-----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, KwrdYxGF2LSDk0Zx/pRpjJT3mdSYDr1Oeywrh3LOP3pyv7qSveNABwWg+pGUdvlJ FFOPCn6jbgFi+5JIHgvm8A== 0000950124-98-001787.txt : 19980331 0000950124-98-001787.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950124-98-001787 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 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-K405 SEC ACT: SEC FILE NUMBER: 001-13985 FILM NUMBER: 98579768 BUSINESS ADDRESS: STREET 1: PERCEPTRON INC STREET 2: 47827 HALYARD DR CITY: PLYMOUTH STATE: MI ZIP: 48170-2461 BUSINESS PHONE: 3134144816 MAIL ADDRESS: STREET 1: PERCEPTRON INC STREET 2: 47827 HALYARD DRIVE CITY: PLYMOUTH STATE: MI ZIP: 48170-2461 10-K405 1 10-K405 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, 1997 [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 (734) 414-6100 (Registrant's telephone number, including area code) Securities registered pursuant to section 12(b) of the act: None Securities registered pursuant to section 12(g) of the act: COMMON STOCK, $0.01 PAR VALUE RIGHTS TO PURCHASE PREFERRED STOCK (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on March 16, 1998, as reported by The Nasdaq Stock Market, was approximately $170,000,000 (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 16, 1998, was: 8,267,264. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following document, to the extent specified in this report, are incorporated by reference in Part III of this report: Document Incorporated by reference in: Proxy Statement for 1998 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. The Company's systems address a number of measurement and guidance applications, including process control systems that precisely measure and monitor the assembly process for conformance to design intent, systems that guide robots to perform precise tasks on the assembly line, systems which inspect and detect defects on painted surfaces and systems that capture the shape of logs and process the shape data to optimize the cutting process. Perceptron's product offerings are designed to improve quality, increase productivity and decrease costs in the automotive and forest products workplace. The Company's products principally use 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. TriCam systems are 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 forest and wood products industry. 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 coating inspection and defect detection systems primarily for use in the automotive industry. On April 30, 1997, the Company consummated its acquisitions of Trident Systems, Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose") for aggregate consideration consisting of 219,962 and 89,820 shares, respectively, of Common Stock of the Company. Trident, based in Atlanta, Georgia, 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. 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 TriCam and LASAR systems sold to the forest and wood products industry. This software accepts scanner information from the Company's TriCam and LASAR systems. The acquisitions of Autospect, Trident and Nanoose were accounted for as poolings-of-interest. Accordingly, historical financial information included in the Form 10-K for 1996 and prior periods has been restated to include the financial results for the acquired companies. 2 3 The Company was incorporated in Michigan in 1981. Its headquarters are located at 47827 Halyard Drive, Plymouth, Michigan 48170-2461, (734) 414-6100. The Company also has operations in Ann Arbor, Michigan; Atlanta, Georgia; British Columbia, Canada; Munich, Germany; Seoul, South Korea; Rotterdam, The Netherlands; Sao Paulo, Brazil and Tokyo, Japan. PRODUCT TECHNOLOGY OVERVIEW 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. Autospect products use Gray-scale and Infrared image capture and analysis. These technologies, when combined with proprietary image processing algorithms, calibration and reporting structure, form the basis for the coating and paint quality measurement systems offered by Autospect. APPLICATION OVERVIEW 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 other applications in the automotive industry and certain non-automotive industries, such as providing three-dimensional parameters for the forest and wood products applications. The Company's LASAR sensors provide accurate three-dimensional images over a larger field of view than does TriCam, and have been primarily used for forest and wood products applications. 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 automotive 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. Autospect's products 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 gloss, distinctness of reflected image and orange peel 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. 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. MARKETS The Company has a multiple market approach, with the main focus being the automotive industry. With the acquisition of Autospect, Inc. in 1997, the Company now has product offerings encompassing the entire automobile manufacturing line, including stamping, general assembly, paint, trim and final assembly. In 1997, Perceptron purchased Trident Systems and Nanoose Systems and increased its marketing efforts in the forest and wood products markets. The Company believes that there may be potential applications for its three-dimensional machine vision systems in non-automotive industries as diverse as aerospace, food processing, appliances, robot and autonomous vehicle guidance, and others. The foregoing statement is a "forward looking statement" within the 3 4 meaning of the Exchange Act. See "Business Strategy" for a discussion of certain factors affecting the Company's expansion plans. PRODUCTS AND APPLICATIONS Assembly Process Control System (P-1000). The P-1000 system, which uses TriCam sensors, 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. 