded $2.3 million in intangible assets relating to the acquisition. See Note 13 to the Consolidated Financial Statements. On February 3, 1997, the Company consummated its acquisition of Autospect, Inc. ("Autospect") through the merger of a wholly owned subsidiary of the Company with and into Autospect for aggregate consideration consisting of 387,093 shares of Common Stock of the Company. Autospect, based in Ann Arbor, Michigan, designs, develops and manufactures information-based coatings inspection and defect detection systems primarily for use in the automotive industry. The transaction will be accounted for as a pooling of interests. Autospect's revenues for 1997 are expected to represent less than ten (10%) percent of the Company's total revenues and to be slightly accretive to earnings per share for 1997. The Company recently signed letters of intent to acquire Trident Systems, Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose"). The closing of these acquisitions is subject to a number of factors, including the negotiation, approval and execution of definitive documents and completion of satisfactory due diligence. The proposed consideration for these acquisitions will be shares of Common Stock of the Company, aggregating less than 5% of the outstanding Common Stock. Trident and Nanoose's revenues for 1997 are expected to represent at least ten (10%) percent of the Company's total revenues and to be slightly accretive to earnings per share for 1997. Trident is a full service systems integrator for the solid woods sector of the forest and wood products industry, providing applications that address a wide spectrum of mill processes. Trident and the Company are currently parties to a sales agreement pursuant to which Trident purchases TriCam and LASAR based systems from the Company for integration into systems sold by Trident to the forest and wood products industry. Nanoose, based in British Columbia, Canada, is a software design and engineering company, specializing in industrial scanning and optimization systems. Optimization software written by Nanoose is an important element of the systems sold by Trident to the forest and woods products industry. This software accepts scanner information from the Company's TriCam and LASAR systems. 13 14 The foregoing statements regarding Autospect's 1997 revenues and earnings and the Company's acquisitions of Trident and Nanoose and the impact of such acquisitions, if consummated, on 1997 revenues and earnings are "forward looking statements" within the meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). See "Business Strategy" for a discussion of certain factors affecting such revenues and earnings and the acquisitions of Trident and Nanoose. RESULTS OF OPERATIONS Year Ended December 31, 1996, Compared to Year Ended December 31, 1995 Net Sales. Net sales, of which substantially all are attributable to the automotive market, consist primarily of product sales together with training and service revenue. The Company's net sales increased by 33% from $37.3 million in 1995 to $49.7 million in 1996. Net sales in the North American market increased from $24.3 million in 1995 to $37.0 million in 1996. Net sales in the European and Asian markets decreased from $13.0 million in 1995 to $12.7 million in 1996. P-1000 systems accounted for 79% of net sales in 1995 and 74% of net sales in 1996. The RGS and NCA systems combined accounted for 14% of net sales in both 1995 and 1996. Non-automotive sales accounted for 5% of net sales in 1996 and less than 1% in 1995. Training and service revenues and other product sales accounted for the remainder of net sales in both years. New order bookings for 1995 totaled $42.3 million, compared to $54.4 million in 1996. North American orders were up from $29.4 million in 1995 to $39.5 million in 1996 and European and Asian orders were up from $12.9 million in 1995 to $14.9 million in 1996. P-1000 systems accounted for 76% of new order bookings in 1995 and 78% in 1996. Gross profit. Gross profit increased from $23.1 million in 1995 to $30.7 million in 1996, and as a percentage of net sales decreased from 62.0% in 1995 to 61.8% in 1996. The decrease is due primarily to the lower gross profit percentage associated with one specific sale by the Company of a new product, which was integrated into equipment acquired from an original equipment manufacturer ("OEM"), and sold as a complete system. Selling, general and administrative expenses. Selling, general and administrative expenses increased by 16% from $9.9 million in 1995 to $11.5 million in 1996. This increase is due primarily to increases in personnel and various operating expenses required to support the increased 1996 operating activity and, to a lesser extent, to increased management performance bonuses. The Company's 1996 selling, general, and administrative expenses included a charge of $113,000 for stock option compensation expense related to the 1993 grants of performance based stock options, compared to a charge of $325,000 in 1995. As a percentage of net sales, selling, general and administrative expenses decreased from 26.5% in 1995, to 23.1% in 1996. Engineering, research and development. Engineering, research and development expenses increased by 31%, from $4.5 million in 1995, to approximately $5.9 million in 1996, due primarily to increased personnel and, to a lesser extent, to increased expenditures for materials associated with products under development. As a percentage of net sales, engineering, research and development expenses decreased from 12.0% in 1995 to 11.8% in 1996 principally due to the higher sales base. Non-cash stock compensation expense. Beginning in late 1994, some participants in the Company's stock option plan have used Perceptron stock options to pay the exercise price of stock options issued under the plan. The Company was recently advised that accounting rules require the recording of a non-cash compensation expense relating to certain of these exercises during 1996 and 1995. See Note 2 to the Consolidated Financial Statements for further information. The Company has restated its financial statements to record non-cash stock compensation expense of $1.4 million in the fiscal 1995 and $3.2 million in 1996. The effect of this non-cash stock compensation charges on net income for fiscal 1995 was a reduction of $.12 per share, and for 1996 was $0.27 per share. The Company has taken action to eliminate the provision in its stock option plans which 14 15 otherwise might result in similar non-cash stock compensation expense in 1997 and future years, including seeking to amend all outstanding stock option agreements to require options to be exercised only in a manner which does not result in non-cash stock compensation expense. Interest income, net. Interest income, net, increased from approximately $0.5 million in 1995 to $0.8 million in 1996, due to increased cash balances and related investing activities during 1996. Income before provision for income taxes. In 1995, Perceptron had income before provision for income taxes of approximately $7.9 million representing 21.3% of net sales, as compared to 1996 income before provision for income taxes of approximately $11.0 million representing 22.1% of net sales. Without the non-cash stock compensation charge, the results for 1995 would have been $9.3 million, or 25% of net sales, as compared to $14.2 million, or 28.5% of net sales in 1996. Provision for income taxes. For U.S. federal income tax reporting purposes, as of December 31, 1996, there were no net operating loss carryforwards available. Investment tax and research and development credits of $0.7 million were available to benefit future U.S. earnings. For financial reporting purposes, because the Company anticipated would utilize certain of these carryforwards and credits, a deferred tax asset was recorded in 1995, representing the estimated tax benefit of these items. As a result, a tax benefit of $482,000 was recorded for the year ended 1995, principally due to the tax benefits attributable to non-cash stock compensation expense. See Note 8 to the Consolidated Financial Statements, "Income Taxes". For the year ended December 31, 1996, the Company recorded a $3.1 million provision for income taxes, representing an estimated effective tax rate of 28%. Net income. Net income in 1995 was $8.4 million, or 22.5% of net sales, resulting in $1.16 per share based on 7.3 million shares and equivalents outstanding on a weighted average basis. In 1996, net income was $7.9 million, or 15.9% of net sales, resulting in $1.03 per share based on 7.6 million shares and equivalents outstanding on a weighted average basis. Without the non-cash stock compensation expense, net income for 1995 would have been $9.3 million, or 24.9% of net sales, resulting in $1.28 per share. Excluding the non-cash stock option compensation expense, the 1996 net income would have been $9.9 million, 20% of net sales, or $1.30 per share, compared to the 1995 earnings, as if taxed at a comparable rate, of $6.7 million, 18% of net sales or $.92 per share. Year Ended December 31, 1995, Compared to Year Ended December 31, 1994 Net Sales. Net sales, of which substantially all are attributable to the automotive market, consist of product sales together with training and service revenue. The Company's net sales increased by 34% from $27.8 million in 1994 to $37.3 million in 1995. Net sales in the North American market increased slightly from $24.2 million in 1994 to $24.3 million in 1995. Net sales in the European and Asian markets increased from $3.6 million in 1994 to $13.0 million in 1995, as a result of increased demand from the European and Asian automotive industry. The P-1000 systems accounted for 80% of net sales in 1994 and 79% of net sales in 1995. The RGS and NCA systems combined accounted for 12% and 14% of net sales in 1994 and 1995, respectively. Training and service revenues accounted for less than 10% of net sales in both years. New order bookings for 1994 totaled $30.9 million, compared to $42.3 million in 1995. North American orders were up from $25.5 million in 1994 to $29.4 million in 1995 and European and Asian orders were up from $5.4 million in 1994 to $12.9 million in 1995. The P-1000 systems accounted for 78% of new order bookings in 1994 and 76% in 1995. Gross profit. Gross profit increased from $16.8 million in 1994 to $23.1 million in 1995, and as a percentage of net sales increased from 60.4% in 1994 to 62.0% in 1995. The Company charged cost of sales for increased reserves for obsolete inventory by $340,000 in 1994 and $125,000 in 1995. Without these charges, gross profit for 1994 and 1995 would have been 61.6% and 62.3%, respectively. 15 16 Selling, general and administrative expenses. Selling, general and administrative expenses increased by 36% from $7.3 million in 1994 to $9.9 million in 1995. This increase is due primarily to increases in personnel and various operating expenses required to support the increased 1995 operating activity and, to a lesser extent, to increased management performance bonuses. The Company's 1995 selling, general and administrative expenses included a charge of $325,000 for stock option compensation expense related to the 1993 grants of performance based stock options, compared to a charge of $390,000 in 1994. As a percentage of net sales, selling, general and administrative expenses increased slightly from 26.2% in 1994, to 26.5% in 1995. Engineering, research and development. Engineering, research and development expenses increased by 17%, from $3.8 million in 1994, to approximately $4.5 million in 1995, due primarily to increased personnel and, to a lesser extent, to increased expenditures for materials associated with products under development. The expenses in 1994 included a one-time charge of $160,000 for costs incurred in connection with a customer specific development project, as well as one-time redesign costs of $85,000. Without these one-time 1994 costs, engineering, research and development costs would have increased by 25% in 1995 as compared to 1994. As a percentage of net sales, engineering, research and development expenses decreased from 13.7% in 1994 to 12% in 1995 principally due to the higher sales base and, to a lesser extent, to the one time charges and costs in 1994. Non-cash stock compensation expense. Beginning in late 1994, some participants in the Company's stock option plan have used Perceptron stock options to pay the exercise price of stock options issued under the plan. The Company was recently advised that accounting rules require the recording of a non-cash compensation expense relating to certain of these exercises during 1996 and 1995, including $1.4 million in 1995. See Note 2 to the Consolidated Financial Statements for further information. The Company has restated its financial statements to record non-cash stock compensation of $1.4 million, or net of taxes, of $895,000 for 1995. The effect of this non-cash stock compensation charge on net income for 1995 was a reduction of $.12 per share. Interest income, net. Interest income, net, increased from approximately $119,000 in 1994 to $539,000 in 1995, due to increased cash balances and related investing activities during 1995. Net income. In 1994, Perceptron had net income of approximately $5.8 million representing 21.0% of net sales, or $0.83 per share based on 7.0 million shares, as compared to 1995 net income of approximately $8.4 million representing 22.5% of net sales, or $1.16 per share on 7.3 million shares. During 1995, there was a tax benefit for income taxes in the Consolidated Statement of Income of $482,000 principally due to the tax benefits attributable to the non-cash stock compensation expense. See Note 8 to the Consolidated Financial Statements, "Income Taxes". LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents as of December 31, 1996 totaled approximately $14.7 million, as compared with approximately $15.0 million as of December 31, 1995. This decrease was due primarily to increased capital expenditures relating to the construction of the Company's new facility in Plymouth, Michigan, and increased working capital requirements, partially offset by an increase in cash represented by income from operating activities during 1996. The Company has unsecured credit facilities totaling $4.0 million U.S. and 1.0 million DM. These facilities may be used to finance working capital needs and equipment purchases or capital leases. Any borrowings for working capital needs will bear interest at the bank's prime rate (8.25% as of March 14, 1997); any borrowings to finance equipment purchases will bear interest at the bank's prime rate plus 1/2%. The credit facilities expire on May 31, 1997 unless canceled earlier by the Company or the bank. As of December 31, 1996, Perceptron had no outstanding borrowings on these facilities. The Company expects to renew these credit facilities. 16 17 The credit facility requires the Company to maintain a minimum amount of tangible net worth and a minimum debt to tangible net worth ratio. The facility also prohibits the Company from paying dividends, acquiring or retiring any of its capital stock, or incurring any other debt, liens, or guarantying any third party debt. The Company's working capital increased to $35.1 million at December 31, 1996, from $27.8 million at December 31, 1995. Accounts receivable increased from $14.3 million as of December 31, 1995 to $20.9 million as of December 31, 1996 primarily as a result of increased sales. The increase of approximately $1.9 million in inventory is due primarily to an increase in component parts inventory in preparation for delivery of products to customers during 1997. The increase of $2.2 million in current liabilities is due primarily to an increase in accounts payable and accrued expenses relating to the increased operating activity in 1996 and progress payments due on the new facility. As a result of the reduced net income due to the non-cash stock option compensation expense and tax overpayments in Germany, an income tax receivable was recorded of $2.1 million. The Company does not believe that inflation has had any significant impact on reported historical operations, and does not expect any significant near-term inflationary impact. The Company believes that cash on hand and existing credit facilities will be sufficient to fund its currently anticipated 1997 cash flow requirements. The Company expects to expend approximately $3.0 million during 1997 for capital equipment, although there is no binding commitment to do so. For a discussion of certain contingencies relating to the Company's financial position and results of operations, see Note 10 to the Consolidated Financial Statements, "Contingencies". In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128 specifies the computation, presentation, and disclosure requirements for earnings per share. The Company will adopt FAS 128 as of December 31, 1997 (earlier adoption is not permitted). Once management has determined the impact of adoption of FAS 128, the Company will disclose the results. RECENT DEVELOPMENTS The Company believes that new order bookings for the first quarter of 1997 will be more than double the $7.5 million of new order bookings reported in the first quarter of 1996. However, because of the granular nature of the Company's business, a portion of the revenues planned to be booked and shipped during the first quarter of 1997 are now expected to be booked and shipped during the second quarter of 1997. In addition, certain anticipated first quarter 1997 orders did not materialize. Accordingly, the Company's first quarter revenues and earnings will be adversely affected. The foregoing statements may be 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, but not limited to, the dependence of the Company's revenues on a limited number of sizable orders from a small number of customers, the timing of orders, which can cause the Company to experience significant fluctuations in its quarterly and annual revenues and operating results, general product demand and market acceptance risks, the ability of the Company to successfully compete with alternative and similar technologies, the ability of the Company to resolve technical issues inherent in the development of new products and technologies, the ability of the Company to identify and satisfy market needs, general product development and commercialization difficulties, 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, the timing and continuation of the automotive industry's retooling programs, rapid or unexpected technological changes, and the effect of economic conditions. 17 18 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page ---- Report of Independent Accountants ................................... 19 Consolidated Financial Statements: Balance Sheets - December 31, 1996 and 1995 ................... 20 Statements of Income for the years ended December 31, 1996, 1995 and 1994 .............................. 21 Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 .......... 22 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 ................................................. 23 Notes to Consolidated Financial Statements .................... 24-31
18 19 [COOPERS & LYBRAND LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Perceptron, Inc.: We have audited the accompanying consolidated balance sheets of Perceptron, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows, and the financial statement schedule referred to in item 14A.(2) for each of the three years in the period ended December 31, 1996. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express and opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Perceptron, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Detroit, Michigan January 31, 1997, except as to note 14 for which the date is February 3, 1997 19 20 PERCEPTRON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, --------------------------- 1996 1995 --------------------------- ASSETS (as restated) - ------ Current assets: Cash and cash equivalents $14,666,000 $ 14,990,000 Accounts receivable, net of reserves of $60,000 and $35,000 20,898,000 14,292,000 Inventories, net of reserves of $860,000 and $670,000 6,001,000 4,114,000 Income tax receivables 2,103,000 --- Prepaid expenses and deferred tax asset 1,813,000 2,658,000 ----------- ------------- Total current assets 45,481,000 36,054,000 ----------- ------------- Property and equipment: Construction in progress 6,202,000 --- Machinery and equipment 4,077,000 8,014,000 Furniture and fixtures 252,000 492,000 Leasehold improvements 0 95,000 ----------- ------------- 10,531,000 8,601,000 Less: Accumulated depreciation and amortization (1,416,000) (6,074,000) ----------- ------------- Net property and equipment 9,115,000 2,527,000 Intangible assets 2,300,000 --- ----------- ------------- Total assets $56,896,000 $ 38,581,000 =========== ============= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable 4,291,000 2,070,000 Accrued payables 4,171,000 3,869,000 Accrued compensation and stock option expense 1,930,000 2,284,000 ----------- ------------- Total current liabilities 10,392,000 8,223,000 ----------- ------------- Shareholders' equity: Preferred Stock, no par value, 1,000,000 shares authorized, none issued 0 0 Common Stock, $0.01 par value; 19,000,000 shares authorized, 7,253,000 and 6,723,000 issued and outstanding at December 31, 1996 and 1995, respectively 73,000 67,000 Cumulative translation adjustments (929,000) (474,000) Additional paid-in capital 39,472,000 30,771,000 Retained earnings (deficit) 7,888,000 (6,000) ----------- ------------- Total shareholders' equity $46,504,000 $ 30,358,000 ----------- ------------- Total liabilities and shareholders' equity $56,896,000 $ 38,581,000 =========== =============
The accompanying notes are an integral part of the consolidated financial statements. 20 21 PERCEPTRON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, ------------------------------------- 1996 1995 1994 ----------- ----------- ----------- (As restated) Net sales $49,679,000 $37,291,000 $27,835,000 Cost of sales 18,989,000 14,175,000 11,028,000 ----------- ----------- ---------- Gross profit 30,690,000 23,116,000 16,807,000 ----------- ----------- ---------- Selling, general and administrative expense 11,456,000 9,884,000 7,279,000 Engineering, research and development expense 5,854,000 4,467,000 3,808,000 Non-cash stock compensation expense 3,202,000 1,377,000 --- ----------- ----------- ---------- Income from operations 10,178,000 7,388,000 5,720,000 ----------- ----------- ---------- Interest income, net 786,000 539,000 119,000 ----------- ----------- ---------- Net income before provision for income taxes 10,964,000 7,927,000 5,839,000 Provision for income taxes 3,070,000 (482,000) --- ----------- ----------- ---------- Net income $7,894,000 $8,409,000 $5,839,000 =========== =========== ========== Net income per weighted average share $1.03 $1.16 $0.83 =========== =========== ========== Weighted average common and common equivalent shares 7,636,296 7,257,784 6,998,380 =========== =========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 21 22 PERCEPTRON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended December 31, 1994, 1995 and 1996