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. The Company supplies NCA systems to the automotive market through a number of OEM's. 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. Optical Checking Fixture (OCF). The OCF is a non-contact three-dimensional surface scanner, which employs TriCam technology. The Company markets the OCF product 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. Four systems have been ordered from beta stage customers, of which three have been delivered and are operational. The Company continues to receive customer feedback and is working on enhancements to the product. Dimensional Data Management (DDM). The DDM is a 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. The client software provides multiple users, both local and remote, with the capability of monitoring and analyzing dimensional data. Defroster Continuity Monitor (DCM): The Perceptron DCM is a product developed with Autospect machine vision technology for application in automotive Trim and Final Assembly areas. The system quickly determines whether embedded stripe defroster grids in rear glass have been fully installed and are fully operational. 4 5 QMS-I: 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. QMS-BP: 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): The IDC 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 initial version of this product was sold to one customer for two applications. While this version is currently running, no additional units of this version are being offered. Instead, a new enhanced version is currently in development which, once testing is complete, will become the new product offering. Forest Products Industry Application Solutions: TriCam and LASAR based vision systems relay high resolution scan data to the WinMill family of three-dimensional optimization software, providing a modular approach to optimizing the entire mill. This computer integrated manufacturing assists the mill in maximizing its returns on raw materials and capital investments. The software solutions, coupled with the precision of dense three-dimensional product modeling, provides process management with the added benefits of sophisticated reporting, real-time feedback, order scheduling, production control, and mill-wide information management. 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. Note: Level IV software is based on WindowsNT operating system, a product of Microsoft Corporation. Perceptron develops the Graphical User Interface (GUI) and the Data reporting structure, and interfaces to underlying software levels. 5 6 BUSINESS STRATEGY The Company seeks to expand its customer base and markets. To do this, the Company has embraced the following strategy: 1. Expand the Company's automotive markets by: - Increasing products sales to automotive original equipment manufacturers through the expansion of the Company's product offerings available to this market. The Company now has product offerings encompassing the entire automobile manufacturing line, including stamping (P-1000), general assembly (P-1000 and RGS), paint and trim (QMS, IDC) and final assembly (P-1000, NCA, RGS, DCM). The Company plans to continue to introduce new products meeting the needs of its existing automotive customers in order to leverage the Company's resources dedicated to this market. - Continuing efforts to expand the Company's base of automotive customers. In North America, the Company's expansion efforts will focus on sales to the transplant automobile manufacturers and first-tier suppliers to the automotive industry. In Europe, the Company will focus on geographic expansion, initiating or expanding sales activities in a number of countries currently not fully served by the Company or its distributors. The Company will also continue to focus on expansion in Asia and South America through its offices in Seoul, Korea, Tokyo, Japan and Sao Paulo, Brazil. 2. Expand the Company's forest and wood products markets by: - Expanding the Company's product offerings available to the forest and wood products markets. As a result of new product introductions in 1997, the Company now has products that serve most of the process areas in softwood and hardwood mills. The Company plans to continue to refine these products and to introduce new products meeting the needs of this growing market. - Continuing efforts to expand the Company's base of forest and wood products customers. The Company intends to focus its efforts on North American producers, many of whom are engaged in plant modernization programs. Sales efforts will also be made in selected international markets, either directly or through distributors, where the Company believes the market is receptive to technological advances offered by the Company's products, including Australia, the Scandinavian countries, and others. 3. 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 food processing, appliance assembly, steel processing, robot guidance and others. 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 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, 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 sales 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 6 7 marketing strategy for its assembly process control systems (P-1000), products offered by Autospect, and for selected forest and wood products applications. 