Cumulative Foreign Common Stock Currency Additional Retained Total -------------------- Translation Paid-In Earnings Shareholders' Shares Amount Adjustments Capital (Deficit) Equity ---------- -------- ----------- ----------- ------------- ------------- Balances, January 1, 1994 5,841,511 $ 58,000 $ (366,000) $28,013,000 $ (14,254,000) $ 13,451,000 Stock options exercised, net of shares tendered 538,708 6,000 513,000 519,000 Translation adjustment on investment (72,000) (72,000) in foreign subsidiaries Net Income 5,839,000 5,839,000 ---------- -------- ----------- ----------- ------------- ------------- Balances, December 31, 1994 6,380,219 $ 64,000 $(438,000) $28,526,000 $ (8,415,000) $ 19,737,000 ---------- -------- ----------- ----------- ------------- ------------- Stock options exercised, net of shares tendered 342,560 3,000 591,000 594,000 Tax benefit of non-qualified stock 150,000 150,000 options exercised Previously recorded stock option compensation expense attributable to options exercised 127,000 127,000 Non-cash stock compensation expense attributable to options exercised 1,377,000 1,377,000 Translation adjustment on investment in foreign subsidiaries (36,000) (36,000) Net Income 8,409,000 8,409,000 ---------- -------- ----------- ----------- ------------- ------------- Balances, December 31, 1995 (as restated) 6,722,779 $ 67,000 $(474,000) $30,771,000 $ (6,000) $ 30,358,000 ========== ======== =========== =========== ============= ============= Shares issued for intangible assets 82,510 1,000 2,299,000 2,300,000 Stock options exercised, net of shares tendered 447,278 5,000 2,066,000 2,071,000 Tax benefit of non-qualified stock options exercised 600,000 600,000 Previously recorded stock option compensation attributable to options exercised 534,000 534,000 Non-cash compensation expense attributable to options exercised 3,202,000 3,202,000 Translation adjustment on investment in foreign subsidiaries (455,000) (455,000) Net income 7,894,000 7,894,000 ---------- -------- ----------- ----------- ------------- ------------- Balances, December 31, 1996 7,252,567 73,000 (929,000) 39,472,000 7,888,000 46,504,000 ========== ======== =========== =========== ============= =============
The accompanying notes are an integral part of the consolidated financial statements. 22 23 PERCEPTRON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ---------------------------------------- 1996 1995 1994 ----------- -------------- ----------- (as restated) Cash flows from operating activities: Net income $7,894,000 $8,409,000 $5,839,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 720,000 635,000 458,000 Disposal of fixed assets 293,000 --- 134,000 Non-cash stock compensation expense 3,202,000 1,377,000 --- Changes in operating assets and liabilities: Accounts receivable and income tax receivable (8,989,000) (2,645,000) (2,833,000) Inventories (1,887,000) (851,000) (887,000) Prepaid expenses and deferred tax asset 845,000 (2,239,000) (164,000) Accounts payable (47,000) 378,000 267,000 Accrued expenses 482,000 3,583,000 1,356,000 Deferred revenue --- --- 175,000 ----------- ----------- ----------- Total adjustments (5,381,000) 238,000 (1,494,000) ----------- ----------- ----------- Net cash provided by operating activities 2,513,000 8,647,000 4,345,000 ----------- ----------- ----------- Cash flows (used in) investing activities: Capital expenditures (5,333,000) (1,999,000) (738,000) ----------- ----------- ----------- Net cash (used in) investing activities (5,333,000) (1,999,000) (738,000) ----------- ----------- ----------- Cash flows from financing activities: Principal payments under capital leases -0- (94,000) (103,000) Proceeds from issuance of short-term debt -0- --- 287,000 Principal payments on short-term debt -0- (287,000) --- Proceeds from the exercise of stock options 2,071,000 594,000 519,000 Tax benefit of non-qualified options exercised 600,000 150,000 --- ----------- ----------- ----------- Net cash provided by financing activities 2,671,000 363,000 703,000 ----------- ----------- ----------- Effect of exchange rates on cash and cash equivalents (175,000) 62,000 36,000 ----------- ----------- ----------- Net increase/(decrease) in cash and cash equivalents (324,000) 7,073,000 4,346,000 Cash and cash equivalents, beginning of year 14,990,000 7,917,000 3,571,000 ----------- ----------- ----------- Cash and cash equivalents, end of year $14,666,000 $14,990,000 $7,917,000 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid during the year for interest expense $0 $28,000 $23,000 =========== =========== =========== Cash paid during the year for income taxes $ 2,518,000 $100,000 $150,000 =========== =========== =========== Non-cash transactions: Equipment acquired under capital leases $0 $0 $101,000 Previously recorded compensation expense attributable to options exercised 534,000 127,000 0 Intangible assets acquired for stock 2,300,000 0 0
The accompanying notes are an integral part of the consolidated financial 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 three-dimensional machine vision systems which are used primarily in the automotive industry, and to a lesser extent, in other industries. PRINCIPLES OF CONSOLIDATION 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. 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. CONCENTRATION OF CREDIT RISK The Company markets and sells its products primarily to automotive assembly companies and to system integrators or original equipment manufacturers, who in turn sell to automotive assembly companies. 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. A significant portion of the Company's cash and cash equivalents were with one bank as of December 31, 1996. ESTIMATES 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. INVENTORIES Inventories are stated at the lower of cost or market. The cost of inventories is determined by the first-in, first-out (FIFO) method. Inventories, net of reserves, are comprised of the following:
December 31, ------------------------ 1996 1995 ------------ ---------- Component parts $4,234,000 $3,022,000 Work in process 1,247,000 641,000 Finished goods 520,000 451,000 ------------ ---------- Total $6,001,000 $4,114,000 ============ ==========
PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. Depreciation related to machinery and equipment and furniture and fixtures is computed on a straight-line basis over estimated useful lives ranging from three to five years. Leasehold improvements are amortized over the term of the lease or estimated useful life, whichever is shorter. Intangible assets recorded in 1996 will be amortized over approximately 5 years. 24 25 When properties are retired, the costs of such properties 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. REVENUE RECOGNITION The Company's products are generally configured to customer specifications. Certain customers may require a demonstration of the system prior to shipment. At the time of satisfactory demonstration, a written customer acceptance is completed. Revenue is recognized upon the earlier of written customer acceptance or shipment of the product to the customer. RESEARCH AND DEVELOPMENT Research and development costs, including software development costs, are expensed as incurred. NET INCOME PER SHARE Net income per common and common equivalent share is calculated based upon the weighted average number of shares of Common Stock outstanding, adjusted for the dilutive effect of stock options and warrants, using the treasury stock method. The dilutive effect of convertible shares held by a minority shareholder of a foreign subsidiary has also been included in the calculation of net income per share up to June 23, 1994, at which time these shares were converted into Common Stock of the Company. CASH AND CASH EQUIVALENTS In accordance with SFAS No. 95, 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. RECLASSIFICATIONS Certain 1995 and 1994 amounts have been reclassified to conform to the 1996 presentation. IMPAIRMENT OF LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES The Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as of January 1, 1996. The effect of adopting this standard was not material. The Company evaluates the carrying value of long-lived assets and long-lived assets to be disposed of for potential impairment on an ongoing basis. The Company considers projected future operating results, trends and other circumstances in making such estimates and evaluations. 2. NON-CASH STOCK COMPENSATION EXPENSE Beginning in late 1994, some participants in the Company's stock option plan have used Perceptron stock options to pay the exercise price of stock options issued under the plan. The Company was recently advised by its independent accounting firm that generally accepted accounting principles require the recording of a non-cash compensation expense relating to certain option exercises during 1996 and 1995. The Company has restated its 1995 financial statements to record non-cash stock compensation expense, net of taxes, of $895,000. 3. CREDIT FACILITY: The Company has unsecured credit facilities totaling $4.0 million U.S. and 1.0 million DM. These facilities may be used to finance working capital needs and equipment purchases or capital leases. Any borrowings for working capital needs will bear interest at the bank's prime rate (8.25% as of December 31, 1996); any borrowings to finance equipment purchases will bear interest at the bank's prime rate plus 1/2%. The credit facilities expire on 25 26 May 31, 1997 unless canceled earlier by the Company or the bank. The Company expects to renew these credit facilities. At December 31, 1996, the Company had no outstanding liabilities under these facilities. The credit facility requires the Company to maintain a minimum amount of tangible net worth and a minimum debt to tangible net worth ratio. The agreement also prohibits the Company from paying dividends, acquiring or retiring any of its capital stock, or incurring any other debt, liens, or guarantying any third party debt. 4. LEASES: The following is a summary, as of December 31, 1996, of the future minimum annual lease payments required under the Company's real estate and other operating leases having initial or remaining noncancelable terms in excess of one year:
Year Operating - ---- --------- 1997 $158,000 1998 110,000 1999 0 --------- Total minimum lease payments $268,000 =========
Rental expense for operating leases in 1996, 1995 and 1994 was $352,000, $380,000 and $365,000, respectively. 5. COMMITMENTS AND OTHER: The Company has committed to provide funding in the amount of $50,000 to a university in conjunction with research in manufacturing methods utilizing the Company's products and technology. At December 31, 1996, the Company had funded $25,000 of its commitment for the university's fiscal year ended June 30, 1997. The Company had received a $1.22 million grant from the U.S. Department of Commerce, through the National Institute of Standards and Technology (NIST), for software development related to high-speed image processing techniques for three-dimensional machine vision systems. This grant was for the period which began on January 1, 1994, and which ended March 31, 1996. In connection with this grant, the Company had subcontracted a portion of the research effort to a university and to an independent research institute, at a total cost of $1.0 million. In addition, the Company granted warrants to the research institute to purchase 30,000 shares of Common Stock, 15,000 of which are currently unexercised. The exercise price of these warrants is $11.17 per share. During 1994, 1995, and 1996, the Company incurred total costs of $444,000, $558,000, and $250,000 in connection with this grant, which were substantially reimbursed by NIST. The amounts reimbursed by NIST are not recognized as net sales by the Company, but are rather treated as a reduction of engineering, research and development expense. The Company uses, from time to time, a limited hedging program to minimize the impact of foreign currency fluctuations. As the Company exports product, it generally enters into limited hedging transactions relating to the accounts receivable arising as a result of such shipment. These transactions involve the use of forward contracts. At December 31, 1996, the Company had no forward contracts outstanding. 6. SHAREHOLDERS EQUITY: - Convertible Equity of Subsidiary On June 23, 1994, the owner of a minority interest in the Company's European subsidiary converted its equity interest in this subsidiary into 197,802 shares of Common Stock of the Company. 26 27 - Stock options The Company maintains 1983 and 1992 Stock Option Plans covering substantially all company employees and certain other key persons. These Plans are administered by a committee of the Board of Directors. Activity under these Plans is shown in the following table:
1996 1995 1994 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Shares subject to option Outstanding at beginning of period 1,060,943 $ 8.26 1,318,740 $ 5.85 1,466,883 $ 4.35 New grants (based on fair value of Common Stock at dates of grant) 339,300 25.24 236,350 14.93 253,323 10.08 Exercised* (430,129) 6.07 (353,944) 3.81 (355,333) 2.47 Terminated and expired (16,603) 9.90 (140,203) 7.93 (46,133) 7.63 Outstanding at end of Period** 953,511 15.22 1,060,943 8.26 1,318,740 5.85 Outstanding but not exercisable 799,224 16.35 829,205 8.29 1,094,106 5.88 Exercisable at end of period 154,287 9.36 231,738 8.13 224,634 5.71
* Exercised at option prices ranging from $.23 to $21.87 during 1996, $.23 to $11.92 during 1995, and $.23 to $7.33 during 1994 ** All outstanding shares at December 31, 1996 are under the 1992 Plan. The following table summarizes information about stock options at December 31, 1996:
Outstanding Stock Options Exercisable Stock Options ------------------------------------------------ ------------------------- Weighted-Average Range of Remaining Weighted-Average Weighted-Average Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price - -------------------------------------------------------------------------------------------------- $3.00 to $10.00 358,132 6.7 years $6.25 108,703 $6.60 $10.01 to $20.00 198,553 8.1 years $12.29 31,271 $12.92 $20.01 to $30.00 322,875 9.2 years $24.30 14,313 $22.48 $30.01 to $40.00 73,951 9.6 years $36.02 0 $0 - -------------------------------------------------------------------------------------------------- $3.00 to $40.00 953,511 8.1 years $15.22 154,287 $9.36 - --------------------------------------------------------------------------------------------------
Options outstanding under these Plans generally become exercisable at 25 percent per year beginning one year after the date of the grant and expire five to ten years after the date of the grant. At December 31, 1996, options covering 154,287 shares were exercisable and options covering 174,983 shares were available for future grants under these plans. The Company also maintains a Director Stock Option Plan covering all non-employee directors. This Plan is administered by a committee of the Board of Directors.
1996 1995 Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price Shares subject to option Outstanding at beginning of period 60,000 $12.58 New grants 64,500 $30.75 60,000 $12.58 Terminated and expired (16,500) $13.55 0 Outstanding at end of period 108,000 $23.28 60,000 $12.58 Outstanding but not exercisable 63,000 $30.75 60,000 $12.58 Exercisable at end of period 45,000 $12.58 0
At December 31, 1996, the weighted-average remaining exercise period relating to the outstanding options was approximately 8.6 years. Each non-employee director at the date the Director Stock Option Plan was adopted received, and each non-employee director as of the date they are first elected to the Board of Directors will receive, an option to purchase 15,000 shares of Common Stock (the "Initial Option"). Initial Options become exercisable in full on the first anniversary of the day of the grant. In addition, each non-employee director who has been a director for six 27 28 months before the date of each Annual Meeting of Shareholders automatically will be granted, as of the date of such Annual Meeting, an option to purchase an additional 1,500 shares of Common Stock. These Annual Options become exercisable in three annual increments of 33 1/3% of the shares subject to the option, and expire ten years from the date of the grant. At December 31, 1996, 45,000 of these options were exercisable and options covering 67,500 shares were available for future grants under this plan. The estimated fair value as of the date options were granted in 1996 and 1995, using the Black-Scholes option-pricing model was as follows:
1996 1995 Weighted average estimated fair value per share of options granted during the year $16.55 $12.33 Assumptions: Amortized dividend yield - - Common Stock price volatility 57.94% 57.94% Risk-free rate of return 5.78% 6.46% Expected option term (in years) 6 6
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. APB 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 in 1996 and 1995, consistent with the methodology in SFAS 123, the Company's net income and income per share would have been adjusted to the proforma amount indicated below:
1996 1995 Net income ..As reported $7,894,000 $8,409,000 ..Pro forma 4,795,000 7,543,000 Primary earnings per share ..As reported $1.03 $1.16 ..Pro forma $0.63 $1.04
The Company granted warrants to an independent research institute to purchase 30,000 shares of Common Stock, 15,000 which were exercised in 1996 and 15,000 of which expire in 1998. The exercise price of these warrants is $11.17 per share. 7. 401K 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 to the plan during 1996, 1995 and 1994 were $251,000, $163,000, and $108,000, respectively. 28 29 8. INCOME TAXES: The income tax provision reflected in the statement of income consists of the following for the years ending December 31, 1996 and 1995:
1996 1995 ---------- ----------- Current provision U.S. federal $1,159,000 $ 54,000 Foreign 1,136,000 1,446,000 Deferred taxes 775,000 (1,500,000) Tax benefit attributable to non-cash stock compensation 0 (482,000) ---------- ----------- 3,070,000 (482,000) ========== ===========
The Company's deferred tax assets are substantially represented by the tax benefit of minimum tax credits, investment tax credits, research activities credits, and general business credits carry forwards. The components of deferred tax assets as of December 31, 1996 and 1995 were as follows:
1996 1995 ---------- ---------- Net operating loss carry forwards $ 0 $1,200,000 Minimum tax credits 400,000 300,000 Investment tax credits 100,000 100,000 Research activities and general business credits 600,000 800,000 Other 325,000 --- ---------- ---------- Subtotal 1,425,000 2,400,000 Valuation reserve 0 (200,000) ---------- ---------- Deferred tax asset $1,425,000 $2,200,000 ========== ==========
With the exception of the minimum tax credits, which have an indefinite carryforward period, the credits giving rise to the deferred tax assets will expire, if unused, at various dates from 1998 through 2008.
Rate reconciliation: 1996 1995 ---- ---- Provision at U.S. statutory rate 34% 34% Recognition of net operating loss carryforwards -- (40%) Net effect of taxes on foreign activities (4%) 20% Change in valuation allowance (2%) (20%) ---- ---- 28% (6%) ==== ====
9. INFORMATION ABOUT MAJOR CUSTOMERS: The Company sells its products directly to both domestic and international automotive assembly companies. For the year ended December 31, 1996, the Company derived 49% of its net sales from three such customers, one of which was a shareholder until October 1994, when this customer sold their shares. The Company also sells to system integrators or original equipment manufacturers ("integrators"), who in turn sell to those same automotive companies. For the year ended December 31, 1996, 18% of net sales were to integrators, where those products were for the benefit of the same three automotive assembly companies. In 1996, sales by the Company to each of these three customers exceeded 13% of the Company's net sales. During 1995, 36% of total net sales was derived from three domestic automotive companies, and 28% from sales by integrators to such companies. In 1995, sales by the Company to each of these three customers exceeded 8% of the Company's net sales. During 1994, 34% of net sales were derived from three automotive companies and 49% from sales by integrators to such companies. In 1994, sales by the Company to each of these three companies exceeded 10% of the Company's net sales. 29 30 10. 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 indemnification matter and the complaint discussed in the following paragraphs. 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. One such customer is currently engaged in litigation relating to such matter. This customer has notified various companies from which it has purchased such equipment, including the Company, that it expects the suppliers of such equipment to indemnify such customer, on a pro-rata basis, for expenses and damages, if any, incurred in this matter. 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, it is not possible to estimate the ultimate effect, if any, of this matter on the company's financial position. On March 13, 1996, a complaint was filed naming the Company as a defendant, along with Trident and Nanoose, in an action alleging that the Company's TriCam sensor violates a patent held by the plaintiff and seeking preliminary and permanent injunctions and damages. Management believes that its TriCam sensor was independently developed without utilizing any previously patented process or technology and intends to vigorously defend its position. 11. FOREIGN OPERATIONS: The Company operates in three primary geographic areas: North America, Europe and Asia. Geographical area data is as follows ($000):
Years ended December 31, --------------------------- 1996 1995 1994 -------- -------- ------- Net sales: North America* $41,352 $ 26,899 $25,341 Europe and Asia 12,686 13,049 3,606 Intercompany Sales (4,359) (2,657) (1,112) -------- --------- ------- Total Net Sales $49,679 $ 37,291 $27,835 ======== ========= ======= Income from operations: (as restated) North America* $5,581 $ 1,634 $5,513 Europe and Asia 4,597 5,754 207 -------- --------- ------- Total Income from Operations $10,178 $ 7,388 $5,720 ======== ========= ======= Identifiable assets at December 31: North America* $44,399 $ 30,808 $22,209 Europe and Asia 12,497 7,773 2,298 -------- --------- ------- Total Assets $56,896 $ 38,581 $24,507 ======== ========= =======
__________________________ * Includes intercompany amounts; intercompany sales prices are based on cost plus a transfer fee. 30 31 12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): Selected unaudited quarterly financial data for the years ended December 31, 1996 and 1995, are as follows ($000's except earnings per share):
Quarter ended --------------------------------- 1996 3-31 6-30 9-30 12-31 ---- ------ ------- ------- ------- Net Sales $9,062 $11,663 $12,856 $16,098 Gross profit 5,307 7,046 8,140 10,197 Net income 928 588 2,487 3,891 Earnings per share $.12 $.08 $.32 $.50 Weighted average shares 7,468 7,677 7,680 7,706 3-31 6-30 9-30* 12-31 ------ ------- ------- ------- 1995 ---- Net sales $5,989 $8,603 $9,311 $13,388 Gross profit 3,606 5,250 5,823 8,437 Net income 733 1,914 1,621 4,141 Earnings per share $.10 $.27 $.22 $.56 Weighted average shares 7,087 7,127 7,310 7,391 *See Note 2.