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 selected 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, 1997, approximately 55% of total revenues were derived from three domestic automotive companies (General Motors, Ford and Chrysler). For the years ended December 1996 and 1995, approximately 62% and 60%, respectively, of total revenues were derived from the same three customers. CUSTOMER SUPPORT The Company's support program for its customers begins at the pre-sales phase with customer consultation. 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, the RGS system, and forest products systems, the Company's automotive and forest products applications and project engineering groups work closely with the customers' engineers. The automotive 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. Training programs are also conducted with forest product customers. 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. 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 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 late 1995, Autospect received a $1.8 million National Institute of Science & Technology (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. In 1993, the Company was awarded a $1.22 million NIST-ATP (Advanced Technology Program) 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 included all development costs incurred internally, and subcontracted to an independent research organization and to a university in engineering, research and development expense, and offset these costs with reimbursements from NIST. Work under this grant supplied the Company with a substantial repertoire of widely usable and tested machine vision algorithm components for use with its TriCam and LASAR products. A Joint Venture among Perceptron, Ford Motor Company, Progressive Industries Company and Micro Dexterity Systems, Inc. began in October 1997 for participation in the Flexible Robotic Assembly for Powertrain Applications (FRAPA) program. The objective of the Joint Venture is to develop and implement the technologies needed to deliver flexible assembly robotic cells, including vision sensing and tactile feedback. These additional 7 8 sensing capabilities are being developed to assist robotic work cells to adapt to the current state of their surroundings to improve cell placement reliability and to reduce the need for precision tooling. The applications being targeted are those most ergonomically demanding of human operators. Perceptron receives 25% matching funds from the National Center for Manufacturing Services for In-kind contributions over a four year period, not to exceed a total of $305,000. As of March 16, 1998, 114 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, 1995, 1996 and 1997, the Company's research, development and engineering expenses were $5.4 million, $7.3 million, and $8.9 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. BACKLOG As of December 31, 1997, the Company had a backlog of $24.2 million, compared to $23.1 million as of December 31, 1996. Most of the backlog is subject to cancellation by the customer. The level of order backlog at any particular time is not necessarily indicative of the future operating performance of the Company. The Company expects to be able to fill substantially all of the orders in its backlog by December 31, 1998. MANUFACTURING AND SUPPLIERS The Company's manufacturing operations consist primarily of final assembly and testing, along 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 Europe: The Company's European operations have contributed approximately 27%, 20%, and 23% of the Company's revenues during the years ended 1995, 1996, and 1997, 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 outside of Munich, Germany. The Company currently employs 29 people in its European operations. Autospect currently offers its products internationally through distributors in Europe. 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. The assets acquired include certain patents, patent applications and other intellectual property, hardware, software, customer lists, and a non-competition agreement. Asia: In 1997, the Company began operating a direct sales and application office in Seoul, Korea and began operating through a representative sales office in Tokyo, Japan. 8 9 South America: The Company has established a direct 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". COMPETITION The Company believes that the principal competitive factors in the Company's automotive markets are total capability as a process control system and, with certain of the Company's products, such as P-1000, RGS and NCA, system price. There are a number of companies that sell similar and/or alternative technologies and methods into the same markets as the Company. The Company believes that its P-1000 system is the most advanced, in terms of completeness of solutions provided, system currently offered and that its other products compete favorably with similar and alternative technologies currently being offered in terms of both capability and price. In the forest and wood products markets, there are a number of companies that sell similar and/or alternative technologies and methods into the same markets as the Company. The Company believes that the principal competitive factors in the Company's forest and wood products markets are its capability as a process control system and the value added when installed in a wood mill. The Company believes that its products compete favorably with similar and alternative technologies currently being offered in terms of both capability and value added. 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 owns nine U.S. patents and nine 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 and has several patent applications pending in foreign locations. These U.S. patents expire from 2004 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. 9 10 The Company has registered, and continues to register, various trade names and trademarks, including PERCEPTRON, DATACAM, LASAR, VERISTAR, WinMill, TRICAM and OPTIFLEX, among others, which are used in connection with the conduct of its business. Autospect has applied for registration of the AUTOSPECT trade name. 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 16, 1998, the Company employed 317 persons. Of these persons, 114 were in research, development and engineering, 43 in sales, marketing and support, 126 in operations, applications and project engineering and 34 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. ITEM 2: FACILITIES Perceptron's principal domestic facilities consist of a 70,000 square foot building located in Plymouth, Michigan, owned by the Company, a 20,500 square foot leased facility in Ann Arbor, Michigan, and a 13,000 square foot leased building in Atlanta, Georgia. In addition, the Company leases a 1,350 square meters facility in Munich, Germany, a 1,000 square foot facility in Rotterdam, The Netherlands, a 6,200 square foot facility in British Columbia, Canada, an office in Brazil, an office in Seoul, Korea, and an office in Tokyo, Japan. The Company believes that its current facilities are sufficient to accommodate its requirements through 1998. ITEM 3: LEGAL PROCEEDINGS No response to Item 3 is required. 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................................................... $ 25.25 $ 38.13 Second Quarter.................................................. $ 25.25 $ 30.75 Third Quarter................................................... $ 24.88 $ 34.50 Fourth Quarter.................................................. $ 19.13 $ 30.75 1998 First Quarter (January 1, 1998 through March 16, 1998).......... $ 18.75 $ 24.50
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 approximate number of shareholders of record on March 16, 1998, was 302. 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): 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Net sales $65,102 $58,975 $43,154 $33,224 $22,203 Gross profit 40,025 35,367 26,184 19,248 11,724 Income from operations (1) 15,118 9,502 7,699 6,046 3,072 Net income before provision for income tax (1) 16,009 10,245 8,227 6,179 2,870 Net income (1) 10,806 7,150 8,491 6,179 2,841 Net income per diluted average common share (1) $1.28 $.86 $1.07 $.80 $.43 Weighted average common shares outstanding - diluted 8,412 8,309 7,955 7,695 6,669 As of December 31, ------------------------------------------------------------------ Balance Sheet Data: 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Working capital $45,604 $34,444 $28,119 $19,023 $12,733 Total assets 68,142 61,456 42,017 25,750 17,454 Shareholders' equity 57,879 46,447 31,049 20,346 13,711
- ---------------- (1) Excluding amounts for non-cash stock option compensation expense (See Note 6 to the Consolidated Financial Statements), the reported amounts would have been:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Income from operations 15,118 12,704 9,076 6,046 3,072 Net income before provision for income tax 16,009 13,447 9,604 6,179 2,870 Net income 10,806 9,231 9,386 6,179 2,841 Net income per diluted average common share $1.28 $1.11 $1.19 $.80 $.43
(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") designs, manufactures and markets information based process measurement and guidance systems. The Company's principal products involve a TriCam technology, a proprietary triangulation based three-dimensional machine vision system using laser technology. 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. To date, the Company's products have been sold primarily to North American, European and, to a lesser extent, Asian and South American automobile manufacturers. Historically, sales to automotive customers have typically depended primarily on new model re-tooling programs. Accordingly, sales may vary significantly among customers on a year-to-year and quarter-to-quarter basis. 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 coating inspection and defect detection systems primarily for use in the automotive industry. The transaction was accounted for as a pooling of interests. On April 30, 1997, the Company consummated its acquisitions of Trident Systems, Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose") for aggregate consideration consisting of 219,962 and 89,820 shares, respectively, of Common Stock of the Company. The transactions were accounted for as poolings-of-interest. Trident, based in Atlanta, Georgia, 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. 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 to the forest and wood products industry. This software accepts scanner information from the Company's TriCam and LASAR systems. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996 Net Sales. Net sales, of which substantially all are attributable to the automotive and forest and wood products ("Forest") markets, consist primarily of product sales together with training and service revenue. The Company's net sales increased by 10% from $59.0 million in 1996 to $65.1 million in 1997. Net sales in the North American market increased from $46.3 million in 1996 to $48.3 million in 1997. Net sales in the European, Asian, and South American markets increased from $12.7 million in 1996 to $16.8 million in 1997. The total increase in net sales for 1997 was accounted for by a 5% increase in sales of P-1000 systems, a 45% increase in sales of RGS and NCA systems, and a 21% increase in the sale of Forest Product systems in North America. P-1000 systems accounted for 63% of net sales in 1996 and 60% of net sales in 1997. The RGS and NCA systems combined accounted for 12% of net sales in 1996 and 16% in 1997. Forest Products sales accounted for 13% of net sales in 1996 and 15% of net sales in 1997. Training and service revenues and other product sales accounted for the remainder of net sales in both years. New order bookings for 1996 totaled $64.7 million, compared to $66.1 million in 1997. North American orders were up from $49.7 million in 1996 to $50.4 million in 1997 and European, Asian and South American orders were up from $15.0 million in 1996 to $15.7 million in 1997. P-1000 systems accounted for 66% of new order bookings in 1996 and 50% in 1997. RGS and NCA bookings accounted for 13% of bookings in 1996 and 17% in 1997. Forest Product bookings were 10% of the total in 1996 and 19% in 1997. Training and service revenues and other product sales accounted for the remainder of net bookings in both years. The increase in new order bookings in 1997 was principally due to Forest Product orders, orders for RGS and NCA systems and orders for Autospect paint inspection products, offset by a decline in P-1000 orders. 13 14 Due to the evolving shift in focus from automotive end-of-line gauging to solutions that service process centers factory-wide, the Company expects that sales of its P-1000 systems, designed for end-of-line gauging, will slow and that future growth in net sales will be derived from Forest Products systems and new product introductions anticipated in 1998. As a result, the Company expects its results for the quarter ended March 31, 1998, to be below those of the same quarter in the prior year, and that, as new products are introduced during 1998, for the Company's results for the last six months of 1998 to show a marked improvement. The foregoing statements are "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 described under Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Safe Harbor Statement" below. Gross profit. Gross profit increased from $35.4 million in 1996 to $40.0 million in 1997, and as a percentage of net sales increased from 60.0% in 1996 to 61.5% in 1997. The percentage increase is due primarily to increased sales of higher gross margin product sales, and to a lesser extent, to the lower gross profit percentage associated with sales 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 in 1996. Selling, general and administrative expenses. Selling, general and administrative expenses increased by 4% from $15.4 million in 1996 to $16.0 million in 1997. This increase is due primarily to increases in personnel and various operating expenses required to support the increased 1997 operating activity, and, to a lesser extent, to costs associated with the recent acquisitions partially offset by decreased management performance bonuses. Additionally, 1996 expenses included a non-recurring charge related to a special compensation program at one of the acquired companies. As a percentage of net sales, selling, general and administrative expenses decreased from 26.1% in 1996 to 24.5% in 1997. Engineering, research and development. Engineering, research and development expenses increased by 23%, from $7.3 million in 1996, to approximately $8.9 million in 1997, 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 increased from 12.4% in 1996 to 13.7% in 1997. Non-cash stock compensation expense. Beginning in late 1994, some participants in the Company's stock option plan used Perceptron stock options to pay the exercise price of stock options issued under the plan. Accounting rules required the recording of a non-cash compensation expense relating to certain of the exercises during 1995 and 1996. The Company took action to eliminate the provision in its stock option plans which otherwise might have resulted in similar non-cash stock compensation expense in 1997 and future years, and as a result, incurred no similar charge in 1997. Interest income, net. Interest income, net, increased from approximately $0.7 million in 1996 to $0.9 million in 1997, due to increased cash balances and related investing activities during 1997. Income before provision for income taxes. In 1996, Perceptron had income before provision for income taxes of approximately $10.2 million representing 17.4% of net sales, as compared to 1997 income before provision for income taxes of approximately $16.0 million representing 24.6% of net sales. Without the non-cash stock compensation charge, the results for 1996 would have been $13.4 million, or 22.8% of net sales in 1996. Provision for income taxes. For the year ended December 31, 1997, the Company recorded a $5.2 million provision for income taxes, representing an estimated effective tax rate of 32.5%, compared to a provision of $3.1 million in 1996, representing an estimated effective tax rate of 30.0%. (See Note 8 to the Consolidated Financial Statements, "Income Taxes") Net income. Net income in 1997 was $10.8 million, or 16.6% of net sales, resulting in $1.28 per diluted share. In 1996, net income was $7.2 million, or 12.1% of net sales, resulting in $.86 per diluted share. Excluding the non-cash stock option compensation expense, the 1996 net income would have been $9.2 million, 15.6% of net sales, or $1.11 per diluted share. 