13. INTANGIBLE ASSETS On November 26, 1996, the Company's German subsidiary acquired the assets of a division of HGV Vosseler GmbH ("Vosseler") engaged in the development and sale of non-contact three-dimensional measurement systems for aggregate consideration consisting of 82,150 shares of Common Stock and DM 300,000 and recorded $2.3 million in intangible assets relating to the acquisition. 14. SUBSEQUENT EVENTS On February 3, 1997, the Company consummated its acquisition of Autospect, Inc. ("Autospect") through the merger of a wholly owned subsidiary of the Company with and into Autospect for aggregate consideration consisting of 387,093 shares of Common Stock of the Company. Autospect, based in Ann Arbor, Michigan, designs, develops and manufactures information-based coatings inspection and defect detection systems primarily for use in the automotive industry. The transaction will be accounted for as a pooling of interests. As of and for the year ended December 31, 1996, Autospect's revenues, net income, and net assets were approximately $4 million, $0.7 million and $2.6 million respectively. [UNAUDITED] The Company recently signed letters of intent to acquire Trident Systems, Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose"). The closing of these acquisitions is subject to a number of factors, including the negotiation, approval and execution of definitive documents and completion of satisfactory due diligence. The proposed consideration for these acquisitions will be shares of Common Stock of the Company, aggregating less than 5% of the outstanding Common Stock. ITEM 9:CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES No response to Item 9 is required. 31 32 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 - Reporting of Beneficial Ownership by Directors, Executive Officers and Ten Percent Holders" of the registrant's proxy statement for 1997 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 The information contained under the captions "Further Information - Certain Transactions" of the Proxy Statement is incorporated herein by reference. 32 33 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 35. 3. Exhibits - the exhibits filed with this report are listed on pages 37 through 40. B. Reports on Form 8-K: The Company did not file any reports on Form 8-K in the fourth quarter of 1996 with the Securities and Exchange Commission. 33 34 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: March 27, 1997 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, March 27, 1997 - --------------------- President, Chief Executive Officer Alfred A. Pease /S/ John G. Zimmerman Vice President and Chief March 27, 1997 - --------------------- Financial Officer (Principal Financial Officer) John G. Zimmerman /S/ Paul J. Tripodi Controller (Principal Accounting Officer) March 27, 1997 - --------------------- Paul J. Tripodi /S/ Dwight D. Carlson Vice Chairman of the Board of Directors March 27, 1997 - --------------------- Dwight D. Carlson Director March 27, 1997 - --------------------- Philip J. DeCocco /S/ Robert S. Oswald Director March 27, 1997 - --------------------- Robert S. Oswald /S/ Harry T. Rein Director March 27, 1997 - --------------------- Harry T. Rein /S/ Paul E. Rice Director March 27, 1997 - --------------------- Paul E. Rice /S/ Louis R. Ross Director March 27, 1997 - --------------------- Louis R. Ross Director March 27, 1997 - --------------------- Terryll R. Smith
34 35 PERCEPTRON, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS SCHEDULE Financial Statements Schedule:
Designation Description Page - ----------- --------------------------------- ---- Schedule II Valuation and qualifying accounts 36
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. 35 36 PERCEPTRON, INC. AND SUBSIDIARIES SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
CHARGED TO BEGINNING COSTS AND ENDING DESCRIPTION BALANCE EXPENSE CHARGE-OFFS BALANCE - ---------------------- ----------- --------------- ------------ ------------- December 31, 1994: - ---------------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS $125,000 $116,000 $ 5,000 $236,000 INVENTORY RESERVES $230,000 $506,000 $ 36,000 $700,000 December 31, 1995: - ---------------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS $236,000 $ 35,000 $236,000 $ 35,000 INVENTORY RESERVES $700,000 $125,000 $155,000 $670,000 December 31, 1996: - ---------------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 35,000 $ 36,000 $ 11,000 $ 60,000 INVENTORY RESERVES $670,000 $200,000 $ 10,000 $860,000
36 37 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 3.3 of the Company's Report on Form 10-Q for the Quarter Ended June 30, 1994. 3.2 Bylaws, as amended to date, are incorporated herein by reference to Exhibit 19 of the Company's Report on Form 10-Q for the Quarter Ended September 30, 1992. 4. Instruments Defining the Rights of Securities Holders. 4.1 Articles IV and V of the Company's Restated Articles of Incorporation are incorporated herein by reference to Exhibit 3.3 of the Company's Report on Form 10-Q for the Quarter Ended June 30, 1994. 4.2 Articles I, II, III, VI, VII and X of the Company's Bylaws are incorporated herein by reference to Exhibit 19 of the Company's Report on Form 10-Q for the Quarter Ended September 30, 1992. 4.3 Revised Credit Agreement dated May 22, 1996, between Perceptron, Inc., Perceptron GmbH and NBD Bank, N.A. and related Demand Business Loan Note are incorporated herein by reference to Exhibit 4.4 of the Company's Report on Form 10-Q for the Quarter Ended June 30, 1996. 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. 37 38 10.6 Co-operative Agreement, dated April 1, 1992, between the Company and Sumitomo Corporation, is incorporated herein by reference to Exhibit 10.17 of the Company's Form S-1 Registration Statement No. 33-47463. 10.7 Development and Purchase Agreement between DeMattia Development Company, Plymouth-West Limited Partnership and Perceptron, Inc. dated June 2, 1996 is incorporated by reference to Exhibit 10.51 to the Company's Report on Form 10-Q for the Quarter Ended June 30, 1996. 10.8 Mortgage between DeMattia Development Company and Perceptron, Inc. dated June 6, 1996 is incorporated by reference to Exhibit 10.52 to the Company's Report on Form 10-Q for the Quarter Ended June 30, 1996. 10.9 Single Tenant Building Lease, dated March 5, 1996, between Demco XVI Limited Partnership and Perceptron, Inc. is incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1995. 10.10@ 1983 Stock Option Plan, as amended, and forms of Stock Option Agreement are incorporated herein by reference to Exhibit 10.21 of the Company's Form S-1 Registration Statement No. 33-47463. 10.11@ 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. 10.12@ 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. 10.13@ Stock Option Agreement, December 1993 Option Grant, dated December 13, 1993, between the Company and James A. Ratigan is incorporated herein by reference to Exhibit 10.25 of the Company's Annual Report on Form 10-K for the Year Ended December 31, 1993. 10.14@ First Amendment to Stock Option Agreement, December 1993 Option Grant between the Company and James A. Ratigan, is incorporated by reference to Exhibit 10.41 of the Company's Report on Form 10-Q for the Quarter Ended September 30, 1995. 10.15@ Stock Option Agreement, Performance Options, dated December 13, 1993, between the Company and James A. Ratigan is incorporated herein by reference to Exhibit 10.26 of the Company's Annual Report on Form 10-K for the Year Ended December 31, 1993. 10.16@ First Amendment to Stock Option Agreement, Performance Options dated December 13, 1993, between the Company and James A. Ratigan, is incorporated by reference to Exhibit 10.42 of the Company's Report on Form 10-Q for the Quarter Ended September 30, 1995. 10.17@ 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. 10.18@ 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. 38 39 10.19@ 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. 10.20@ 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. 10.21@ 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. 10.22*@ 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. 10.23@ Stock Option Agreement, dated May 21, 1993 between the Company and James E. McGrath is incorporated herein by reference to Exhibit 10.33 of the Company's Report on Form 10-Q for the Quarter Ended March 31, 1994. 10.24@ 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 From 10-K for the Year Ended December 31, 1995. 10.25@ 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. 10.26@ 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. 10.27*@ Form of Non-Qualified Stock Option Agreements and Amendments under the Director Stock Option Plan. 10.28@ Letter Agreement dated December 13, 1993, between the Company and James A. Ratigan is incorporated herein by reference to Exhibit 10.24 of the Company's Annual Report on Form 10-K for the Year Ended December 31, 1993. 10.29@ Amendment dated October 26, 1995 to Letter Agreement dated December 13, 1993, between the Company and James A. Ratigan, is incorporated herein by reference to Exhibit 10.40 of the Company's Report on Form 10-Q for the Quarter Ended September 30, 1995. 10.30@ Amendment dated April 19, 1996 to letter agreement dated December 13, 1993, between the Company and James A. Ratigan is incorporated by reference to Exhibit 10.46 to the Company's Report on Form 10-Q for the Quarter Ended March 31, 1996. 10.31@ Compensation Arrangement Letter, dated May 21, 1993, between the Company and James E. McGrath, is incorporated herein by reference to Exhibit 10.34 of the Company's Report on Form 10-Q for the Quarter Ended March 31, 1994. 10.32@ 1994 Management Bonus Plan is incorporated herein by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1994. 10.33@ 1995 Management Bonus Plan is incorporated herein by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1995. 39 40 10.34*@ 1996 Management Bonus Plan. 10.35@ 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. 10.36*@ Letter Agreement, dated February 14, 1996, between the Company and Alfred A. Pease. 10.37@ Employment Agreement, dated February 12, 1996, between the Company and Dwight D. Carlson is incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1995. 10.38 Financial Assistance Award, dated December 17, 1993, received from the U.S. Department of Commerce - National Institute of Standards and Technology, and incorporated herein by reference to Exhibit 10.31 of the Company's Annual Report on Form 10-K for the Year Ended December 31, 1993. 11.* Statement re: computations of per share earnings. 21.* A list of subsidiaries of the Company. 23.* Consent of Experts. 27.* Financial Data Schedule. - ---------- * Filed with the Company's Annual Report on Form 10K for the year ended December 31, 1996. @ Indicates a management contract, compensatory plan or arrangement. 40 EX-10.22 2 EX-10.22 1 EXHIBIT 10.22 USAGE: 2/1/97 INCENTIVE STOCK OPTION AGREEMENT - TEAM MEMBER UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN THIS STOCK OPTION AGREEMENT made this_____day of_____, 19__, by and between Perceptron, Inc., a Michigan corporation ("the Company"), and_______, who is currently employed by the Company or one of its subsidiaries (the "Optionee"). 1. GRANT OF OPTION. Subject to the terms and conditions hereof, the Company hereby grants to the Optionee an option to purchase from the Company up to, but not exceeding in the aggregate,____shares of the Company's Common Stock at a price of $______per share. This option is intended to constitute an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code ("Code"). 2. RIGHT TO EXERCISE OPTION. The Optionee may purchase from the Company on and after the first anniversary of the date of grant, 25% of the shares covered by this option, and on each succeeding one year anniversary thereof may exercise an additional 25% of the shares covered by the option, so that on the fourth anniversary of the date of grant this option shall be fully exercisable. To the extent not exercised, installments shall accumulate and the Optionee may exercise them in whole or in part in any subsequent period. Any provision of this Agreement notwithstanding, no portion of this option shall be exercisable on or after the tenth anniversary of the date of grant. 3. TERMINATION OF EMPLOYMENT. If, prior to the date that this option shall first become exercisable, the Optionee's employment with the Company or any of its subsidiaries shall be terminated for any reason, the Optionee's right to exercise this option shall terminate and all rights hereunder shall cease. As used in this Agreement, the term "subsidiary" of the Company means any "subsidiary corporation" as defined in Section 424(f) of the Code, the term "employment" means employment with the Company or any subsidiary of the Company, and the term "disability" means "total and permanent disability," as defined in Section 22(e) of the Code. If, on or after the date that this option shall first become exercisable, the Optionee's employment shall be terminated for any reason other than death or disability, the Optionee shall have the right, within three months after such termination of employment, to exercise this option to the extent that it shall have been exercisable and unexercised on the date of such termination of services, subject to any other limitation on the exercise of such option in effect at the date of exercise. If on or after the date that this option shall first become exercisable the Optionee's employment shall be terminated due to death or disability, the Optionee or the executor or administrator of the estate of the Optionee (as the case may be) or the person or persons to whom the option shall have been transferred by will or by the laws of descent and distribution, shall have the right, within one year from the date of the Optionee's death or disability, to exercise this option to the extent that it was exercisable and unexercised on the date of the Optionee's death or disability, subject to any other limitation on exercise in effect at the date of exercise. 2 The transfer of the Optionee from one corporation to another among the Company and any of its subsidiaries, or a leave of absence with the written consent of the Company, shall not be a termination of services for purposes of this option. Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, (provided, however, if this option is an incentive stock option, only if the merger, consolidation or sale or transfer referred to below occurs after the first anniversary of the date of grant of this option, and, if this option is held by a person subject to Section 16(b) of the Securities Exchange Act of 1934, only if such merger, consolidation or sale or transfer occurs after the date six months after the date of grant of this option), if, in connection with any merger, consolidation, or sale or transfer by the Company of substantially all of its assets, this option is not assumed or continued by the surviving corporation or the purchaser, the date of termination of this option and the date on or after which this option, or any portion thereof not then exercisable, may be exercised, shall be advanced to a date to be fixed by the Committee, which date shall not be more than 15 days prior to such merger, consolidation, or sale or transfer; provided however, that the Committee shall have the right, at any time prior to the occurrence of such merger, consolidation or sale or transfer, to modify the provisions of this paragraph, including the termination of all of the Optionee's rights set forth in this paragraph, to the extent required under applicable accounting and Securities and Exchange Commission rules, regulations, policies, guidelines or other similar requirements to permit the Company to account for a then contemplated business combination under pooling-of-interests accounting. 4. EXERCISE OF OPTION. (a) At any time that this option may be exercised as provided in this Agreement, the Optionee may exercise any portion of this option which is then exercisable, in whole or in part, by delivery to the Company of a written notice, in the form attached hereto, signed by the Optionee.. (b) In addition, the Optionee shall deliver, on the date of exercise: (i) cash equal to the purchase price of the shares being purchased, (ii) such documents as are or may be required under the terms of Section 5.3 of the Plan to effect a cashless exercise, (iii) Permitted Shares with a value (determined as of the date of exercise of the option) equal to the purchase price of the shares being purchased (the "Delivered Shares Method"), or (iv) the authorization of the Company to retain (or forfeit) then exercisable options issued to the Optionee under the Plan ("Forfeited Options") with a value (as defined in the Plan) equal to the purchase price of the shares being purchased (the "Forfeiture of Stock Options Method"). In order to use the Forfeiture of Stock Options Method, the Optionee must then own, 2 3 and have owned for at least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the number of shares of Common Stock underlying the Forfeited Options. (c) "Permitted Shares" are shares of Company Common Stock to be delivered to pay the exercise price of the option (the "Delivered Shares"): (i) which have been owned by the Optionee for at least six months prior to the date of delivery, or (ii) if they have not been owned by the Optionee for at least six months prior to the date of delivery, the Optionee then owns, and has owned for at least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the Delivered Shares. (d) Forfeited Options shall expire and be of no further force and effect as of the date forfeited. (e) Shares which have been counted during the prior six months as owned by the Optionee for purposes of determining whether the Optionee may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method: (i) may not be used as Delivered Shares, and (ii) may not be counted as owned by the Optionee for purposes of making calculations under the Delivered Shares Method or Forfeiture of Stock Options Method. 5. COMPLIANCE WITH SECURITIES LAWS. Anything to the contrary herein notwithstanding, the Company's obligation to sell and deliver stock under this option is subject to such compliance with federal and state laws, rules and regulations applying to the authorization, issuance or sale of securities, and applicable stock exchange requirements, as the Company deems necessary or advisable. 6. NON-ASSIGNABILITY. The option hereby granted shall not be transferable by the Optionee other than by will or the laws of descent and distribution, and the option may be exercised during the Optionee's lifetime only by the Optionee. Any transferee of the option shall take the same subject to the terms and conditions of this Agreement. No such transfer of the option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of the will and/or such other evidence as the Company may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of this Agreement. No assignment or transfer of this option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except a transfer by the Optionee by will or by the laws of descent and distribution, shall vest in the purported 3 4 assignee or transferee any interest or right herein whatsoever. 7. DISPUTES. As a condition of the granting of the option granted hereby, the Optionee and the Optionee's successors and assigns agree that any dispute or disagreement which shall arise under or as a result of this Agreement shall be determined by the Committee in its sole discretion and judgment and that any such determination and any interpretation by the Committee of the terms of this Agreement shall be final and shall be binding and conclusive for all purposes. 8. ADJUSTMENTS. In the event of any stock dividend, stock split, reclassification, merger, consolidation, or similar transaction affecting the shares covered by this option, the rights of the Optionee shall be as provided in Section 8 of the Plan and any adjustment therein provided shall be made in accordance with Section 8 of the Plan. 9. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder of the Company with respect to any of the shares covered by this option until the issuance of a stock certificate or certificates upon the exercise of the option in full or in part, and then only with respect to the shares represented by such certificate or certificates. 10. NOTICES. Every notice relating to this Agreement shall be in writing and if given by mail shall be given by registered or certified mail with return receipt requested. All notices to the Company shall be delivered to the Secretary of the Company at the Company's headquarters or addressed to the Secretary of the Company at the Company's headquarters. All notices by the Company to the Optionee shall be delivered to the Optionee personally or addressed to the Optionee at the Optionee's last residence address as then contained in the records of the Company or such other address as the Optionee may designate. Either party by notice to the other may designate a different address to which notices shall addressed. Any notice given by the Company to the Optionee at the Optionee's last designated address shall be effective to bind any other person who shall acquire rights hereunder. 11. "OPTIONEE" TO INCLUDE CERTAIN TRANSFEREES. Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically apply to any other person or persons to whom the option, in accordance with the provisions of Section 6 hereof, may be transferred, the word "Optionee" shall be deemed to include such person or persons. 12. GOVERNING LAW. This Agreement has been made in and shall be construed in accordance with the laws of the State of Michigan. 13. PROVISIONS OF PLAN CONTROLLING. The provisions hereof are subject to the terms and provisions of the Plan copies of which are available for review upon request. In the event of any conflict between the provisions of this option and the provisions of the Plan, the provisions of the Plan shall control, except to the extent that the provisions of this option limit or restrict the rights 4 5 of the Optionee to a greater extent than set forth in the Plan. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PERCEPTRON, INC. By: --------------------------- Title: ----------------------- ------------------------------ -----------------------, OPTIONEE 5 6 NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN Perceptron, Inc. 47827 Halyard Drive Plymouth, MI 48170 Dear Sir: An incentive stock option was granted to me on _______, 19__to purchase______shares of Perceptron, Inc. Common Stock at a price of $_____per share. I hereby elect to exercise my incentive stock option with respect to shares for an aggregate purchase price of $ . I hereby elect to pay for such shares as follows: Personal Check $____ Cash $____ Bank Draft $____ Money Order $____ Cashless Exercise $____ Perceptron Common Stock $____ Retention of Stock Options $____ Total $ ===== [A personal check [or cash, bank draft or money order] for the purchase price [is enclosed herewith.] [Documents as are required to effect a cashless exercise are enclosed.] [I hereby elect to exercise my stock option with respect to shares through a combination of cash payments and shares of Perceptron, Inc. Common Stock, as described on the attached Exhibit A. A personal check for the purchase price to be paid in cash is enclosed herewith. Certificates for shares of Perceptron, Inc. Common Stock are enclosed herewith, along with a duly executed stock power in proper form for transfer, with all signatures properly guaranteed by a national bank or member firm of the NYSE or AMEX. [I represent that the shares of Perceptron, Inc. Common Stock enclosed herewith have been owned by me for more 1 7 than six months.] or [I currently own more than____shares of Perceptron, Inc. Common Stock which have been owned by me for more than six months]. Such shares have not been counted during the prior six months as owned by me for purposes of determining whether I may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method.] [I hereby authorize the Company to retain options to purchase____shares of Perceptron, Inc. Common Stock granted pursuant to this stock option (the "Forfeited Options"). I hereby acknowledge and agree that, as of the date set forth below, the Forfeited Options shall no longer be exercisable, and shall expire and have no further force and effect. I represent that I currently own more than______shares of Perceptron, Inc. Common Stock which have been owned by me for more than six months. Such shares have not been counted during the prior six months as owned by me for purposes of determining whether I may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method.] I agree to notify the Company if prior to two years from the date of grant and one year from the exercise date, I dispose of any shares acquired pursuant to my exercise of this incentive stock option. I represent that the shares of stock that I am purchasing upon this exercise of my option are being purchased for investment purposes and not with a view to resale. This representation shall not be binding upon me if the shares of Common Stock that I am purchasing are subject to an effective Registration Statement under the Securities Act of 1933. ___________________________ Optionee Dated _______,19__ 2 8 USAGE: 2/1/97 INCENTIVE STOCK OPTION AGREEMENT - OFFICER UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN THIS STOCK OPTION AGREEMENT made this____day of______, 19__, by and between Perceptron, Inc., a Michigan corporation ("the Company"), and_________, who is currently employed by the Company or one of its subsidi- aries (the "Optionee"). 1. GRANT OF OPTION. Subject to the terms and conditions hereof, the Company hereby grants to the Optionee an option to purchase from the Company up to, but not exceeding in the aggregate,_____shares of the Company's Common Stock at a price of $___per share. This option is intended to constitute an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code ("Code"). 2. RIGHT TO EXERCISE OPTION. The Optionee may purchase from the Company on and after the first anniversary of the date of grant, 25% of the shares covered by this option, and on each succeeding one year anniversary thereof may exercise an additional 25% of the shares covered by the option, so that on the fourth anniversary of the date of grant this option shall be fully exercisable. To the extent not exercised, installments shall accumulate and the Optionee may exercise them in whole or in part in any subsequent period. Any provision of this Agreement notwithstanding, no portion of this option shall be exercisable on or after the tenth anniversary of the date of grant. 3. TERMINATION OF EMPLOYMENT. If, prior to the date that this option shall first become exercisable, the Optionee's employment with the Company or any of its subsidiaries shall be terminated for any reason, the Optionee's right to exercise this option shall terminate and all rights hereunder shall cease. As used in this Agreement, the term "subsidiary" of the Company means any "subsidiary corporation" as defined in Section 424(f) of the Code, the term "employment" means employment with the Company or any subsidiary of the Company, and the term "disability" means "total and permanent disability," as defined in Section 22(e) of the Code. If, on or after the date that this option shall first become exercisable, the Optionee's employment shall be terminated for any reason other than death or disability, the Optionee shall have the right, within three months after such termination of employment, to exercise this option to the extent that it shall have been exercisable and unexercised on the date of such termination of services, subject to any other limitation on the exercise of such option in effect at the date of exercise. If on or after the date that this option shall first become exercisable the Optionee's employment shall be terminated due to death or disability, the Optionee or the executor or administrator of the estate of the Optionee (as the case may be) or the person or persons to whom the option shall have been transferred by will or by the laws of descent and distribution, shall have the right, within one year from the date of the Optionee's death or disability, to exercise this option to the extent that it was exercisable and unexercised on the date of the Optionee's death or disability, 9 subject to any other limitation on exercise in effect at the date of exercise. The transfer of the Optionee from one corporation to another among the Company and any of its subsidiaries, or a leave of absence with the written consent of the Company, shall not be a termination of services for purposes of this option. Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, (i) in the event of a termination by the Company of the Optionee's employment Without Cause (as defined below) or Diminishment of the Optionee's Responsibilities Without Cause (as defined below), following a Change in Control of the Company, or (ii), in the event of a Change in Control, if one of the corporations surviving the Change in Control or the person purchasing the Company's assets in the Change in Control does not assume this option, any portion of this option that is then not exercisable shall become immediately exercisable; provided, however, that the foregoing provision shall apply, in case of incentive stock options ("ISOs"), and in the case of options held by a person subject to Section 16(b) of the Securities Exchange Act of 1934 ("Section 16(b) Grants"), only if the termination or diminishment referred to in (i) above and the Change in Control referred to in (ii) above occurs after the first anniversary of the date of grant of this option, in the case of ISOs, or the date six months after the date of grant of this option, in the case of Section 16(b) Grants; and, provided further, however, that the Committee shall have the right, at any time prior to the occurrence of the termination or diminishment referred to in (i) above or the Change in Control referred to in (ii) above, to modify the provisions of this paragraph, including the termination of all of the Optionee's rights set forth in this paragraph, to the extent required under applicable accounting and Securities and Exchange Commission rules, regulations, policies, guidelines or other similar requirements to permit the Company to account for a then contemplated business combination under pooling-of-interests accounting. For purposes hereof, "Without Cause" shall mean the Optionee's employment is terminated by the Company, or there is a Diminishment of the Optionee's Responsibilities, for any reason except (i) personal dishonesty; (ii) willful misconduct; (iii) breach of fiduciary duty to the Company; (iv) conviction for violation of any law (other than traffic violations or similar offenses); or (v) repeated or intentional failure to perform duties, after written notice is delivered identifying the failure, and it is not cured within ten (10) days following receipt of such notice. For purposes hereof, "Diminishment of the Optionee's Responsibilities" shall mean the Company, or any successor thereto, (i) reassigning the Optionee substantial duties which are materially inconsistent with the Optionee's position, duties and responsibilities with the Company immediately prior to the Change in Control, except for reassignments of duties which constitute a bona fide promotion of the Optionee, or (ii) reducing the Optionee's compensation such that (a) the Optionee's annual base salary is less than eighty (80%) percent of the Optionee's annual base salary prior to the Change in Control; and (b) the Optionee's annual base salary and the annual cash bonus which the Optionee is eligible to earn (including any performance based bonus), combined, is not at least equal to the combination of the Optionee's annual base salary prior to the Change in Control and the average of the annual cash bonuses which the Optionee was eligible to earn (including any performance based bonus, but excluding any bonus payable to the Optionee for completing the Change in Control), whether or not actually earned, for the year in which the Change in Control occurred and for the year prior thereto. For purposes hereof, a "Change in Control" shall be deemed to have occurred in the event of (i) a merger involving the Company in which the Company is not the surviving corporation 10 (other than a merger with a wholly-owned subsidiary of the Company formed for the purpose of changing the Company's corporate domicile); (ii) a share exchange in which the shareholders of the Company exchange their stock in the Company for stock of another corporation (other than a share exchange in which all or substantially all of the holders of the voting stock of the Company, immediately prior to the transaction, exchange, on a pro rata basis, their voting stock of the Company for more than 50% of the voting stock of such other corporation); (iii) the sale of all or substantially all of the assets of the Company; or (iv) any person or group of persons (as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended) (other than any employee benefit plan or employee benefit trust benefitting the employees of the Company) becoming a beneficial owner, directly or indirectly, of securities of the Company representing more than fifty (50%) percent of either the then outstanding Common Stock of the Company, or the combined voting power of the Company's then outstanding voting securities. Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, (provided, however, if this option is an incentive stock option, only if the merger, consolidation or sale or transfer referred to below occurs after the first anniversary of the date of grant of this option, and, if this option is held by a person subject to Section 16(b) of the Securities Exchange Act of 1934, only if such merger, consolidation or sale or transfer occurs after the date six months after the date of grant of this option), if, in connection with any merger, consolidation, or sale or transfer by the Company of substantially all of its assets, this option is not assumed or continued by the surviving corporation or the purchaser, the date of termination of this option and the date on or after which this option, or any portion thereof not then exercisable, may be exercised, shall be advanced to a date to be fixed by the Committee, which date shall not be more than 15 days prior to such merger, consolidation, or sale or transfer; provided however, that the Committee shall have the right, at any time prior to the occurrence of such merger, consolidation or sale or transfer, to modify the provisions of this paragraph, including the termination of all of the Optionee's rights set forth in this paragraph, to the extent required under applicable accounting and Securities and Exchange Commission rules, regulations, policies, guidelines or other similar requirements to permit the Company to account for a then contemplated business combination under pooling-of-interests accounting. 4. EXERCISE OF OPTION. (a) At any time that this option may be exercised as provided in this Agreement, the Optionee may exercise any portion of this option which is then exercisable, in whole or in part, by delivery to the Company of a written notice, in the form attached hereto, signed by the Optionee. (b) In addition, the Optionee shall deliver, on the date of exercise: (i) cash equal to the purchase price of the shares being purchased, (ii) such documents as are or may be required under the terms of Section 5.3 of the Plan to effect a cashless exercise, (iii) Permitted Shares with a value (determined as of the date of exercise of the 11 option) equal to the purchase price of the shares being purchased (the "Delivered Shares Method"), or (iv) the authorization of the Company to retain (or forfeit) then exercisable options issued to the Optionee under the Plan ("Forfeited Options") with a value (as defined in the Plan) equal to the purchase price of the shares being purchased (the "Forfeiture of Stock Options Method"). In order to use the Forfeiture of Stock Options Method, the Optionee must then own, and have owned for at least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the number of shares of Common Stock underlying the Forfeited Options. (c) "Permitted Shares" are shares of Company Common Stock to be delivered to pay the exercise price of the option (the "Delivered Shares"): (i) which have been owned by the Optionee for at least six months prior to the date of delivery, or (ii), if they have not been owned by the Optionee for at least six months prior to the date of delivery, the Optionee then owns, and has owned for at least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the Delivered Shares. (d) Forfeited Options shall expire and be of no further force and effect as of the date forfeited. (e) Shares which have been counted during the prior six months as owned by the Optionee for purposes of determining whether the Optionee may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method: (i) may not be used as Delivered Shares, and (ii) may not be counted as owned by the Optionee for purposes of making calculations under the Delivered Shares Method or Forfeiture of Stock Options Method. 5. COMPLIANCE WITH SECURITIES LAWS. Anything to the contrary herein notwithstanding, the Company's obligation to sell and deliver stock under this option is subject to such compliance with federal and state laws, rules and regulations applying to the authorization, issuance or sale of securities, and applicable stock exchange requirements, as the Company deems necessary or advisable. 6. NON-ASSIGNABILITY. The option hereby granted shall not be transferable by the Optionee other than by will or the laws of descent and distribution, and the option may be exercised during the Optionee's lifetime only by the Optionee. Any transferee of the option shall take the same subject to the terms and conditions of this Agreement. No such transfer of the option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof 12 and a copy of the will and/or such other evidence as the Company may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of this Agreement. No assignment or transfer of this option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except a transfer by the Optionee by will or by the laws of descent and distribution, shall vest in the purported assignee or transferee any interest or right herein whatsoever. 7. DISPUTES. As a condition of the granting of the option granted hereby, the Optionee and the Optionee's successors and assigns agree that any dispute or disagreement which shall arise under or as a result of this Agreement shall be determined by the Committee in its sole discretion and judgment and that any such determination and any interpretation by the Committee of the terms of this Agreement shall be final and shall be binding and conclusive for all purposes. 8. ADJUSTMENTS. In the event of any stock dividend, stock split, reclassification, merger, consolidation, or similar transaction affecting the shares covered by this option, the rights of the Optionee shall be as provided in Section 8 of the Plan and any adjustment therein provided shall be made in accordance with Section 8 of the Plan. 9. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder of the Company with respect to any of the shares covered by this option until the issuance of a stock certificate or certificates upon the exercise of the option in full or in part, and then only with respect to the shares represented by such certificate or certificates. 10. NOTICES. Every notice relating to this Agreement shall be in writing and if given by mail shall be given by registered or certified mail with return receipt requested. All notices to the Company shall be delivered to the Secretary of the Company at the Company's headquarters or addressed to the Secretary of the Company at the Company's headquarters. All notices by the Company to the Optionee shall be delivered to the Optionee personally or addressed to the Optionee at the Optionee's last residence address as then contained in the records of the Company or such other address as the Optionee may designate. Either party by notice to the other may designate a different address to which notices shall addressed. Any notice given by the Company to the Optionee at the Optionee's last designated address shall be effective to bind any other person who shall acquire rights hereunder. 11. "OPTIONEE" TO INCLUDE CERTAIN TRANSFEREES. Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically apply to any other person or persons to whom the option, in accordance with the provisions of Section 6 hereof, may be transferred, the word "Optionee" shall be deemed to include such person or persons. 12. GOVERNING LAW. This Agreement has been made in and shall be construed in accordance with the laws of the State of Michigan. 13 13. PROVISIONS OF PLAN CONTROLLING. The provisions hereof are subject to the terms and provisions of the Plan copies of which are available for review upon request. In the event of any conflict between the provisions of this option and the provisions of the Plan, the provisions of the Plan shall control, except to the extent that the provisions of this option limit or restrict the rights of the Optionee to a greater extent than set forth in the Plan. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PERCEPTRON, INC. By: ----------------------------- Title: ------------------------- -------------------------------- -----------------------, OPTIONEE 14 NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN Perceptron, Inc. 47827 Halyard Drive Plymouth, MI 48170 Dear Sir: An incentive stock option was granted to me on _____, 19__to purchase_______ shares of Perceptron, Inc. Common Stock at a price of $___per share. I hereby elect to exercise my incentive stock option with respect to_____ shares for an aggregate purchase price of $______. I hereby elect to pay for such shares as follows: Personal Check $____ Cash $____ Bank Draft $____ Money Order $____ Cashless Exercise $____ Perceptron Common Stock $____ Retention of Stock Options $____ Total $ ===== [A personal check [or cash, bank draft or money order] for the purchase price [is enclosed herewith.] [Documents as are required to effect a cashless exercise are enclosed.] [I hereby elect to exercise my stock option with respect to shares through a combination of cash payments and shares of Perceptron, Inc. Common Stock, as described on the attached Exhibit A. A personal check for the purchase price to be paid in cash is enclosed herewith. Certificates for shares of Perceptron, Inc. Common Stock are enclosed herewith, along with a duly executed stock power in proper form for transfer, with all signatures properly guaranteed by a national bank or member firm of the NYSE or AMEX. [I represent that the shares of Perceptron, Inc. Common Stock enclosed herewith have been owned by me for more than six months.] or [I currently own more than ___shares of 15 Perceptron, Inc. Common Stock which have been owned by me for more than six months]. Such shares have not been counted during the prior six months as owned by me for purposes of determining whether I may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method.] [I hereby authorize the Company to retain options to purchase____ shares of Perceptron, Inc. Common Stock granted pursuant to this stock option (the "Forfeited Options"). I hereby acknowledge and agree that, as of the date set forth below, the Forfeited Options shall no longer be exercisable, and shall expire and have no further force and effect. I represent that I currently own more than_____ shares of Perceptron, Inc. Common Stock which have been owned by me for more than six months. Such shares have not been counted during the prior six months as owned by me for purposes of determining whether I may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method.] I agree to notify the Company if prior to two years from the date of grant and one year from the exercise date, I dispose of any shares acquired pursuant to my exercise of this incentive stock option. I represent that the shares of stock that I am purchasing upon this exercise of my option are being purchased for investment purposes and not with a view to resale. This representation shall not be binding upon me if the shares of Common Stock that I am purchasing are subject to an effective Registration Statement under the Securities Act of 1933. _____________________________ Optionee Dated________, 19__ 16 USAGE: 1/1/97 NON-QUALIFIED STOCK OPTION AGREEMENT - OFFICER UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN THIS STOCK OPTION AGREEMENT made this __ day of ________, 19__, by and between Perceptron, Inc., a Michigan corporation ("the Company"), and __________ ________________________, who is currently employed by the Company or one of its subsidiaries (the "Optionee"). 1. GRANT OF OPTION. Subject to the terms and conditions hereof, the Company hereby grants to the Optionee an option to purchase from the Company up to, but not exceeding in the aggregate, ____________ shares of the Company's Common Stock at a price of $_______ per share. This option is not intended to constitute an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code ("Code"). 2. RIGHT TO EXERCISE OPTION. The Optionee may purchase from the Company on and after the first anniversary of the date of grant, 25% of the shares covered by this option, and on each succeeding one year anniversary thereof may exercise an additional 25% of the shares covered by the option, so that on the fourth anniversary of the date of grant this option shall be fully exercisable. To the extent not exercised, installments shall accumulate and the Optionee may exercise them in whole or in part in any subsequent period. Any provision of this Agreement notwithstanding, no portion of this option shall be exercisable on or after the tenth anniversary of the date of grant. 3. TERMINATION OF EMPLOYMENT. If, prior to the date that this option shall first become exercisable, the Optionee's employment with the Company or any of its subsidiaries shall be terminated for any reason, the Optionee's right to exercise this option shall terminate and all rights hereunder shall cease. As used in this Agreement, the term "subsidiary" of the Company means any "subsidiary corporation" as defined in Section 424(f) of the Code, the term "employment" means employment with the Company or any subsidiary of the Company, and the term "disability" means "total and permanent disability," as defined in Section 22(e) of the Code. If, on or after the date that this option shall first become exercisable, the Optionee's employment shall be terminated for any reason other than death or disability, the Optionee shall have the right, within three months after such termination of employment, to exercise this option to the extent that it shall have been exercisable and unexercised on the date of such termination of services, subject to any other limitation on the exercise of such option in effect at the date of exercise. If on or after the date that this option shall first become exercisable the Optionee's employment shall be terminated due to death or disability, the Optionee or the executor or administrator of the estate of the Optionee (as the case may be) or the person or persons to whom the option shall have been transferred by will or by the laws of descent and distribution, shall have the right, within one year from the date of the Optionee's death or disability, to exercise this option 17 to the extent that it was exercisable and unexercised on the date of the Optionee's death or disability, subject to any other limitation on exercise in effect at the date of exercise. The transfer of the Optionee from one corporation to another among the Company and any of its subsidiaries, or a leave of absence with the written consent of the Company, shall not be a termination of services for purposes of this option. Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, (i) in the event of a termination by the Company of the Optionee's employment Without Cause (as defined below) or Diminishment of the Optionee's Responsibilities Without Cause (as defined below), following a Change in Control of the Company, or (ii), in the event of a Change in Control, if one of the corporations surviving the Change in Control or the person purchasing the Company's assets in the Change in Control does not assume this option, any portion of this option that is then not exercisable shall become immediately exercisable; provided, however, that the foregoing provision shall apply, in case of incentive stock options ("ISOs"), and in the case of options held by a person subject to Section 16(b) of the Securities Exchange Act of 1934 ("Section 16(b) Grants"), only if the termination or diminishment referred to in (i) above and the Change in Control referred to in (ii) above occurs after the first anniversary of the date of grant of this option, in the case of ISOs, or the date six months after the date of grant of this option, in the case of Section 16(b) Grants; and, provided further, however, that the Committee shall have the right, at any time prior to the occurrence of the termination or diminishment referred to in (i) above or the Change in Control referred to in (ii) above, to modify the provisions of this paragraph, including the termination of all of the Optionee's rights set forth in this paragraph, to the extent required under applicable accounting and Securities and Exchange Commission rules, regulations, policies, guidelines or other similar requirements to permit the Company to account for a then contemplated business combination under pooling-of-interests accounting. For purposes hereof, "Without Cause" shall mean the Optionee's employment is terminated by the Company, or there is a Diminishment of the Optionee's Responsibilities, for any reason except (i) personal dishonesty; (ii) willful misconduct; (iii) breach of fiduciary duty to the Company; (iv) conviction for violation of any law (other than traffic violations or similar offenses); or (v) repeated or intentional failure to perform duties, after written notice is delivered identifying the failure, and it is not cured within ten (10) days following receipt of such notice. For purposes hereof, "Diminishment of the Optionee's Responsibilities" shall mean the Company, or any successor thereto, (i) reassigning the Optionee substantial duties which are materially inconsistent with the Optionee's position, duties and responsibilities with the Company immediately prior to the Change in Control, except for reassignments of duties which constitute a bona fide promotion of the Optionee, or (ii) reducing the Optionee's compensation such that (a) the Optionee's annual base salary is less than eighty (80%) percent of the Optionee's annual base salary prior to the Change in Control; and (b) the Optionee's annual base salary and the annual cash bonus which the Optionee is eligible to earn (including any performance based bonus), combined, is not at least equal to the combination of the Optionee's annual base salary prior to the Change in Control and the average of the annual cash bonuses which the Optionee was eligible to earn (including any performance based bonus, but excluding any bonus payable to the Optionee for completing the Change in Control), whether or not actually earned, for the year in which the Change in Control occurred and for the year prior thereto. For purposes hereof, a "Change in Control" shall be deemed to have occurred in the 18 event of (i) a merger involving the Company in which the Company is not the surviving corporation (other than a merger with a wholly-owned subsidiary of the Company formed for the purpose of changing the Company's corporate domicile); (ii) a share exchange in which the shareholders of the Company exchange their stock in the Company for stock of another corporation (other than a share exchange in which all or substantially all of the holders of the voting stock of the Company, immediately prior to the transaction, exchange, on a pro rata basis, their voting stock of the Company for more than 50% of the voting stock of such other corporation); (iii) the sale of all or substantially all of the assets of the Company; or (iv) any person or group of persons (as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended) (other than any employee benefit plan or employee benefit trust benefitting the employees of the Company) becoming a beneficial owner, directly or indirectly, of securities of the Company representing more than fifty (50%) percent of either the then outstanding Common Stock of the Company, or the combined voting power of the Company's then outstanding voting securities. Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, (provided, however, if this option is an incentive stock option, only if the merger, consolidation or sale or transfer referred to below occurs after the first anniversary of the date of grant of this option, and, if this option is held by a person subject to Section 16(b) of the Securities Exchange Act of 1934, only if such merger, consolidation or sale or transfer occurs after the date six months after the date of grant of this option), if, in connection with any merger, consolidation, or sale or transfer by the Company of substantially all of its assets, this option is not assumed or continued by the surviving corporation or the purchaser, the date of termination of this option and the date on or after which this option, or any portion thereof not then exercisable, may be exercised, shall be advanced to a date to be fixed by the Committee, which date shall not be more than 15 days prior to such merger, consolidation, or sale or transfer; provided however, that the Committee shall have the right, at any time prior to the occurrence of such merger, consolidation or sale or transfer, to modify the provisions of this paragraph, including the termination of all of the Optionee's rights set forth in this paragraph, to the extent required under applicable accounting and Securities and Exchange Commission rules, regulations, policies, guidelines or other similar requirements to permit the Company to account for a then contemplated business combination under pooling-of-interests accounting. 4. EXERCISE OF OPTION. (a) At any time that this option may be exercised as provided in this Agreement, the Optionee may exercise any portion of this option which is then exercisable, in whole or in part, by delivery to the Company of a written notice, in the form attached hereto, signed by the Optionee. (b) In addition, the Optionee shall deliver, on the date of exercise: (i) cash equal to the purchase price of the shares being purchased, (ii) such documents as are or may be required under the terms of Section 5.3 of the Plan to effect a cashless exercise, 19 (iii) Permitted Shares with a value (determined as of the date of exercise of the option) equal to the purchase price of the shares being purchased (the "Delivered Shares Method"), or (iv) the authorization of the Company to retain (or forfeit) then exercisable options issued to the Optionee under the Plan ("Forfeited Options") with a value (as defined in the Plan) equal to the purchase price of the shares being purchased (the "Forfeiture of Stock Options Method"). In order to use the Forfeiture of Stock Options Method, the Optionee must then own, and have owned for at least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the number of shares of Common Stock underlying the Forfeited Options. (c) "Permitted Shares" are shares of Company Common Stock to be delivered to pay the exercise price of the option (the "Delivered Shares"): (i) which have been owned by the Optionee for at least six months prior to the date of delivery, or (ii), if they have not been owned by the Optionee for at least six months prior to the date of delivery, the Optionee then owns, and has owned for at least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the Delivered Shares. (d) Forfeited Options shall expire and be of no further force and effect as of the date forfeited. (e) Shares which have been counted during the prior six months as owned by the Optionee for purposes of determining whether the Optionee may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method: (i) may not be used as Delivered Shares, and (ii) may not be counted as owned by the Optionee for purposes of making calculations under the Delivered Shares Method or Forfeiture of Stock Options Method. 5. COMPLIANCE WITH SECURITIES LAWS. Anything to the contrary herein notwithstanding, the Company's obligation to sell and deliver stock under this option is subject to such compliance with federal and state laws, rules and regulations applying to the authorization, issuance or sale of securities, and applicable stock exchange requirements, as the Company deems necessary or advisable. 