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 and forest products markets, consist primarily of product sales together with training and service revenue. The Company's net sales increased by 37% from $43.1 million in 1995 to $59.0 million in 1996. Net sales in the North American market 14 15 increased from $30.1 million in 1995 to $46.3 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 68% of net sales in 1995 and 63% of net sales in 1996. The RGS and NCA systems combined accounted for 13% of net sales in 1995 and 12% in 1996. Forest Products sales accounted for 8% of net sales in 1995 and 13% of net sales in 1996. Training and service revenues and other product sales accounted for the remainder of net sales in both years. New order bookings for 1995 totaled $45.6 million, compared to $64.7 million in 1996. North American orders were up from $32.7 million in 1995 to $49.7 million in 1996 and European and Asian orders were up from $12.9 million in 1995 to $15.0 million in 1996. P-1000 systems accounted for 71% of new order bookings in 1995 and 66% in 1996. RGS and NCA bookings accounted for 11% of the total in 1995 and 13% in 1996. Forest Product bookings accounted for 8% of the total in 1995 and 10% in 1996. Training and service revenues and other product sales accounted for the remainder of net sales in both years. Gross profit. Gross profit increased from $26.2 million in 1995 to $35.4 million in 1996, and as a percentage of net sales decreased from 60.7% in 1995 to 60.0% 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 31% from $11.7 million in 1995 to $15.4 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. Additionally, 1996 expenses included a non-recurring charge related to a special compensation program at one of the acquired companies. As a percentage of net sales, selling, general and administrative expenses decreased from 27.0% in 1995, to 26.1% in 1996. Engineering, research and development. Engineering, research and development expenses increased by 34%, from $5.4 million in 1995, to approximately $7.3 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 12.6% in 1995 to 12.4% 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 used Perceptron stock options to pay the exercise price of stock options issued under the plan. Accounting rules required the recording of a non-cash compensation expense relating to certain of the exercises during 1996 and 1995. The Company recorded 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 diluted share, and for 1996 was $0.25 per diluted share. Interest income, net. Interest income, net, increased from approximately $0.5 million in 1995 to $0.7 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 $8.2 million representing 19.1% of net sales, as compared to 1996 income before provision for income taxes of approximately $10.2 million representing 17.4% of net sales. Without the non-cash stock compensation charge, the results for 1995 would have been $9.6 million, or 22.3% of net sales, as compared to $13.4 million, or 22.8% of net sales in 1996. Provision for income taxes. For financial reporting purposes, because the Company anticipated it would utilize certain operating loss and tax credit carryforwards, a deferred tax asset was recorded in 1995, representing the estimated tax benefit of these items. As a result, a tax benefit of $264,000 was recorded for the year ended 1995. 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 30%. (See Note 8 to the Consolidated Financial Statements, "Income Taxes"). Net income. Net income in 1995 was $8.5 million, or 19.7% of net sales, resulting in $1.07 per diluted share. In 1996, net income was $7.2 million, or 12.1% of net sales, resulting in $.86 per diluted share. Without the non-cash stock compensation expense, net income for 1995 would have been $9.4 million, or 21.8% of net sales, 15 16 resulting in $1.19 per diluted share. Excluding the non-cash stock option compensation expense, the 1996 net income would have been $9.2 million, 15.6% of net sales, or $1.11 per diluted share, compared to the 1995 earnings, as if taxed at a comparable rate, of $6.8 million, 16% of net sales or $.83 per diluted share. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents and marketable securities as of December 31, 1997, totaled approximately $16.4 million, as compared with approximately $14.9 million as of December 31, 1996. This increase was due primarily to net income and cash received from stock options, partially offset by capital expenditures and increased working capital requirements. The Company has unsecured credit facilities totaling $5.0 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 16, 1998). The credit facilities expire on May 31, 1998 unless canceled earlier by the Company or the bank. As of December 31, 1997, Perceptron had no outstanding borrowings on these facilities. The Company expects to renew these credit facilities. The Company's working capital increased to $45.6 million at December 31, 1997, from $34.4 million at December 31, 1996. Accounts receivable increased from $22.8 million as of December 31, 1996, to $30.7 million as of December 31, 1997, due primarily to extended terms and collections by foreign subsidiaries, which have now been collected. The increase of approximately $0.8 million in inventory is due primarily to an increase in component parts inventory in preparation for delivery of products to customers during 1998. The decrease of $4.2 million in current liabilities is due primarily to repayment of subsidiary bank loans, reduced compensation expense accrued, and final progress payments on the new facility paid during 1997. 