6. NON-ASSIGNABILITY. The option hereby granted shall not be transferable by the Optionee other than by will or the laws of descent and distribution, and the option may be exercised during the Optionee's lifetime only by the Optionee. Any transferee of the option shall take the same subject to the terms and conditions of this Agreement. No such transfer of the option shall be 20 effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of the will and/or such other evidence as the Company may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of this Agreement. No assignment or transfer of this option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except a transfer by the Optionee by will or by the laws of descent and distribution, shall vest in the purported assignee or transferee any interest or right herein whatsoever. 7. DISPUTES. As a condition of the granting of the option granted hereby, the Optionee and the Optionee's successors and assigns agree that any dispute or disagreement which shall arise under or as a result of this Agreement shall be determined by the Committee in its sole discretion and judgment and that any such determination and any interpretation by the Committee of the terms of this Agreement shall be final and shall be binding and conclusive for all purposes. 8. ADJUSTMENTS. In the event of any stock dividend, stock split, reclassification, merger, consolidation, or similar transaction affecting the shares covered by this option, the rights of the Optionee shall be as provided in Section 8 of the Plan and any adjustment therein provided shall be made in accordance with Section 8 of the Plan. 9. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder of the Company with respect to any of the shares covered by this option until the issuance of a stock certificate or certificates upon the exercise of the option in full or in part, and then only with respect to the shares represented by such certificate or certificates. 10. NOTICES. Every notice relating to this Agreement shall be in writing and if given by mail shall be given by registered or certified mail with return receipt requested. All notices to the Company shall be delivered to the Secretary of the Company at the Company's headquarters or addressed to the Secretary of the Company at the Company's headquarters. All notices by the Company to the Optionee shall be delivered to the Optionee personally or addressed to the Optionee at the Optionee's last residence address as then contained in the records of the Company or such other address as the Optionee may designate. Either party by notice to the other may designate a different address to which notices shall addressed. Any notice given by the Company to the Optionee at the Optionee's last designated address shall be effective to bind any other person who shall acquire rights hereunder. 11. "OPTIONEE" TO INCLUDE CERTAIN TRANSFEREES. Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically apply to any other person or persons to whom the option, in accordance with the provisions of Section 6 hereof, may be transferred, the word "Optionee" shall be deemed to include such person or persons. 12. GOVERNING LAW. This Agreement has been made in and shall be construed in accordance with the laws of the State of Michigan. 21 13. PROVISIONS OF PLAN CONTROLLING. The provisions hereof are subject to the terms and provisions of the Plan copies of which are available for review upon request. In the event of any conflict between the provisions of this option and the provisions of the Plan, the provisions of the Plan shall control, except to the extent that the provisions of this option limit or restrict the rights of the Optionee to a greater extent than set forth in the Plan. 14. WITHHOLDING. The Optionee hereby authorizes the Company to withhold from his compensation or agrees to tender the applicable amount to the Company to satisfy any requirements for withholding of income and employment taxes in connection with the exercise of the option granted hereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PERCEPTRON, INC. By: ______________________________ Title: ________________________ __________________________________ ________________________, Optionee 22 NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN Perceptron, Inc. 47827 Halyard Drive Plymouth, MI 48170 Dear Sir: A non-qualified stock option was granted to me on _____________, 19__ to purchase __________ shares of Perceptron, Inc. Common Stock at a price of $___________ per share. I hereby elect to exercise my non-qualified stock option with respect to shares for an aggregate purchase price of $__________. I hereby elect to pay for such shares as follows: Personal Check $_____ Cash $_____ Bank Draft $_____ Money Order $_____ Cashless Exercise $_____ Perceptron Common Stock $_____ Retention of Stock Options $_____ Total $ ====== [A personal check [or cash, bank draft or money order] for the purchase price is enclosed herewith.] [Documents as are required to effect a cashless exercise are enclosed.] [I hereby elect to exercise my stock option with respect to shares through a combination of cash payments and shares of Perceptron, Inc. Common Stock, as described on the attached Exhibit A. A personal check for the purchase price to be paid in cash is enclosed herewith. Certificates for shares of Perceptron, Inc. Common Stock are enclosed herewith, along with a duly executed stock power in proper form for transfer, with all signatures properly guaranteed by a national bank or member firm of the NYSE or AMEX. [I represent that the shares of Perceptron, Inc. Common Stock enclosed herewith have been owned by me for more than six months.] or [I currently own more than shares of Perceptron, Inc. Common Stock which have been owned by me for more than six months]. Such shares have not been counted during the prior six months as owned by me for purposes of determining whether I may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method.] 23 [I hereby authorize the Company to retain options to purchase shares of Perceptron, Inc. Common Stock granted pursuant to this stock option (the "Forfeited Options"). I hereby acknowledge and agree that, as of the date set forth below, the Forfeited Options shall no longer be exercisable, and shall expire and have no further force and effect. I represent that I currently own more than shares of Perceptron, Inc. Common Stock which have been owned by me for more than six months. Such shares have not been counted during the prior six months as owned by me for purposes of determining whether I may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method.] I represent that the shares of stock that I am purchasing upon this exercise of my option are being purchased for investment purposes and not with a view to resale. This representation shall not be binding upon me if the shares of Common Stock that I am purchasing are subject to an effective Registration Statement under the Securities Act of 1933. __________________________________ Optionee Dated __________, 19__ 24 AMENDMENT TO STOCK OPTION AGREEMENTS UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN THIS AMENDMENT TO STOCK OPTION AGREEMENTS UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN, made effective as of the date set forth below, by and between Perceptron, Inc., a Michigan corporation (the "Company"), and the person signing as Optionee set forth below (being referred to herein as an "Optionee") hereby amends all stock option agreements between the Company and the Optionee currently outstanding under the 1992 Stock Option Plan. For good and valuable consideration, receipt of which is hereby acknowledged, including, but not limited to, eligibility to participate in the 1997 Bonus Plan,upon the terms and conditions approved by the Management Development and Compensation Committee, the Company and the Optionee hereby agree to amend the Option Agreements as set forth below. 1. DEFINED TERMS. Terms defined in the Option Agreements shall be used in this Amendment with their defined meanings unless otherwise defined herein. 2. AMENDMENT OF THE OPTION AGREEMENT. Section 4 of the Option Agreements shall be amended to add the following thereto: The Optionee may deliver shares of Company Common Stock in payment of the purchase price of the shares being purchased (the "Delivered Shares Method") only if either (i) the shares of Company Common Stock being so delivered (the "Delivered Shares") have been owned by the Optionee for at least six months prior to the date of delivery, or (ii), if the Delivered Shares have not been owned by the Optionee for at least six months prior to the date of delivery, the Optionee, at the date of delivery of the Delivered Shares, then owns, and has owned for at least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the Delivered Shares. If the Option Agreement permits the Optionee to authorize the Company to retain exercisable options in payment of the purchase price of shares being purchased (the "Retention of Stock Options Method"), then the Optionee may so authorize the Company to retain exercisable options (the "Retained Options") only if, at the date of such authorization, the Optionee then owns, and has owned for at least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the number of shares of Common Stock underlying the Retained Options. Shares which have been counted during the prior six months as owned by the Optionee for purposes of determining whether the Optionee may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Retention of Stock Options 25 Method may not be used as Delivered Shares and may not be counted as owned by the Optionee for purposes of the foregoing calculations. 3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby, the terms and provisions of the Option Agreements shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment has been executed as of________, 1997. PERCEPTRON, INC. By:_______________________ Title:____________________ __________________________ OPTIONEE EX-10.27 3 EX-10.27 1 EXHIBIT 10.27 USAGE: 2/28/97 NON-QUALIFIED STOCK OPTION AGREEMENT UNDER THE PERCEPTRON, INC. DIRECTORS STOCK OPTION PLAN THIS STOCK OPTION AGREEMENT is made this __ day of __________,__, by and between Perceptron, Inc., a Michigan corporation (the "Company"), and _______________, (the "Optionee"). The Optionee is now serving as an Eligible Director of the Company, and the Company desires to provide additional incentive to the Optionee to encourage the Optionee to remain as an Eligible Director of the Company, and as an inducement thereto, the Company has determined to grant to the Optionee a non-qualified stock option pursuant to the Company's Directors Stock Option Plan (the "Plan"). NOW, THEREFORE, it is agreed between the parties as follows: 1. Grant of Option. Subject to the terms and conditions hereof, the Company hereby grants to the Optionee the right and option to purchase from the Company up to, but not exceeding in the aggregate, ________________ shares of the Company's Common Stock, at a price of $_____ per share. This option is not intended to meet the requirements of an incentive stock option under Section 422 of the Internal Revenue Code (the "Code"). Certain capitalized terms used in this Agreement shall have the same meaning as defined in the Plan. 2. Accrual or Right to Exercise Option. The option hereby granted may not be exercised prior to ________________. On ________________, this option shall be fully exercisable. Any provision of this Agreement notwithstanding, this option shall not be exercisable on or after the date ten years from the date of grant of this option (the "Expiration Date"). Notwithstanding the foregoing, (i) in the event of a termination by the Company of the Optionee's membership on the Board or failure to renominate the Participant for election to the Board, or voluntary resignation by the Optionee from the Board at the request of the Board, following a Change in Control of the Company, or (ii), in the event of a Change in Control, if one of the corporations surviving the Change in Control or the person purchasing the Company's assets in the Change in Control does not assume this option, any portion of this option that is then not exercisable shall become immediately exercisable. For purposes hereof, a "Change in Control" shall be deemed to have occurred in the event of (i) a merger involving the Company in which the Company is not the surviving corporation (other than a merger with a wholly-owned subsidiary of the Company formed for the purpose of changing the Company's corporate domicile); (ii) a share exchange in which the shareholders of the Company exchange their stock in the Company for stock of another corporation (other than a share exchange in which all or substantially all of the holders of the voting stock of the Company, immediately prior to the transaction, exchange, on a pro rata basis, their voting stock of the Company for more than 50% of the voting stock of such other corporation); (iii) the sale of all or substantially all of the assets of the Company; or (iv) any person or group of persons (as defined by Section 13(d) of the Exchange Act) (other than any employee 2 benefit plan or employee benefit trust benefitting the employees of the Company) becoming a beneficial owner, directly or indirectly, of securities of the Company representing more than fifty (50%) percent of either the then outstanding Common Stock, or the combined voting power of the Company's then outstanding voting securities. 3. Termination. Subject to certain change in control provisions set forth in Section 2 above, if the Optionee's term of office as an Eligible Director is terminated for any reason (including the Optionee becoming an Employee), other than the Optionee's election or appointment as Chairman, prior to the date that this option or a portion thereof first becomes exercisable, such option or portion thereof which is not then exercisable shall terminate and all rights thereunder shall cease. If the Optionee's term of office as an Eligible Director terminates due to the Optionee's election or appointment as Chairman (and the Optionee is not an Employee or does not become an Employee as a result of such election or appointment), this Option shall not terminate and shall continue to become exercisable as provided in Section 2 above. If thereafter such Chairman becomes an Employee, or ceases to be a Director, prior to the date this option or a portion thereof first becomes exercisable, such option or portion thereof which is then not exercisable shall terminate and all rights hereunder relating thereto shall cease. To the extent this option or any portion thereof is exercisable and unexercised on the date the Optionee's term of office as an Eligible Director is terminated for any reason (including the Optionee becoming an Employee), other than the Optionee's election or appointment as Chairman, this option shall terminate on the earlier of (i) the Expiration Date of this option, and (ii) three months after such termination; provided, however, that the exercise period in clause (ii) shall be extended to one year after termination if the termination is due to the Optionee's death or Disability. To the extent an Option or any portion thereof is exercisable and unexercised on the date of the Optionee's term of office as an Eligible Director is terminated due to the Optionee's election or appointment as the Chairman (and the Optionee is not an Employee or does not become an Employee as a result of such election or appointment), this option shall terminate on the earlier of (i) the Expiration Date of this option, and (ii) three months after the Optionee becomes an Employee or ceases to be a Director; provided, however, that the exercise period in clause (ii) shall be extended to one year after the Optionee ceases to be a Director if such termination is due to the Optionee's death or Disability. Notwithstanding the foregoing two sentences, in the event this option would otherwise expire during any period during which affiliates of the Company are prohibited from disposing of Common Stock in order to comply with applicable accounting and Securities and Exchange Commission rules, regulations, policies, guidelines or other similar requirements so as to permit the Company to account for a then completed or contemplated business combination under pooling of interest, the exercise period in clause (ii) of the foregoing two sentences shall be extended to the tenth business day following the expiration of any such period in which such dispositions are prohibited. 4. EXERCISE OF OPTION. (a) At any time that this option may be exercised as provided in this Agreement, the 2 3 Optionee may exercise any portion of this option which is then exercisable, in whole or in part, by delivery to the Company of a written notice, in the form attached hereto, signed by the Optionee. (b) In addition, the Optionee shall deliver, on the date of exercise: (i) cash equal to the purchase price of the shares being purchased, (ii) such documents as are or may be required under the terms of Section 2.6 of the Plan to effect a cashless exercise; (iii) Permitted Shares with a value (determined as of the date of exercise of the option) equal to the purchase price of the shares being purchased (the "Delivered Shares Method"), or (iv) the authorization of the Company to retain (or forfeit) then exercisable options issued to the Optionee under the Plan ("Forfeited Options") with a value (as defined in the Plan) equal to the purchase price of the shares being purchased (the "Forfeiture of Stock Options Method"). In order to use the Forfeiture of Stock Options Method, the Optionee must then own, and have owned for at least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the number of shares of Common Stock underlying the Forfeited Options. After receipt of the foregoing, and subject to Section 5 below, the Company shall issue the shares in the name of the Optionee and deliver the certificates therefor to the Optionee. (c) "Permitted Shares" are shares of Company Common Stock to be delivered to pay the exercise price of the option (the "Delivered Shares): (i) which have been owned by the Optionee for at least six months prior to the date of delivery, or (ii) if they have not been owned by the Optionee for at least six months prior to the date of delivery, the Optionee then owns, and has owned for at least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the Delivered Shares. (d) Forfeited Option shall expire and be of no further force and effect as of the date forfeited. (e) Shares which have been counted during the prior six months as owned by the Optionee for purposes of determining whether the Optionee may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method: 3 4 (i) may not be used as Delivered Shares, and (ii) may not be counted as owned by the Optionee for purposes of making calculations under the Delivered Shares Method or Forfeiture of Stock Options Method. 5. Compliance With Securities Laws. Anything to the contrary herein notwithstanding, the Company's obligation to sell and deliver stock under this Option is subject to such compliance with federal and state laws, rules and regulations applying to the authorization, issuance or sale of securities as the Company deems necessary or advisable. The Company shall not be required to sell and deliver stock pursuant hereto unless and until it receives satisfactory proof that the issuance or transfer of such shares will not violate any of the provisions of the Securities Act of 1933 or the Securities Exchange Act of 1934 or the rules and regulations of the Securities Exchange Commission promulgated thereunder or the provisions of any state law governing the sale of securities, or that there has been compliance with the provisions of such acts, rules, regulations and state laws. If the Optionee fails to accept delivery and pay for all or any part of the number of shares specified by such notice upon tender of delivery thereof the Optionee's right to exercise this option with respect to such undelivered shares may be terminated by the Company. 6. Non-Assignability. The option hereby granted shall not be transferable by the Optionee other than by will or the laws of descent and distribution, and the option may be exercised during the Optionee's lifetime only by the Optionee. Any transferee of the option shall take the same subject to the terms and conditions of this Agreement. No such transfer of the Option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of the will and/or such other evidence as the Company may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of this Agreement. No assignment or transfer of this Option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except a transfer by the Optionee by will or by the laws of descent and distribution, shall vest in the purported assignee or transferee any interest or right herein whatsoever. 7. Disputes. As a condition to the granting of the option granted hereby, the Optionee and the Optionee's successors and assigns agree that any dispute or disagreement which shall arise under or as a result of this Agreement shall be determined by the Board in its sole discretion and judgment and that any such determination and any interpretation by the Board of the terms of this Agreement shall be final and shall be binding and conclusive for all purposes. 8. Adjustments. In the event of any stock dividend, stock split, recapitalization, reorganization, merger, consolidation, combination, exchange or other relevant change in the capital structure of the Company affecting the shares covered by this option, the rights of the Optionee shall be as provided in Section 4.1 of the Plan. 9. Rights as Shareholder. The Optionee shall have no rights as a shareholder of the 4 5 Company with respect to any of the shares covered by this option until the issuance of a stock certificate or certificates upon the exercise of the option in full or in part, and then only with respect to the shares represented by such certificate or certificates. 10. Notices. Every notice relating to this Agreement shall be in writing and if given by mail shall be given by registered or certified mail with return receipt requested. All notices to the Company shall be delivered to the Company at the principal office of the Company. All notices by the Company to the Optionee shall be delivered to the Optionee personally or addressed to the Optionee at the Optionee's last residence address as then contained in the records of the Company or such other address as the Optionee may designate. Either party by notice to the other may designate a different address to which notices shall be addressed. Any notice given by the Company to the Optionee at the Optionee's last designated address shall be effective to bind any other person who shall acquire rights hereunder. 11. "Optionee" to Include Certain Transferees. Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically apply to any other person or persons to whom the option, in accordance with the provisions of Section 6 hereof, may be transferred, the word "Optionee" shall be deemed to include such person or persons. 12. Governing Law. This Agreement has been made in and shall be construed in accordance with the laws of the State of Michigan. 13. Provisions of Plan Controlling. The provisions hereof are subject to the terms and provisions of the Plan. In the event of any conflict between the provisions of this option and the provisions of the Plan, the provisions of the Plan shall control, except to the extent that the provisions of this option limit or restrict the rights of the Optionee to a greater extent than set forth in the Plan. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PERCEPTRON, INC. By: __________________________________ Its: _________________________________ ______________________________________ ____________________________, Optionee NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION UNDER THE PERCEPTRON, INC. 6 DIRECTORS STOCK OPTION PLAN Perceptron, Inc. 47827 Halyard Drive Plymouth, MI 48170 Dear Sir: A non-qualified stock option was granted to me on , , to purchase shares of Perceptron, Inc. Common Stock at a price of $ per share. I hereby elect to exercise my non-qualified stock option with respect to shares for an aggregate purchase price of $ . I hereby elect to pay for such shares as follows: Personal Check $ --- $ Bank Draft $ Money Order $ Cashless Exercise $ --- Perceptron Common Stock $ --- Retention of Stock Options $ --- Total $ === [A personal check [or cash, bank draft or money order] for the purchase price is enclosed herewith]. [Documents as are required to effect a cashless exercise are enclosed.] [I hereby elect to exercise my stock option with respect to shares through a combination of cash payments and shares of Perceptron, Inc. Common Stock, as described on the attached Exhibit A. A personal check for the purchase price to be paid in cash is enclosed herewith. Certificates for shares of Perceptron, Inc. Common Stock are enclosed herewith, along with a duly executed stock power in proper form for transfer, with all signatures properly guaranteed by a national bank or member firm of the NYSE or AMEX. [I represent that the shares of Perceptron, Inc. Common Stock enclosed herewith have been owned by me for more than six months.] or [I currently own more than shares of Perceptron, Inc. Common Stock which have been owned by me for more than six months.] Such shares have not been counted during the prior six months as owned by me for purposes of determining whether I may exercise 2 7 options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method.] [I hereby authorize the Company to retain options to purchase shares of Perceptron, Inc. Common Stock granted pursuant to this stock option (the "Forfeited Options"). I hereby acknowledge and agree that, as of the date set forth below, the Forfeited Options shall no longer be exercisable, and shall expire and have no further force and effect. I represent that I currently own more than shares of Perceptron, Inc. Common Stock which have been owned by me for more than six months. Such shares have not been counted during the prior six months as owned by me for purposes of determining whether I may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Forfeiture of Stock Options Method.] __________________________________ ________________________, Optionee Dated ______________________ 3 8 AMENDMENT TO STOCK OPTION AGREEMENTS UNDER THE PERCEPTRON, INC. DIRECTORS STOCK OPTION PLAN THIS AMENDMENT TO THE STOCK OPTION AGREEMENTS listed on Exhibit A (the "Option Agreements"), made effective as of the date set forth below, by and between Perceptron, Inc., a Michigan corporation (the "Company"), and the person signing as Optionee set forth below (being referred to herein as an "Optionee"). For good and valuable consideration, receipt of which is hereby acknowledged, the Company and the Optionee hereby agree to amend the Option Agreements as set forth below. 1. DEFINED TERMS. Terms defined in the Option Agreements shall be used in this Amendment with their defined meanings unless otherwise defined herein. 2. AMENDMENT OF THE OPTION AGREEMENT. Section 4 of the Option Agreements shall be amended to add the following thereto: The Optionee may deliver shares of Company Common Stock in payment of the purchase price of the shares being purchased (the "Delivered Shares Method") only if either (i) the shares of Company Common Stock being so delivered (the "Delivered Shares") have been owned by the Optionee for at least six months prior to the date of delivery, or (ii), if the Delivered Shares have not been owned by the Optionee for at least six months prior to the date of delivery, the Optionee, at the date of delivery of the Delivered Shares, then owns, and has owned for at least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the Delivered Shares. If the Option Agreement permits the Optionee to authorize the Company to retain exercisable options in payment of the purchase price of shares being purchased (the "Retention of Stock Options Method") then the Optionee may so authorize the Company to retain exercisable options (the "Retained Options") only if, at the date of such authorization, the Optionee then owns, and has owned for a least six months prior thereto, a number of shares of Company Common Stock at least equal in number to the number of shares of Common Stock underlying the Retained Options. Shares which have been counted during the prior six months as owned by the Optionee for purposes of determining whether the Optionee may exercise options to purchase Common Stock pursuant to the Delivered Shares Method or the Retention of Stock Options Method may not be used as Delivered Shares and may not be counted as owned by the Optionee for purposes of the foregoing calculations. 9 3. CONTINUED EFFECTIVENESS. Except as specifically amended hereby, the terms and provisions of the Option Agreements shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment has been executed as of __________, 1997. PERCEPTRON, INC. By: ______________________________ Title:____________________________ __________________________________ OPTIONEE 10 EXHIBIT A Directors Stock Option Plan Grants Optionee Name:
Date of Number of Exercise Option Agreement Option Shares* Price* - ---------------- -------------- --------
*For option agreements issued after November 20, 1995, adjusted to reflect 3-for-2 stock split of Perceptron, Inc. Common Stock which was effected in the form of a stock dividend payable on November 30, 1995 to shareholders of record on November 20, 1995. EX-10.34 4 EX-10.34 1 EXHIBIT 10.34 1. Operating Goals:
1996 Operating Goals %Bonus Allocation -------------------- ----------------- Bookings Goal $55,000,000 40% of Total Revenue Goal $50,000,000 30% of Total Pre-Tax Income Goal $14,448,000 30% of Total
(Net Income goal is after budgeted expenses for bonus and stock option compensation expense) 2. Bonus Plans:
Plan Payout Methodology ------------ --------------------------------------------------- Officer Plan 1. 70% based on company achievement of operating goals 2. 30% based on the sole discretion of the Management Development and Compensation Committee, with the same discretionary % applied to each individual officer's bonus Manager Plan 1. 75% based on company achievement of operating goals 2. 25% based on the manager's overall performance, as determined by the manager's supervisor Team Plan 1. 100% based on company achievement of operating goals
3. Plan Administration: 1. The plan will be administered by the Management Development and Compensation Committee of the Board of Directors. 2. No bonuses will be earned under any plan, unless 75% of the net income element of the operating goal is achieved. 3. Participants must be employed on or before June 30, 1996, and must be employed on December 31, 1996 to be eligible. Those employed between January 1, 1996 and June 30, 1996, will receive a pro-rata portion of their individual bonus potential. Each individual will have a specified bonus potential (yet to be specifically identified). 4. Bonuses to be paid within thirty days of the completion of the 1996 audit. 5. That portion of the 1996 bonus that is based on company achievement of operating goals will begin being earned upon the company achievement of 75% of each of the three individual operating goal elements (bookings, revenue and net income). 6. Earned bonuses will be based on the attached graph (Exhibit I), which demonstrates the percentages of the bonuses that will be earned beginning at 75% of operating goal achievement and continuing at achievement levels in excess of 100%. A separate chart will be prepared for each of the three elements of bookings, revenue and net income The sum of the three will be the total bonus earned. 2 PERCEPTRON, INC. 1996 Bonus Payout Graph indicting the percent of Bonus which is earned if various percentage levels of operating goals are achieved, with (i) 0% of Bonus earned if 75% of operating goals are achieved, (ii) increasing linearly to 100% of Bonus earned if 100% of operating goals are achieved and (iii), thereafter, increasing linearly at one-half the slope, with 150% of Bonus earned if 125% of operating goals are achieved and 200% of Bonus earned if 150% of operating goals are achieved. EX-10.36 5 EX-10.36 1 EXHIBIT 10.36 February 14, 1996 Mr. Alfred A. Pease 5476 Cleo Court Livermore, California 94550 Dear Al: This letter sets forth the terms of your employment with Perceptron, Inc. (the "Company") as President and Chief Executive Officer. 1. Base Salary. Your base salary shall be $200,000 per annum, subject to increase from time to time at the sole discretion of the Company's Management Development and Compensation Committee. Your salary shall be payable in installments consistent with the Company's regular payroll practices as they may exist from time to time. 2. Appointment. You have been appointed by the Company's Board of Directors and shall report to the Board of Directors of the Company (the "Board of Directors"). You shall serve at the pleasure of the Board of Directors and may be removed from that position and/or your employment may be terminated at any time, with or without cause, at the sole discretion of the Board of Directors. The Board of Directors shall determine your powers and duties, which may be modified from time to time. You shall devote your full time, attention and best efforts to the performance of your duties for the Company. For your information, you have been elected as a member of the Board of Directors, effective as of the date of this Agreement. 3. Bonus: You shall have an annual targeted bonus opportunity equal to 60% of the base salary paid to you in each calendar year, to be earned upon the achievement of objectives and other terms and conditions established by the Board of Directors or the Management Development and Compensation Committee and to be paid within thirty days following completion of the audit of the Company's financial statements for such calendar year. For 1996, such bonus opportunity shall be earned and payable in accordance with the provisions of the 1996 Bonus Program - Officer Plan, attached hereto as Exhibit A. In addition, you may be eligible for such other bonuses as may be determined by the Board of Directors or Management Development and Compensation Committee in their sole discretion from time to time. 2 Mr. Alfred A. Pease February 14, 1996 Page 2 4. Benefits: You shall be eligible for the same employee benefits for which the Company's other executive officers are eligible, except that your severance benefits shall be solely governed by this Agreement. Such benefits currently include: (a) Group life insurance in the amount of $50,000. (b) A $500,000 life insurance policy with the beneficiary of your choice, subject to your insurability, with the Company paying the normal, non-smoking, healthy individual rates for such policy, up to a maximum of $1,800 per year, and your paying any excess. (c) Long-term disability income insurance, subject to your insurability, amounting to 70% of your monthly income, up to a maximum of $5,000 per month. (d) Group health insurance, major medical program and a family dental program. You will be required to contribute a portion of the premium for family coverage. (e) Use of an automobile in accordance with the Company's standard policy. The employee benefits available to the Company's executive officers, and so to you, may be changed from time to time to provide greater or lesser coverage at the sole discretion of the Board of Directors or the Management Development and Compensation Committee. The Company shall reimburse you for all reasonable out-of-pocket expenses incurred by you in the course of performing your duties under this Agreement which are consistent with the Company's policies in effect from time to time with respect to reimbursement of travel, entertainment and other business-related expenses. 5. Relocation Expenses. For a period of up to four months following the start of your employment, the Company shall reimburse you for your actual reasonable out-of-pocket housing and related costs (including rent, insurance, utilities, telephone, laundry) in the state of Michigan, in an aggregate amount of not more than $1,800 per month. For a period of up to four months, or if earlier, your relocation of your permanent residence to the state of Michigan, the Company will reimburse you for your (or your spouse's) actual reasonable out-of-pocket expenses for round-trip travel from your present residence in Livermore, California to Michigan, up to an aggregate of three such trips per month. You agree that you will use your reasonable best efforts to obtain the most economical fares available for such trips. The Company shall reimburse you for your actual reasonable out-of-pocket expenses incurred in connection with the shipment of your household possessions to the state of Michigan and for your actual reasonable out-of-pocket lodgings, meals and other travel expenses incurred en route in moving your family to the state of Michigan. The following additional direct 3 Mr. Alfred A. Pease February 14, 1996 Page 3 expenses incurred by you will be reimbursed by the Company: (a) All real estate salesman's commissions paid by you on the sale of your current residence at 5476 Cleo Ct., Livermore, CA 94550 ("Current Residence"), up to 6% of the gross proceeds realized by you from such sale. (b) Up to 3 points (including loan origination fees) incurred in connection with your purchase of a residence in Michigan ("New Residence"). (c) Normal and reasonable closing costs incurred by you in connection with the sale of your Current Residence if typically paid by the seller and normal and reasonable closing costs incurred by you in connection with your purchase of a New Residence if typically paid by the purchaser. Closing costs shall be defined as transfer taxes, documentary stamp taxes, title insurance premiums, recording charges, appraisals, inspections, attorneys fees, escrow fees and such other normal and reasonable closing costs as are specifically approved by the Chairman of the Board or the Chairman of the Management Development and Compensation Committee. Closing costs shall not include payments required at closing for real property taxes or assessments, or proration of utilities or other prepaid expenses. (d) You will be reimbursed $17,000 for non-accountable incidental expenses incurred by you or your family in connection with your relocation to Michigan. Any housing or relocation expenses to be reimbursed by the Company in addition to those set forth above will be reviewed by, and subject to the approval of, the Chairman of the Board or the Chairman of the Management Development and Compensation Committee, on an as needed basis. The reimbursements for housing and relocation expenses set forth in this Section 5 shall be referred to collectively in this Agreement as "Relocation Expense Reimbursements." The Company shall also pay you an amount (the "Tax Gross-Up Payment"), calculated as follows: TGU = R x [1/(1-MT)-1] Where TGU = Tax Gross-Up Payment, in dollars R = Relocation Expense Reimbursements subject to federal, state or local taxes, in dollars MT = The actual rate of tax reasonably expected to be applicable to you with respect to federal, state and local income taxes payable on the Relocation Expense Reimbursement, expressed fractionally (for example, 32% = .32) The Tax Gross-Up Payment shall be paid at the same time as the reimbursement of the related taxable Relocation Expense Reimbursement. The portion of the payment that represents the Tax Gross-Up Payment over and above the Relocation Expense Reimbursement shall be withheld by the Company and applied to your federal, state, and local income taxes. 4 Mr. Alfred A. Pease February 14, 1996 Page 4 6. Severance. (a) In the event of the termination of your employment Without Cause (as defined below), upon your execution of a release in the form attached hereto as Exhibit B, the Company will continue your base salary and employee benefits ("Severance Benefits") for twelve months after termination and you shall have the right to earn a Pro Rata Share of any bonus that you would have earned if you had been employed by the Company at the end of the bonus period in which your employment was terminated. (b) If your employment with the Company terminates for any reason, other than a termination Without Cause, or is terminated by the Company as a result of your disability or death, you shall not be entitled to any severance payments or benefits, to the extent permitted by law and the terms of such benefit programs, for periods after your Disability or death, except that in the case of your Disability or death you shall have the right to earn a Pro Rata Share of any bonus that you would have earned if you had been employed by the Company at the end of the applicable bonus period. (c) The effect of the termination of your employment on options to purchase the Company's Common Stock held by you shall be governed by the terms of the agreements pursuant to which such options were issued. (d) A Pro Rata Share of any bonus shall mean the total bonus payable to you multiplied by a fraction, the numerator of which is the number of days in the applicable bonus period prior to the date of death or Disability and the denominator of which is the number of days in the bonus period (or, in the case of 1996, the number of days from the date of this letter to December 31, 1996). (e) Termination of your employment "Without Cause" shall be defined as termination of your employment by the Company for any reason other than (i) your personal dishonesty in connection with your performance of services for the Company, (ii) your willful misconduct in connection with your performance of services for the Company, (iii) your conviction for violation of any law (other than minor traffic violations or similar offenses); (iv) your repeated and intentional failure to perform stated duties, after written notice is delivered identifying the failure, and it is not cured within ten (10) days following receipt of such notice, (v) your accepting employment or rendering services which are detrimental or inimical to the interests of the Company or engaging in conduct which adversely affects or conflicts with the interest of the Company, and your failure to cease the same within five (5) days following written notice to you by the Company identifying the same and requesting you to cease the same, (vi) death or (vii) Disability. "Disability" means your inability to substantially perform your stated 5 Mr. Alfred A. Pease February 14, 1996 Page 5 duties for such period as would qualify you for benefits under the long-term disability insurance policy provided by the Company to you. (f) Your severance compensation shall be payable in the same manner as the Base Salary is paid and any Pro Rata Share of a bonus payable to you hereunder shall be payable at the time set forth in the bonus program. Base Salary and bonus payments and employee benefits payable as severance as described above shall not be reduced or suspended if you accept other employment, except that the Company is not required to continue any employee benefits which duplicate employee benefits and perquisites received by you in connection with such subsequent employment. For purposes of COBRA, your employment shall be deemed to have terminated as of the date of actual termination of employment irrespective of the continuation of Base Salary and benefits for periods thereafter as provided above. 7. Stock Options. The Company will grant you options (the "Original Options") to purchase 200,000 shares of the Company's Common Stock, under the Company's 1992 Stock Option Plan, as amended, at an exercise price equal to the closing high bid and closing low asked price for such Common Stock as reported on the Nasdaq Stock Market on the date of your offer letter in the case of non-qualified stock options and on your first day of full employment in the case of Incentive Stock Options. These options will be issued as Incentive Stock Options to the extent requested by you, up to the maximum amount permitted by law, and the remainder will be issued as non-qualified stock options. These options will be issued in accordance with the form of option agreement attached hereto as Exhibit C. The exercisability of the foregoing options will be subject to shareholder approval, which approval shall be sought at the next annual shareholder meeting, which is expected to take place in June 1996. In the event that the Company is unable to obtain shareholder approval of such options at its next annual shareholder meeting, the Company will grant you an option to purchase 100,000 shares of the Company's Common Stock (the "Substitute Option") on terms no less favorable than those applicable to the Original Options, options to purchase 100,000 of the Original Options shall expire and be cancelled and the Company and you shall use your respective best efforts to obtain shareholder approval for the remainder of the Original Options (i.e. options to purchase 100,000 shares) (the "Remaining Option"), including presenting the Remaining Option to shareholders for approval at each subsequent meeting of shareholders until the same is approved or expires by its terms. 8. Non-Competition and Restrictive Covenant. During the term of your employment by the Company (which period shall be referred to as "your Engagement"), and thereafter during the longer of (i) any period in which the Company is obligated to make payments to you under this Agreement (the "Payment Completion Period"), or (ii) 12 months from the end of your engagement (the "Non-Compete Period"), you shall not engage, directly or indirectly, as 6 Mr. Alfred A. Pease February 14, 1996 Page 6 officer, director, shareholder, partner, member, associate, consultant, owner, agent, independent contractor, employee or otherwise of any person, firm, corporation or other business engaged, anywhere in the world, (i) in any business conducted by the Company during your Engagement, or any business which the Company contemplated or planned, during your Engagement, to engage in, or (ii) in any business involving the design, development, manufacture, sale or servicing of laser-based three-dimensional machine vision sensors and systems utilizing electro-optical techniques or component parts utilized in such sensors or system (the "Non-Compete Provisions"); provided that the ownership of one (1%) percent or less of the stock in any publicly traded corporation in such a business shall not be violative of the foregoing covenant. In the event that you shall fail to comply with any of your obligations under the Proprietary Information Agreement described in Section 9 or under this Section 8, in addition to any other remedies that the Company may have at law or in equity, your employment with the Company as an employee shall automatically terminate and the Company's obligations to you shall automatically terminate and the Company's obligations to you under Sections 1 through 7 of this letter agreement for periods thereafter shall automatically terminate. 9. Confidentiality. You hereby agree to enter into the Company's standard "Proprietary Information and Inventions Agreement" attached hereto as Exhibit D. 10. Counterparts. This Agreement may be executed in several counterparts and all such executed copies shall constitute one agreement, binding upon all parties. 11. Entirety. All negotiations between the parties are merged into this Agreement and there are no representations or covenants other than those expressly set forth herein. 12. Benefit and Succession. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto, their respective successors, permitted assigns and legal representatives. 13. Amendments. This Agreement may not be amended, modified or abrogated except in writing subscribed by the parties. 14. Assignment. This Agreement may not be assigned by you without the prior written consent of the Company. 15. Separability. In the event any portion of this Agreement is declared void by a court of competent jurisdiction, then and in that event, that portion shall be deemed severed from this Agreement and the remaining portion hereof shall remain in full force and effect. 16. Waiver. Unless otherwise noted, no failure on the part of either party to exercise, and no delay in exercising or course of dealing with respect to, any right, power or privilege under this 7 Mr. Alfred A. Pease February 14, 1996 Page 7 Agreement (or breach of any obligation under any other agreement) shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privileges under this Agreement or any other agreement (or breach of any obligation under any other agreement) preclude any other or further exercise thereof or hereunder, or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 17. Construction. This Agreement shall be construed in accordance with the laws of the State of Michigan. This Agreement shall be deemed to have been written jointly by the parties. Ambiguities shall not be construed against the interest of either party by reason of it having drafted all or any part of this Agreement. 18. Threatened Breach. If there is a breach or threatened breach of the provisions of this Agreement, the Company may, in addition to other available rights and remedies, apply to any court of competent jurisdiction for specific performance and/or injunctive relief in order to enforce, or prevent any violation of, any of the provisions of this agreement. 19. Survival. The provisions set forth in Section 8 and 9 hereof shall survive any termination of this Agreement. 20. Captions. The captions preceding the paragraphs and subparagraphs hereof are for convenience and reference only and shall neither be deemed a part of this Agreement nor be considered in the interpretation thereof. Sincerely, PERCEPTRON, INC. By: /s/ James A. Ratigan ------------------------------ James A. Ratigan Its Executive Vice President Accepted and agreed to this 14th day of February, 1996. /s/ Alfred A. Pease - ---------------------------------- ALFRED A. PEASE 8 EXHIBIT A TO THE EMPLOYMENT AGREEMENT OF ALFRED A. PEASE PERCEPTRON, INC. 1996 BONUS PROGRAM 1. Operating Goals: 1996 Operating Goals %Bonus Allocation -------------------- ----------------- Bookings Goal $55,000,000 40% of Total Revenue Goal $50,000,000 30% of Total Pre-Tax Income Goal $14,448,000 30% of Total
(Net Income goal is after budgeted expenses for bonus and stock option compensation expense) 2. Bonus Plans:
Plan Payout Methodology ------------ --------------------------------------------------- Officer Plan 1. 70% based on company achievement of operating goals 2. 30% based on the sole discretion of the Management Development and Compensation Committee, with the same discretionary % applied to each individual officer's bonus Manager Plan 1. 75% based on company achievement of operating goals 2. 25% based on the manager's overall performance, as determined by the manager's supervisor Team Plan 1. 100% based on company achievement of operating goals
3. Plan Administration: 1. The plan will be administered by the Management Development and Compensation Committee of the Board of Directors. 2. No bonuses will be earned under any plan, unless 75% of the net income element of the operating goal is achieved. 3. Participants must be employed on or before June 30, 1996, and must be employed on December 31, 1996 to be eligible. Those employed between January 1, 1996 and June 30, 1996, will receive a pro-rata portion of their individual bonus potential. Each individual will have a specified bonus potential (yet to be specifically identified). 4. Bonuses to be paid within thirty days of the completion of the 1996 audit. 5. That portion of the 1996 bonus that is based on company achievement of operating goals will begin being earned upon the company achievement of 75% of each of the three individual operating goal elements (bookings, revenue and net income). 6. Earned bonuses will be based on the attached graph (Exhibit I), which demonstrates the percentages of the bonuses that will be earned beginning at 75% of operating goal achievement and continuing at achievement levels in excess of 100%. A separate chart will be prepared for each of the three elements of bookings, revenue and net income The sum of the three will be the total bonus earned. 9 EXHIBIT B TO EMPLOYMENT AGREEMENT OF ALFRED A. PEASE THIS AGREEMENT ("Agreement") is made _______________________, ________, by and between ALFRED A. PEASE ("Pease") and PERCEPTRON, INC. ("PRCP"). RECITALS A. Pease has resigned as President and Chief Executive Officer of PRCP, effective ___________, ____. B. Pease has been given the opportunity to review this Agreement, to consult with legal counsel, and to ascertain his rights and remedies. C. Pease and PRCP, without any admission of liability, desire to settle with finality, compromise, dispose of, and release any and all claims and demands asserted or which could be asserted arising out of Pease's employment at and separation from PRCP. In consideration of the foregoing and of the promises and mutual covenants contained herein, it is hereby agreed between Pease and PRCP as follows: AGREEMENT 1. In exchange for the good and valuable consideration set forth in this Agreement, Pease hereby releases, waives and discharges any and all manner of action, causes of action, claims, rights, charges, suits, damages, debts, demands, obligations, attorneys' fees, and any and all other liabilities or claims of whatsoever nature, whether in law or in equity, known or unknown, including, but not limited to, any claim and/or claim of damages or other relief for tort, breach of contract, personal injury, negligence, age discrimination under The Age Discrimination In Employment Act of 1967 (as amended), employment discrimination prohibited by other federal, state or local laws including sex, race, national origin, marital status, age, handicap, height, weight, or religious discrimination, and any other claims, which Pease has claimed or may claim or could claim in any local, state or federal or other forum, against PRCP, its directors, officers, employees, agents, attorneys, affiliates, successors and assigns as a result of or relating to Pease's employment at and separation from PRCP and as an officer of PRCP; or any claim and/or claim of damages or other relief, in his capacity as a shareholder, or a representative of any shareholder, of PRCP, or in any other capacity, as a result of any acts or omissions by PRCP or any of its directors, officers, employees, agents, attorneys, affiliates, successors or assigns ("Covered Acts or Omissions") which occurred prior to the date of this Agreement; excluding only those (i) to compel the payment of amounts due to Pease as provided in the Employment Agreement (as defined below), (ii) to enforce Pease's other rights under this Agreement or the Employment Agreement, (iii) to compel PRCP to issue shares of Common Stock to Pease in accordance with stock option agreements between Pease and PRCP (the "Option Agreements") or (iv) for indemnification of Pease under PRCP's articles of incorporation, bylaws or applicable law by reason of his service as an officer of PRCP or, at the request of PRCP, as a director or officer of another corporation, joint venture or enterprise. B-1 10 2. PRCP hereby releases, waives and discharges any and all manner of action, causes of action, claims, rights, charges, suits, damages, debts, demands, obligations, attorney's fees, or any and all other liabilities or claims of whatsoever nature, whether in law or in equity, known or unknown, which PRCP has claimed or may claim or would claim in any local, state or federal forum, against Pease, other than those arising (i) from this Agreement, (ii) from the Proprietary Information and Inventions Agreement, dated February 14, 1996, executed by Pease and PRCP (other than Section 3 thereof) ("Proprietary Information Agreement"), (iii) from the Option Agreements or (iv) from any misconduct, fraud, malfeasance or gross negligence of Pease. 3. Pease agrees to immediately return to PRCP all property, assets, manuals, materials, information, notes, reports, agreements, memoranda, customer lists, formulae, data, know-how, inventions, trade secrets, processes, techniques, and all other assets, materials and information of any kind or nature, belonging or pertaining to PRCP ("PRCP Information and Property"), including, but not limited to, computer programs and diskettes or other media for electronic storage of information containing PRCP Information and Property, in Pease's possession, and Pease shall not retain copies of any such PRCP Information and Property, except to the extent specifically approved by the President of PRCP (the "President") in writing and shall return any such PRCP Information and Property so retained as requested by the President. Pease further agrees that from and after the date hereof he will not remove from PRCP's offices any PRCP Information and Property, nor retain possession or copies of any PRCP Information and Property, except to the extent specifically approved by the President. 4. Neither party shall make negative, disparaging, defamatory or other unfavorable comments regarding the other party, or any officer or director of any such party, to any person; except (a) by Pease (i) to the President or any person currently serving as an officer of PRCP and who is serving as an officer on the date such comment is made, but only to the extent required in connection with Pease's performance of consulting services to PRCP, (ii) to a member of the Board of Directors of PRCP, or (iii) in connection with the commencement or prosecution by Pease of litigation as described in the second sentence of Section 5 of this Agreement, but such comments may only relate to Covered Acts or Omissions occurring after the date of this Agreement, and (b) except as required by law. In the event of a breach by Pease of the provisions of Section 4 of this Agreement, PRCP shall provide written notice of the same to Pease, specifically identifying the breach. Pease shall thereafter have ten (10) business days in which to retract such comment, if so requested by PRCP. Any such breach by Pease of the provisions of Section 4 of this Agreement shall not constitute grounds for the termination of this Agreement by PRCP. In the event that PRCP notifies Pease of breaches of the provisions of Section 4 of this Agreement as described above, and requests a retraction of the same, on more than one occasion during any six-month period (the "Notice Breaches"), then PRCP may seek such remedies as it may have at law or in equity relating to all such breaches after the Notice Breaches; provided that in no event shall any such breach constitute grounds for the termination of this Agreement by PRCP. 5. The parties hereto covenant and agree that they shall never commence or prosecute, or knowingly encourage, promote, assist or participate in any way, except as required by law, in the commencement or prosecution, of any claim, demand, action, cause of action or suit of any nature whatsoever against the other party to this Agreement or any officer, director, employee or agent of any such party ("Covered Litigation") that is based upon any claim, demand, action, cause of action or suit (i) released pursuant to Section 1 above or involving or based upon the Covered Acts and Omissions, B-2 11 in the case of Pease's covenant or (ii) released pursuant to Section 2 above, in the case of PRCP's covenant, except as required by law. Pease further agrees that in the event he commences or prosecutes, or knowingly encourages, promotes, assists or participates in any way, except as required by law, in the commencement or prosecution of, Covered Litigation based upon Covered Acts or Omissions occurring after the date of this Agreement, as of the date of any such action (the "Commencement Date") Pease's employment with PRCP as an employee shall automatically terminate and PRCP's obligations to Pease under Sections 1 through 7 of the Letter Employment Agreement between Pease and PRCP dated February 14, 1996 ("Employment Agreement"), or under any other employment or consulting agreement then in effect, for periods thereafter shall automatically terminate. 6. Pease further agrees that he has read this Agreement carefully and understands all of its terms. 7. Pease understands and agrees that he was advised to consult with an attorney and did so prior to executing this Agreement. 8. Pease understands and agrees that he has been given twenty-one (21) days within which to consider this Agreement. 9. Pease understands and agrees that he may revoke this Agreement for a period of seven (7) calendar days following the execution of this Agreement. This Agreement is not effective until this revocation period has expired. Pease understands that any revocation, to be effective, must be in writing and either (a) postmarked within seven (7) days of execution of this Agreement and addressed to President, Perceptron, Inc., 23855 Research Drive, Farmington Hills, Michigan 48335 or (b) hand delivered within seven (7) days of execution of this Agreement to President, Perceptron, Inc., 23855 Research Drive, Farmington Hills, Michigan 48335. Pease understands that if revocation is made by mail, mailing by certified mail, return receipt requested, is recommended to show proof of mailing. 10. In agreeing to sign this Agreement and separate from PRCP, Pease is doing so completely voluntarily and of his own free-will and without any encouragement or pressure from PRCP and agrees that in doing so he has not relied on any oral statements or explanations made by PRCP or its representatives. 11. Both parties agree not to disclose the terms of this Agreement to any third party, except as is required by law, or as is necessary for purposes of securing counsel from either parties' attorneys or accountants. 12. This Agreement shall not be construed as an admission of wrongdoing by either Pease or PRCP. 13. This Agreement contains the entire agreement between Pease and PRCP. Any modification of this Agreement must be made in writing and signed by Pease and an authorized officer of PRCP. B-3 12 14. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Michigan, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Michigan or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Michigan. 15. In the event any provision of this Agreement or portion thereof is found to be wholly or partially invalid, illegal or unenforceable in any judicial proceeding, then such provision shall be deemed to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be. 16. If there is a breach or threatened breach of the provisions of this Agreement, PRCP may, in addition to other available rights and remedies, apply to any court of competent jurisdiction for specific performance and/or injunctive relief in order to enforce, or prevent any violation of, any of the provisions of this Agreement. WITNESSES: ______________________________ ______________________________________ Name: ALFRED A. PEASE Dated:________________________ PERCEPTRON, INC. _____________________________ By: __________________________________ Name: Its: _________________________________ Dated:________________________ B-4 13 USAGE: 2/9/95 EXHIBIT C TO EMPLOYMENT AGREEMENT OF ALFRED A. PEASE INCENTIVE STOCK OPTION AGREEMENT - OFFICER UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN THIS STOCK OPTION AGREEMENT made this 14th day of February, 1996, by and between Perceptron, Inc., a Michigan corporation ("the Company"), and Alfred A. Pease, who is currently employed by the Company or one of its subsidiaries (the "Optionee"). 1. GRANT OF OPTION. Subject to the terms and conditions hereof, the Company hereby grants to the Optionee an option to purchase from the Company up to, but not exceeding in the aggregate, 17,020 shares of the Company's Common Stock at a price of $23.50 per share. This option is intended to constitute an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code ("Code"). 2. RIGHT TO EXERCISE OPTION. The Optionee may purchase from the Company on and after the first anniversary of the date of grant, 25% of the shares covered by this option, and on each succeeding one year anniversary thereof may exercise an additional 25% of the shares covered by the option, so that on the fourth anniversary of the date of grant this option shall be fully exercisable; provided that the shares covered by this option may be exercised only if the shareholders of the Company approve an amendment to the 1992 Stock Option Plan, as amended (the "Plan"), to increase the number of shares covered by the Plan to include such shares and to provide that no Optionee who is a salaried employee shall be eligible to receive aggregate option grants under the Plan, in any fiscal year of the Company, to purchase more than 200,000 shares of the Company's Common Stock. To the extent not exercised, installments shall accumulate and the Optionee may exercise them in whole or in part in any subsequent period. Any provision of this Agreement notwithstanding, no portion of this option shall be exercisable on or after the tenth anniversary of the date of grant. 3. TERMINATION OF EMPLOYMENT. (a) If, prior to the date that this option or any portion thereof shall first become exercisable, the Optionee's employment with the Company or any of its subsidiaries shall be terminated for any reason, the Optionee's right to exercise this option or such unexercisable portion thereof shall terminate and all rights hereunder shall cease. As used in this Agreement, the term "subsidiary" of the Company means any "subsidiary corporation" as defined in Section 424(f) of the Code, the term "employment" means employment with the Company or any subsidiary of the Company, and the term "disability" means "total and permanent disability," as defined in Section 22(e) of the Code. (b) If, on or after the date that this option shall first become exercisable, the Optionee's employment shall be terminated for any reason other than death or disability, the Optionee shall have the right, within three months after such termination of employment, to exercise 14 this option to the extent (but only to the extent) that it shall have been exercisable and unexercised on the date of such termination of services, subject to any other limitation on the exercise of such option in effect at the date of exercise. (c) If on or after the date that this option shall first become exercisable the Optionee's employment shall be terminated due to death or disability, the Optionee or the executor or administrator of the estate of the Optionee (as the case may be) or the person or persons to whom the option shall have been transferred by will or by the laws of descent and distribution, shall have the right, within one year from the date of the Optionee's death or disability, to exercise this option to the extent (but only to the extent) that it was exercisable and unexercised on the date of the Optionee's death or disability, subject to any other limitation on exercise in effect at the date of exercise. (d) The transfer of the Optionee from one corporation to another among the Company and any of its subsidiaries, or a leave of absence with the written consent of the Company, shall not be a termination of services for purposes of this option. (e) Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, (i) in the event of a termination by the Company of the Optionee's employment Without Cause (as defined below) or Diminishment of the Optionee's Responsibilities Without Cause (as defined below), following a Change in Control of the Company, or (ii), in the event of a Change in Control, if one of the corporations surviving the Change in Control or the person purchasing the Company's assets in the Change in Control does not assume this option, any portion of this option that is then not exercisable shall become immediately exercisable; provided, however, that the foregoing provision shall apply, in case of incentive stock options ("ISOs"), and in the case of options held by a person subject to Section 16(b) of the Securities Exchange Act of 1934 ("Section 16(b) Grants"), only if the termination or diminishment referred to in (i) above and the Change in Control referred to in (ii) above occurs after the first anniversary of the date of grant of this option, in the case of ISOs, or the date six months after the date of grant of this option, in the case of Section 16(b) Grants; and, provided further, however, that the Committee shall have the right, at any time prior to the occurrence of the termination or diminishment referred to in (i) above or the Change in Control referred to in (ii) above, to modify the provisions of this paragraph, including the termination of all of the Optionee's rights set forth in this paragraph, to the extent required under applicable accounting and Securities and Exchange Commission rules, regulations, policies, guidelines or other similar requirements to permit the Company to account for a then contemplated business combination under pooling-of-interests accounting. For purposes hereof, "Without Cause" shall mean the Optionee's employment is terminated by the Company, or there is a Diminishment of the Optionee's Responsibilities, for any reason except (i) personal dishonesty; (ii) willful misconduct; (iii) breach of fiduciary duty to the Company; (iv) conviction for violation of any law (other than traffic violations or similar offenses); or (v) repeated or intentional failure to perform duties, after written notice is delivered identifying the failure, and it is not cured within ten (10) days following receipt of such notice. For purposes 2 15 hereof, "Diminishment of the Optionee's Responsibilities" shall mean the Company, or any successorthereto, (i) reassigning the Optionee substantial duties which are materially inconsistent with the Optionee's position, duties and responsibilities with the Company immediately prior to the Change in Control, except for reassignments of duties which constitute a bona fide promotion of the Optionee, or (ii) reducing the Optionee's compensation such that (a) the Optionee's annual base salary is less than eighty (80%) percent of the Optionee's annual base salary prior to the Change in Control; and (b) the Optionee's annual base salary and the annual cash bonus which the Optionee is eligible to earn (including any performance based bonus), combined, is not at least equal to the combination of the Optionee's annual base salary prior to the Change in Control and the average of the annual cash bonuses which the Optionee was eligible to earn (including any performance based bonus, but excluding any bonus payable to the Optionee for completing the Change in Control), whether or not actually earned, for the year in which the Change in Control occurred and for the year prior thereto. For purposes hereof, a "Change in Control" shall be deemed to have occurred in the event of (i) a merger involving the Company in which the Company is not the surviving corporation (other than a merger with a wholly-owned subsidiary of the Company formed for the purpose of changing the Company's corporate domicile); (ii) a share exchange in which the shareholders of the Company exchange their stock in the Company for stock of another corporation (other than a share exchange in which all or substantially all of the holders of the voting stock of the Company, immediately prior to the transaction, exchange, on a pro rata basis, their voting stock of the Company for more than 50% of the voting stock of such other corporation); (iii) the sale of all or substantially all of the assets of the Company; or (iv) any person or group of persons (as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended) (other than any employee benefit plan or employee benefit trust benefitting the employees of the Company) becoming a beneficial owner, directly or indirectly, of securities of the Company representing more than fifty (50%) percent of either the then outstanding Common Stock of the Company, or the combined voting power of the Company's then outstanding voting securities. (f) Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, (provided, however, if this option is an incentive stock option, only if the merger, consolidation or sale or transfer referred to below occurs after the first anniversary of the date of grant of this option, and, if this option is held by a person subject to Section 16(b) of the Securities Exchange Act of 1934, only if such merger, consolidation or sale or transfer occurs after the date six months after the date of grant of this option), if, in connection with any merger, consolidation, or sale or transfer by the Company of substantially all of its assets, this option is not assumed or continued by the surviving corporation or the purchaser, the date of termination of this option and the date on or after which this option, or any portion thereof not then exercisable, may be exercised, shall be advanced to a date to be fixed by the Committee, which date shall not be more than 15 days prior to such merger, consolidation, or sale or transfer; provided however, that the Committee shall have the right, at any time prior to the occurrence of such merger, consolidation or sale or transfer, to modify the provisions of this paragraph, including the termination of all of the Optionee's rights set forth in this paragraph, to the extent required under applicable accounting and Securities and Exchange Commission rules, 3 16 regulations, policies, guidelines or other similar requirements to permit the Company to account for a then contemplated business combination under pooling-of-interests accounting. (g) Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, in the event of a termination by the Company of the Optionee's employment Without Cause (as defined in a letter agreement between the Optionee and the Company dated February 14, 1996) on or after February 14, 1998, unless the unexercisable portion of this option becomes exercisable under Section 2(e) as a result of such termination of employment, in which case Section 2(e) shall supersede this Section 2(g), the unexercisable portion of this option shall become exercisable in full. 4. EXERCISE OF OPTION. The Optionee, from time to time during the period when the option hereby granted may by its terms be exercised, may exercise the option in whole or in part as at the time permitted, by delivery to the Company of: (a) 10 days in advance of the exercise date, a written notice signed by the Optionee, (i) stating the number of shares that the Optionee has elected to purchase at that time, (ii) upon the request of the Committee, representing that the Optionee is acquiring the shares being purchased for investment and not for resale; and (b) on the date of exercise, (i) cash, (ii) shares of Company Common Stock in an amount equal to the purchase price of the shares being purchased, (iii) the authorization of the Company to retain then exercisable options issued to the Optionee under the Plan with a value (as defined in the Plan) equal to the purchase price of the shares being purchased, or (iv) such documents as are or may be required under the terms of the Plan to affect a cashless exercise. In lieu of paying the full purchase price on the date of exercise as provided above, the Optionee may pay 50% of the purchase price at the time of exercise and shall remit a promissory note for the remaining portion of the purchase price, the terms of such promissory note to be determined by the Committee at the time of exercise. Options retained by the Company under the retention of options procedure shall expire and be of no further force and effect as of the date retained. 5. COMPLIANCE WITH SECURITIES LAWS. Anything to the contrary herein notwithstanding, the Company's obligation to sell and deliver stock under this option is subject to such compliance with federal and state laws, rules and regulations applying to the authorization, issuance or sale of securities, and applicable stock exchange requirements, as the Company deems necessary or advisable. 6. NON-ASSIGNABILITY. The option hereby granted shall not be transferable by the Optionee other than by will or the laws of descent and distribution, and the option may be exercised during the Optionee's lifetime only by the Optionee. Any transferee of the option shall take the same subject to the terms and conditions of this Agreement. No such transfer of the option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of the will and/or such other evidence as the Company may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of this Agreement. No assignment or transfer of this option, or of the rights 4 17 represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except a transfer by the Optionee by will or by the laws of descent and distribution, shall vest in the purported assignee or transferee any interest or right herein whatsoever. 7. DISPUTES. As a condition of the granting of the option granted hereby, the Optionee and the Optionee's successors and assigns agree that any dispute or disagreement which shall arise under or as a result of this Agreement shall be determined by the Committee in its sole discretion and judgment and that any such determination and any interpretation by the Committee of the terms of this Agreement shall be final and shall be binding and conclusive for all purposes. 8. ADJUSTMENTS. In the event of any stock dividend, stock split, reclassification, merger, consolidation, or similar transaction affecting the shares covered by this option, the rights of the Optionee shall be as provided in Section 8 of the Plan and any adjustment therein provided shall be made in accordance with Section 8 of the Plan. 9. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder of the Company with respect to any of the shares covered by this option until the issuance of a stock certificate or certificates upon the exercise of the option in full or in part, and then only with respect to the shares represented by such certificate or certificates. 10. NOTICES. Every notice relating to this Agreement shall be in writing and if given by mail shall be given by registered or certified mail with return receipt requested. All notices to the Company shall be delivered to the Secretary of the Company at the Company's headquarters or addressed to the Secretary of the Company at the Company's headquarters. All notices by the Company to the Optionee shall be delivered to the Optionee personally or addressed to the Optionee at the Optionee's last residence address as then contained in the records of the Company or such other address as the Optionee may designate. Either party by notice to the other may designate a different address to which notices shall addressed. Any notice given by the Company to the Optionee at the Optionee's last designated address shall be effective to bind any other person who shall acquire rights hereunder. 11. "OPTIONEE" TO INCLUDE CERTAIN TRANSFEREES. Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically apply to any other person or persons to whom the option, in accordance with the provisions of Section 6 hereof, may be transferred, the word "Optionee" shall be deemed to include such person or persons. 12. GOVERNING LAW. This Agreement has been made in and shall be construed in accordance with the laws of the State of Michigan. 13. PROVISIONS OF PLAN CONTROLLING. The provisions hereof are subject to the terms and provisions of the Plan copies of which are available for review upon request to the Chief Operating 5 18 Officer of the Company. In the event of any conflict between the provisions of this option and the provisions of the Plan, the provisions of the Plan shall control. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PERCEPTRON, INC. By: _________________________ James A. Ratigan Executive Vice President _____________________________ Alfred A. Pease, OPTIONEE 6 19 NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN Perceptron, Inc. 23855 Research Drive Farmington Hills, MI 48335 Dear Sir: An incentive stock option was granted to me on February 14, 1996 to purchase 17,020 shares of Perceptron, Inc. Common Stock at a price of $23.50 per share. I hereby elect to exercise my incentive stock option with respect to shares for an aggregate purchase price of $ . I hereby elect to pay for such shares as follows: Personal Check $____ Cash $____ Bank Draft $____ Money Order $____ Promissory Note $____ Perceptron Common Stock $____ Cashless Exercise $____ Retention of Stock Options $____ Total $ ===== [A personal check [or cash, bank draft or money order] for the purchase price [is enclosed herewith] or [will be delivered within 10 days hereof]]. [Enclosed is payment for fifty percent of the purchase price, plus my promissory note, the terms of which have been approved by the Committee, for the remaining two installments.] [I hereby elect to exercise my stock option with respect to shares through a combination of cash payments and shares of Perceptron, Inc. Common Stock, as described on the attached Exhibit A. A personal check for the purchase price to be paid in cash is enclosed herewith. [Certificates for shares of Perceptron, Inc. Common Stock are enclosed herewith, along with a duly executed stock power in proper form for transfer, with all signatures properly guaranteed by a national bank or member firm of the NYSE or AMEX, [or the foregoing documents will be delivered within 10 days hereof.]] 20 [I hereby authorize the Company to retain options to purchase shares of Perceptron, Inc. Common Stock granted pursuant to this stock option (the "Retained Options"). I hereby acknowledge and agree that, as of the date set forth below, the Retained Options shall no longer be exercisable, and shall expire and have no further force and effect.] [Documents as are required to effect a cashless exercise] [are enclosed] or [will be delivered within 10 days hereof]]. I agree to notify the Company if prior to two years from the date of grant and one year from the exercise date, I dispose of any shares acquired pursuant to my exercise of this incentive stock option. I represent that the shares of stock that I am purchasing upon this exercise of my option are being purchased for investment purposes and not with a view to resale. This representation shall not be binding upon me if the shares of Common Stock that I am purchasing are subject to an effective Registration Statement under the Securities Act of 1933. _____________________________ Alfred A. Pease, Optionee Dated ________________, 19__ 2 21 USAGE: 2/9/95 EXHIBIT C TO EMPLOYMENT AGREEMENT OF ALFRED A. PEASE NON-QUALIFIED STOCK OPTION AGREEMENT - OFFICER UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN THIS STOCK OPTION AGREEMENT made this 14th day of February, 1996, by and between Perceptron, Inc., a Michigan corporation ("the Company"), and Alfred A. Pease, who is currently employed by the Company or one of its subsidiaries (the "Optionee"). 1. GRANT OF OPTION. Subject to the terms and conditions hereof, the Company hereby grants to the Optionee an option to purchase from the Company up to, but not exceeding in the aggregate, 182,980 shares of the Company's Common Stock at a price of $20.625 per share. This option is not intended to constitute an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code ("Code"). 2. RIGHT TO EXERCISE OPTION. The Optionee may purchase from the Company on and after the first anniversary of the date of grant, 25% of the shares covered by this option, and on each succeeding one year anniversary thereof may exercise an additional 25% of the shares covered by the option, so that on the fourth anniversary of the date of grant this option shall be fully exercisable; provided that the shares covered by this option may be exercised only if the shareholders of the Company approve an amendment to the 1992 Stock Option Plan, as amended (the "Plan"), to increase the number of shares covered by the Plan to include such shares and to provide that no Optionee who is a salaried employee shall be eligible to receive aggregate option grants under the Plan, in any fiscal year of the Company, to purchase more than 200,000 shares of the Company's Common Stock. To the extent not exercised, installments shall accumulate and the Optionee may exercise them in whole or in part in any subsequent period. Any provision of this Agreement notwithstanding, no portion of this option shall be exercisable on or after the tenth anniversary of the date of grant. 3. TERMINATION OF EMPLOYMENT. (a) If, prior to the date that this option or any portion thereof shall first become exercisable, the Optionee's employment with the Company or any of its subsidiaries shall be terminated for any reason, the Optionee's right to exercise this option or such unexercisable portion thereof shall terminate and all rights hereunder shall cease. As used in this Agreement, the term "subsidiary" of the Company means any "subsidiary corporation" as defined in Section 424(f) of the Code, the term "employment" means employment with the Company or any subsidiary of the Company, and the term "disability" means "total and permanent disability," as defined in Section 22(e) of the Code. (b) If, on or after the date that this option shall first become exercisable, the Optionee's employment shall be terminated for any reason other than death or disability, the 22 Optionee shall have the right, within three months after such termination of employment, to exercise this option to the extent (but only to the extent) that it shall have been exercisable and unexercised on the date of such termination of services, subject to any other limitation on the exercise of such option in effect at the date of exercise. (c) If on or after the date that this option shall first become exercisable the Optionee's employment shall be terminated due to death or disability, the Optionee or the executor or administrator of the estate of the Optionee (as the case may be) or the person or persons to whom the option shall have been transferred by will or by the laws of descent and distribution, shall have the right, within one year from the date of the Optionee's death or disability, to exercise this option to the extent (but only to the extent) that it was exercisable and unexercised on the date of the Optionee's death or disability, subject to any other limitation on exercise in effect at the date of exercise. (d) The transfer of the Optionee from one corporation to another among the Company and any of its subsidiaries, or a leave of absence with the written consent of the Company, shall not be a termination of services for purposes of this option. (e) Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, (i) in the event of a termination by the Company of the Optionee's employment Without Cause (as defined below) or Diminishment of the Optionee's Responsibilities Without Cause (as defined below), following a Change in Control of the Company, or (ii), in the event of a Change in Control, if one of the corporations surviving the Change in Control or the person purchasing the Company's assets in the Change in Control does not assume this option, any portion of this option that is then not exercisable shall become immediately exercisable; provided, however, that the foregoing provision shall apply, in case of incentive stock options ("ISOs"), and in the case of options held by a person subject to Section 16(b) of the Securities Exchange Act of 1934 ("Section 16(b) Grants"), only if the termination or diminishment referred to in (i) above and the Change in Control referred to in (ii) above occurs after the first anniversary of the date of grant of this option, in the case of ISOs, or the date six months after the date of grant of this option, in the case of Section 16(b) Grants; and, provided further, however, that the Committee shall have the right, at any time prior to the occurrence of the termination or diminishment referred to in (i) above or the Change in Control referred to in (ii) above, to modify the provisions of this paragraph, including the termination of all of the Optionee's rights set forth in this paragraph, to the extent required under applicable accounting and Securities and Exchange Commission rules, regulations, policies, guidelines or other similar requirements to permit the Company to account for a then contemplated business combination under pooling-of-interests accounting. For purposes hereof, "Without Cause" shall mean the Optionee's employment is terminated by the Company, or there is a Diminishment of the Optionee's Responsibilities, for any reason except (i) personal dishonesty; (ii) willful misconduct; (iii) breach of fiduciary duty to the Company; (iv) conviction for violation of any law (other than traffic violations or similar offenses); or (v) repeated or intentional failure to perform duties, after written notice is delivered identifying 2 23 the failure, and it is not cured within ten (10) days following receipt of such notice. For purposes hereof, "Diminishment of the Optionee's Responsibilities" shall mean the Company, or any successor thereto, (i) reassigning the Optionee substantial duties which are materially inconsistent with the Optionee's position, duties and responsibilities with the Company immediately prior to the Change in Control, except for reassignments of duties which constitute a bona fide promotion of the Optionee, or (ii) reducing the Optionee's compensation such that (a) the Optionee's annual base salary is less than eighty (80%) percent of the Optionee's annual base salary prior to the Change in Control; and (b) the Optionee's annual base salary and the annual cash bonus which the Optionee is eligible to earn (including any performance based bonus), combined, is not at least equal to the combination of the Optionee's annual base salary prior to the Change in Control and the average of the annual cash bonuses which the Optionee was eligible to earn (including any performance based bonus, but excluding any bonus payable to the Optionee for completing the Change in Control), whether or not actually earned, for the year in which the Change in Control occurred and for the year prior thereto. For purposes hereof, a "Change in Control" shall be deemed to have occurred in the event of (i) a merger involving the Company in which the Company is not the surviving corporation (other than a merger with a wholly-owned subsidiary of the Company formed for the purpose of changing the Company's corporate domicile); (ii) a share exchange in which the shareholders of the Company exchange their stock in the Company for stock of another corporation (other than a share exchange in which all or substantially all of the holders of the voting stock of the Company, immediately prior to the transaction, exchange, on a pro rata basis, their voting stock of the Company for more than 50% of the voting stock of such other corporation); (iii) the sale of all or substantially all of the assets of the Company; or (iv) any person or group of persons (as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended) (other than any employee benefit plan or employee benefit trust benefitting the employees of the Company) becoming a beneficial owner, directly or indirectly, of securities of the Company representing more than fifty (50%) percent of either the then outstanding Common Stock of the Company, or the combined voting power of the Company's then outstanding voting securities. (f) Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, (provided, however, if this option is an incentive stock option, only if the merger, consolidation or sale or transfer referred to below occurs after the first anniversary of the date of grant of this option, and, if this option is held by a person subject to Section 16(b) of the Securities Exchange Act of 1934, only if such merger, consolidation or sale or transfer occurs after the date six months after the date of grant of this option), if, in connection with any merger, consolidation, or sale or transfer by the Company of substantially all of its assets, this option is not assumed or continued by the surviving corporation or the purchaser, the date of termination of this option and the date on or after which this option, or any portion thereof not then exercisable, may be exercised, shall be advanced to a date to be fixed by the Committee, which date shall not be more than 15 days prior to such merger, consolidation, or sale or transfer; provided however, that the Committee shall have the right, at any time prior to the occurrence of such merger, consolidation or sale or transfer, to modify the provisions of this paragraph including the termination of all of the Optionee's rights set forth in this paragraph, to the 3 24 extent required under applicable accounting and Securities and Exchange Commission rules, regulations, policies, guidelines or other similar requirements to permit the Company to account for a then contemplated business combination under pooling-of-interests accounting. (g) Notwithstanding the provisions of Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, in the event of a termination by the Company of the Optionee's employment Without Cause (as defined in a letter agreement between the Optionee and the Company dated February 14, 1996), unless the unexercisable portion of this option becomes exercisable under Section 2(e) as a result of such termination of employment, in which case Section 2(e) shall supersede this Section 2(g), the unexercisable portion of this option shall become exercisable as follows:
Number of Unexercisable Option Date of Termination Shares Which Become Exercisable --------------------------------- ---------------------------------------- If after July 14, 1996, but 66,667 before February 14, 1997 If on or after February 14, 1997, 66,667 but before February 14, 1998 If on or after February 14, 1998 All Remaining Unexercisable Options
4. EXERCISE OF OPTION. The Optionee, from time to time during the period when the option hereby granted may by its terms be exercised, may exercise the option in whole or in part as at the time permitted, by delivery to the Company of: (a) 10 days in advance of the exercise date, a written notice signed by the Optionee, (i) stating the number of shares that the Optionee has elected to purchase at that time, (ii) upon the request of the Committee, representing that the Optionee is acquiring the shares being purchased for investment and not for resale; and (b) on the date of exercise, (i) cash, (ii) shares of Company Common Stock in an amount equal to the purchase price of the shares being purchased, (iii) the authorization of the Company to retain then exercisable options issued to the Optionee under the Plan with a value (as defined in the Plan) equal to the purchase price of the shares being purchased, or (iv) such documents as are or may be required under the terms of the Plan to affect a cashless exercise. Options retained by the Company under the retention of options procedure shall expire and be of no further force and effect as of the date retained. 5. COMPLIANCE WITH SECURITIES LAWS. Anything to the contrary herein notwithstanding, the Company's obligation to sell and deliver stock under this option is subject to such compliance with federal and state laws, rules and regulations applying to the authorization, 4 25 issuance or sale of securities, and applicable stock exchange requirements, as the Company deems necessary or advisable. 6. NON-ASSIGNABILITY. The option hereby granted shall not be transferable by the Optionee other than by will or the laws of descent and distribution, and the option may be exercised during the Optionee's lifetime only by the Optionee. Any transferee of the option shall take the same subject to the terms and conditions of this Agreement. No such transfer of the option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of the will and/or such other evidence as the Company may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of this Agreement. No assignment or transfer of this option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except a transfer by the Optionee by will or by the laws of descent and distribution, shall vest in the purported assignee or transferee any interest or right herein whatsoever. 7. DISPUTES. As a condition of the granting of the option granted hereby, the Optionee and the Optionee's successors and assigns agree that any dispute or disagreement which shall arise under or as a result of this Agreement shall be determined by the Committee in its sole discretion and judgment and that any such determination and any interpretation by the Committee of the terms of this Agreement shall be final and shall be binding and conclusive for all purposes. 8. ADJUSTMENTS. In the event of any stock dividend, stock split, reclassification, merger, consolidation, or similar transaction affecting the shares covered by this option, the rights of the Optionee shall be as provided in Section 8 of the Plan and any adjustment therein provided shall be made in accordance with Section 8 of the Plan. 9. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a shareholder of the Company with respect to any of the shares covered by this option until the issuance of a stock certificate or certificates upon the exercise of the option in full or in part, and then only with respect to the shares represented by such certificate or certificates. 10. NOTICES. Every notice relating to this Agreement shall be in writing and if given by mail shall be given by registered or certified mail with return receipt requested. All notices to the Company shall be delivered to the Secretary of the Company at the Company's headquarters or addressed to the Secretary of the Company at the Company's headquarters. All notices by the Company to the Optionee shall be delivered to the Optionee personally or addressed to the Optionee at the Optionee's last residence address as then contained in the records of the Company or such other address as the Optionee may designate. Either party by notice to the other may designate a different address to which notices shall addressed. Any notice given by the Company to the Optionee at the Optionee's last designated address shall be effective to bind any other person who shall acquire rights hereunder. 5 26 11. "OPTIONEE" TO INCLUDE CERTAIN TRANSFEREES. Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically apply to any other person or persons to whom the option, in accordance with the provisions of Section 6 hereof, may be transferred, the word "Optionee" shall be deemed to include such person or persons. 12. GOVERNING LAW. This Agreement has been made in and shall be construed in accordance with the laws of the State of Michigan. 13. PROVISIONS OF PLAN CONTROLLING. The provisions hereof are subject to the terms and provisions of the Plan copies of which are available for review upon request to the Chief Operating Officer of the Company. In the event of any conflict between the provisions of this option and the provisions of the Plan, the provisions of the Plan shall control. 14. WITHHOLDING. The Optionee hereby authorizes the Company to withhold from his compensation or agrees to tender the applicable amount to the Company to satisfy any requirements for withholding of income and employment taxes in connection with the exercise of the option granted hereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PERCEPTRON, INC. By:____________________________ James A. Ratigan Executive Vice President _______________________________ Alfred A. Pease, OPTIONEE 6 27 NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION UNDER THE PERCEPTRON, INC. 1992 STOCK OPTION PLAN Perceptron, Inc. 23855 Research Drive Farmington Hills, MI 48335 Dear Sir: An non-qualified stock option was granted to me on February 14, 1996 to purchase 182,980 shares of Perceptron, Inc. Common Stock at a price of $20.625 per share. I hereby elect to exercise my non-qualified stock option with respect to ___ shares for an aggregate purchase price of $__________. I hereby elect to pay for such shares as follows: Personal Check $_____ Cash $_____ Bank Draft $_____ Money Order $_____ Perceptron Common Stock $_____ Cashless Exercise $_____ Retention of Stock Options $_____ Total $ ====== [A personal check [or cash, bank draft or money order] for the purchase price [is enclosed herewith] or [will be delivered within 10 days hereof]]. [I hereby elect to exercise my stock option with respect to shares through a combination of cash payments and shares of Perceptron, Inc. Common Stock, as described on the attached Exhibit A. A personal check for the purchase price to be paid in cash is enclosed herewith. [Certificates for shares of Perceptron, Inc. Common Stock are enclosed herewith, along with a duly executed stock power in proper form for transfer, with all signatures properly guaranteed by a national bank or member firm of the NYSE or AMEX, [or the foregoing documents will be delivered within 10 days hereof.]] [I hereby authorize the Company to retain options to purchase shares of Perceptron, Inc. Common Stock granted pursuant to this stock option (the "Retained Options"). I hereby acknowledge and agree that, as of the date set forth below, the Retained Options shall no longer be exercisable, and shall expire and have no further force and effect.] 28 [Documents as are required to effect a cashless exercise] [are enclosed] or [will be delivered within 10 days hereof]]. I represent that the shares of stock that I am purchasing upon this exercise of my option are being purchased for investment purposes and not with a view to resale. This representation shall not be binding upon me if the shares of Common Stock that I am purchasing are subject to an effective Registration Statement under the Securities Act of 1933. ___________________________________ Alfred A. Pease, Optionee Dated ________________, 19__ 2 29 EXHIBIT D TO EMPLOYMENT AGREEMENT OF ALFRED A. PEASE PERCEPTRON, INC. Proprietary Information And Inventions Agreement I recognize that Perceptron, Inc., a Michigan corporation (The "Company", which term includes any subsidiaries thereof), is engaged in a continuous program of research, development and production respecting its business, present and future. I understand that: A. As part of employment with the Company, I am expected to make new contributions and inventions of value to the Company. B. My employment creates a relationship of confidence and trust between me and the Company with respect to any information: (1) Applicable to the business of the Company; or (2) Applicable to the business of any client or customer of the Company, which may be made known to me by the Company or by any client or customer of the Company, or learned by me during the period of my employment. C. The Company possesses and will continue to possess information that has been created, discovered or developed, or has otherwise become known to the Company (including without limitation information created, discovered, developed or made known to me during the period of or arising out of my employment by the Company), and/or in which property rights have been assigned or otherwise conveyed to the Company, which information has commercial value in the business in which the Company is engaged. All of the aforementioned information is hereinafter called "Proprietary Information." By way of illustration, but not limitation, Proprietary Information includes trade secrets, processes, formulae, data and know-how, improvements, inventions, techniques, marketing plans, strategies, forecasts and customer lists. D. As used herein, the period of my employment includes any and all time in which I may be retained by the Company as an employee. In consideration of my employment or continued employment as the case may be, and the compensation received by me from the Company from time to time, I hereby agree as follows: 1. Prior to entering the employ of the Company I have terminated my employment with one or more prior employers. I agree to indemnify and hold harmless the Company, its directors, officers and employees against any liabilities and expenses, including amounts paid in settlement incurred by any of them in connection with any claim by any of my prior 30 employers that the termination of my employment with such employer, my employment by the Company or the use of any skills and knowledge by the Company is a violation of contract or law. 2. All Proprietary Information shall be the sole property of the Company and its assigns, and the Company and its assigns shall be the sole owner of all patents and other rights in connection therewith. I hereby assign to the Company any rights it may have or acquire in all Proprietary Information. At all times, both during my employment by the Company and after its termination, I will keep in confidence and trust all Proprietary Information, and I will not use or disclose any Proprietary Information or anything relating to it without the written consent of the Company, except as may be necessary in the ordinary course of performing my duties as an employee of the Company. 3. I agree that during the period of my employment by the Company I will not, without the Company's express written consent, engage, directly or indirectly, in any employment or activity in any competitive business, other than for the Company. 4. In the event of termination of my employment by me or by the Company for any reason, I will deliver to the Company all documents and data of any nature pertaining to my work with the Company and I will not take with me any documents or data of any description or any reproduction of any description containing or pertaining to any Proprietary Information. I agree that for a period of two years following termination of my employment with the Company, I will not solicit or in any manner encourage employees of the Company to leave its employ. I further agree that during such period I will not offer or cause to be offered employment to any person who was employed by the Company at any time during the six months prior to the termination of my employment with the Company. 5. I will promptly disclose to the Company, or any persons designated by it, all improvements, inventions, formulae, processes, techniques, know-how and data, whether or not patentable, made or conceived or reduced to practice or learned by me, either alone or jointly with others, during the period of my employment which are related to or useful in the business of the Company, or result from tasks assigned to me by the Company or results from use of premises owned, leased or contracted for by the Company (all said improvements, inventions, formulae, processes, techniques, know-how and data shall be collectively hereinafter called "Inventions"). 6. I agree that all Inventions shall be the sole property of the Company and its assigns, and the Company and its assigns shall be the sole owner of all patents and other rights in connection therewith. I hereby assign to the Company any rights it may have or acquire in all Inventions. I further agree as to all Inventions to assist the Company in every proper way (but at the Company's expense) to obtain and from time to time enforce patents on Inventions in any and all countries, and to that end I will execute all documents for use in applying for and obtaining such patents thereon and enforcing same, as the Company may desire, together with any assignments thereof to the Company or persons designated by it. My obligation to assist the Company in obtaining and enforcing patents for Inventions in any and all countries shall continue beyond the termination of 2 31 my employment, but the Company shall compensate me at a reasonable rate after such termination for time actually spent at the Company's request on such assistance. I understand that this Paragraph 6 does not apply to inventions for which no equipment, supplies, facility or trade secret information of the Company was used and which were developed entirely on my own time, and (a) which do not relate (1) to the business of the Company or (2) to the Company's actual or demonstrably anticipated research or development, or (b) which do not result from any work performed by me for the Company. 7. All inventions or improvements relevant to the subject matter of my employment by the Company which I can establish were first made or conceived or reduced to practice by me alone or jointly with others prior to my engagement by the Company shall be removed from operation of this Agreement. I must establish such prior action by me to the reasonable satisfaction of the Company or to a court of competent jurisdiction through evidence of publication, corroboration by third parties and/or other independent evidence. 8. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement or understanding, whether written or oral, to keep in confidence proprietary information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree not to enter into, any agreement or understanding either written or oral in conflict herewith. 9. I understand as a part of the consideration for the offer of employment extended to me by the Company and of my employment or continued employment by the Company, that I have not brought and will not bring with me to the Company or use in the performance of my responsibilities at the Company any materials or documents of a former employer which are not generally available to the public, unless I have obtained written authorization from the former employer for their possession and use. Accordingly, this is to advise the Company that the only materials or documents of a former employer which are not generally available to the public that I have brought or will bring to the Company or have used or will use, are identified on Exhibit A attached hereto, and, as to each such item, I represent that I have obtained prior to the effective date of my employment with the Company written authorization for their possession and use with the Company. I also understand that, in my employment with the Company, I am not to breach any obligation of confidentiality that I may have to former employers, and I agree that I shall fulfill all such obligations during my employment with the Company. I agree that in addition to any other rights and remedies available to the Company for any breach by me of my obligations hereunder, the Company shall be entitled to enforcement of my obligations hereunder by court injunction. 3 32 If any provision of this Agreement shall be declared invalid, illegal or unenforceable, such provision shall be severed and all remaining provisions shall continue in full force and effect. 10. This Agreement shall be effective as of the first day of my employment by the Company, namely: February 14, 1996 11. This Agreement shall be binding upon me, my heirs, executors, assigns and administrators and shall inure to the benefit of the Company, its successors and assigns. 12. This Agreement has been negotiated, executed and delivered, in Michigan and shall be governed in all respects by the laws of the State of Michigan. Date February 14, 1996 BY__________________________________ ALFRED A. PEASE ACCEPTED AND AGREED TO: PERCEPTRON, INC. BY:____________________________ TITLE:_________________________ 4 EX-11 6 EX-11 1 PERCEPTRON, INC. AND SUBSIDIARIES EXHIBIT 11, STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Earnings Per Share Year Ended December 31, ------------------------------------- 1996 1995 1994 ---------- ------------- ---------- (as restated) A. Net Income $7,894,000 $8,409,000 $5,839,000 ---------- ------------- ---------- Weighted average number of common shares outstanding 6,964,278 6,554,445 6,129,972 Effect of the issuance of stock options and warrants and assumed exercise of stock options and warrants at prices which are lower than the average market price of the common shares during the period, using the treasury stock method 672,018 703,339 774,655 Effect of convertible shares held by a minority shareholder of a foreign subsidiary, which were converted into common stock on June 23, 1994 --- --- 93,753 --------- --------- --------- B. Weighted average number of common shares and common equivalent shares for primary earnings per share 7,636,296 7,257,784 6,998,380 --------- --------- --------- Weighted average number of common shares outstanding 6,964,278 6,554,445 6,129,972 Effect of the issuance of stock options and warrants and assumed exercised of stock options and warrants at prices which are lower than the market price of the common shares at the end of the period, using the treasury stock method 740,229 871,833 946,413 Effect of convertible shares held by a minority shareholder of a foreign subsidiary, which were converted into common stock on June 23, 1994 --- --- 93,753 --------- --------- --------- C. Weighted average number of common shares and common equivalent shares for fully diluted earnings per share 7,704,507 7,426,278 7,170,138 --------- --------- --------- Primary earnings per share (A/B) $1.03 $1.16 $.83 ========= ========= ========= Fully diluted earnings per share (A/C) $1.02 $1.13 $.81 ========= ========= =========
41 EX-21 7 EX-21 1 EXHIBIT 21 SUBSIDIARIES OF PERCEPTRON, INC. The following three corporations are subsidiaries of Perceptron, Inc. 1. Perceptron Europe B.V., a corporation organized under the laws of the Netherlands. 2. Perceptron (Europe) GmbH, a corporation organized under the laws of Germany, is a wholly owned subsidiary of Perceptron Europe B.V. 3. Autospect, Inc., a corporation organized under the laws of Michigan. EX-23 8 EX-23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Perceptron, Inc. and Subsidiaries on Form S-8 (File Nos. 33-63666, 33-63664, 33-85656, 33-93910, 333-00446 and 333-00444) and on Form S-3 (File No. 33-78594) of our report dated January 31, 1996, except as to note 14 for which the date is February 3, 1997, on our audits of the consolidated financial statements and financial statement schedule of Perceptron, Inc. and Subsidiaries as of December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995 and 1994, which report is included in this Annual Report on Form 10-K for the year ended December 31, 1996. COOPERS & LYBRAND LLP Detroit, Michigan March 28, 1997 EX-27 9 EX-27
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 14,666,000 0 20,958,000 (60,000) 6,001,000 45,481,000 10,531,000 (1,416,000) 56,896,000 10,392,000 0 73,000 0 0 46,431,000 56,896,000 49,679,000 49,679,000 18,989,000 17,310,000 3,202,000 0 (786,000) 10,964,000 3,070,000 7,894,000 0 0 0 7,894,000 1.03 1.02
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