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 in 1996. Prepaid expenses and deferred tax assets decreased by $1.8 million in 1997 as a result of the recognition of current tax expense. During the first quarter of 1997, construction of the Company's new headquarters facility in Plymouth, Michigan was completed and the sale of the facility to the Company was consummated. This is reflected in the Property and Equipment portion of the consolidated balance sheet for the period ended December 31, 1997. 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 1998 cash flow requirements. The Company expects to expend approximately $3.0 million during 1998 for capital equipment, although there is no binding commitment to do so. The Board of Directors has authorized the repurchase of up to 150,000 shares of the Company's outstanding Common Stock. Repurchased shares primarily will be used to meet the Company's requirements for share issuances under its various stock-based incentive programs, including the Global Team Member Stock Option Plan approved by the Board of Directors on February 26, 1998. Expansion of this repurchase program will be considered from time to time to meet the continuing share requirements of the Company's stock-based incentive programs. The Company may buy shares of its Common Stock on the open market or in privately negotiated transactions from time to time, based on market prices. 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 has adopted FAS 128 as of December 31, 1997. Adoption of this standard did not have a material effect on reported earnings per share. Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income", was issued by the Financial Accounting Standards Board in June 1997. This Statement requires all items that must be recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. Perceptron will adopt SFAS 16 17 130 for 1998. Management is evaluating the impact, if any, this Standard will have on the Company's comprehensive income reporting. Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information", was issued by the Financial Accounting Standards Board in June 1997. This Statement establishes standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Perceptron will adopt SFAS 131 for 1998. Management is evaluating the impact, if any, this Standard will have on the Company's present segment reporting. Safe Harbor Statement Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operation may be "forward looking statements" within the meaning of the Securities Exchange Act of 1934, including the Company's expectation as to 1998 and future revenue and earnings levels, the timing of new product releases and the expansion of the Company into new markets. Actual results could differ materially from those in the forward looking statements due to a number of uncertainties, including, but not limited to, the dependence of the Company's revenue on a number of sizable orders from a small number of customers, the timing of orders and shipments which can cause the Company to experience significant fluctuations in its quarterly and annual revenue and operating results, timely receipt of required supplies and components which could result in delays in anticipated shipments, general product demand and market acceptance risks, the ability of the Company to successfully compete with alternative and similar technologies, the timing and continuation of the automotive industry's retooling programs, the ability of the Company to resolve technical issues inherent in the development of new products and technologies, the 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, rapid or unexpected technological changes, and the effect of economic conditions. Year 2000 The Company is testing its products and third party software sold with its systems to determine if they are year 2000 compliant. To the extent that any of its products are determined not to be year 2000 compliant, the Company plans to develop upgrades to make such products year 2000 compliant or to release new versions of its products which will be year 2000 compliant prior to January 1, 2000. The Company will offer such upgrades or new product versions to its existing customers to upgrade or replace non-compliant systems then still in use. The Company is also reviewing its internal systems for year 2000 compliance. The Company's principal internal systems were acquired from third-party software vendors. As a result, the Company plans to bring its internal systems into year 2000 compliance prior to January 1, 2000, through upgrades from such third-party software vendors, where available, replacement of certain systems with new third-party software which is year 2000 compliant and, to a limited extent, modification of existing systems. Because the Company has not completed its testing procedures and because any testing procedure, by its nature, is not complete, there can be no assurance that the Company's products, the operating systems on which they operate, and the Company's internal systems do not contain errors or defects associated with year 2000 date functions that may result in material costs to the Company. However, Management does not believe that the cost to bring its current products and internal systems into year 2000 compliance will have a material adverse effect on the Company's business, results of operations or financial condition. The foregoing statements regarding the year 2000 compliance of the Company's current products and the cost to bring the Company's current products and internal systems into year 2000 compliance are "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 mentioned above. In addition, the Company's plan to bring its products and internal systems into year 2000 compliance could be adversely affected by the failure of other software vendors supplying software to the Company to bring such software into year 2000 compliance. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No response to Item 7A is required. 17 18 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Report of Independent Accountants.................................................... 19 Consolidated Financial Statements: Balance Sheets - December 31, 1997 and 1996................................. 20 Statements of Income for the years ended December 31, 1997, 1996 and 1995............................................ 21 Statements of Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995........................ 22 Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995............................................................... 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, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows, and the financial statement schedule referred to in item 14(A)(2) for each of the three years in the period ended December 31, 1997. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits 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, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 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. Detroit, Michigan February 6, 1998 19 20 PERCEPTRON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, -------------------------------- 1997 1996 -------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 14,448,000 $ 12,424,000 Marketable securities 2,000,000 2,500,000 Accounts receivable, net of reserves of $175,000 and $108,000 30,692,000 22,750,000 Inventories, net of reserves of $860,000 8,019,000 7,176,000 Income tax receivable 0 2,103,000 Prepaid expenses and deferred tax asset 708,000 2,500,000 ------------ ------------ Total current assets 55,867,000 49,453,000 ------------ ------------ Property and equipment: Building and land 5,982,000 -- Machinery and equipment 6,638,000 4,986,000 Furniture and fixtures 1,312,000 376,000 Leasehold improvements -- 12,000 Construction in progress -- 6,202,000 ------------ ------------ 13,932,000 11,576,000 Less: Accumulated depreciation and amortization (3,308,000) (1,925,000) ------------ ------------ Net property and equipment 10,624,000 9,651,000 Intangible assets, net of accumulated amortization of $394,000 and $0 1,651,000 2,352,000 ------------ ------------ Total assets $ 68,142,000 $ 61,456,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Due to bank -- 980,000 Accounts payable 2,979,000 4,892,000 Accrued payables and expenses 5,929,000 6,223,000 Accrued compensation and stock option expense 1,355,000 2,914,000 ------------ ------------ Total current liabilities 10,263,000 15,009,000 ------------ ------------ 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, 8,207,000 and 7,950,000 issued and outstanding at December 31, 1997 and 1996, respectively 82,000 80,000 Cumulative translation adjustments (2,411,000) (929,000) Additional paid-in capital 41,666,000 39,560,000 Retained earnings 18,542,000 7,736,000 ------------ ------------ $ 57,879,000 $ 46,447,000 ------------ ------------ Total liabilities and shareholders' equity $ 68,142,000 $ 61,456,000 ============ ============
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, ----------------------------------------------------------- 1997 1996 1995 -------------------- -------------------- ------------- Net sales $ 65,102,000 $ 58,975,000 $ 43,154,000 Cost of sales 25,077,000 23,608,000 16,970,000 ------------ ------------ ------------ Gross profit 40,025,000 35,367,000 26,184,000 ------------ ------------ ------------ Selling, general and administrative expense 15,963,000 15,369,000 11,672,000 Engineering, research and development expense 8,944,000 7,294,000 5,436,000 Non-cash stock compensation expense -- 3,202,000 1,377,000 ------------ ------------ ------------ Income from operations 15,118,000 9,502,000 7,699,000 ------------ ------------ ------------ Interest income, net 891,000 743,000 528,000 ------------ ------------ ------------ Net income before provision for income taxes 16,009,000 10,245,000 8,227,000 Provision for income taxes 5,203,000 3,095,000 (264,000) ------------ ------------ ------------ Net income $ 10,806,000 $ 7,150,000 $ 8,491,000 ============ ============ ============ Earnings per share: Basic $ 1.34 $ .93 $ 1.17 ============ ============ ============ Diluted $ 1.28 $ .86 $ 1.07 ============ ============ ============ Weighted average common shares outstanding: Basic 8,064,589 7,661,153 7,251,320 ============ ============ ============ Diluted 8,412,354 8,309,043 7,954,659 ============ ============ ============
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, 1995, 1996 and 1997
Cumulative Common Stock Foreign -------------------- Currency Additional Retained Total Translation Paid-in Earnings Shareholders' Shares Amount Adjustments Capital (Deficit) Equity ------ ------- ----------- ------- --------- ------ Balances, January 1, 1995 7,077,094 $ 71,000 $(438,000) $28,618,000 $(7,905,000) $ 20,346,000 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 8,491,000 8,491,000 --------- --------- --------- ----------- ----------- ----------- Balances, December 31, 1995 7,419,654 $ 74,000 $(474,000) $30,863,000 586,000 $ 31,049,000 ========= ========= ========= =========== =========== ============ Shares issued for intangible assets 82,150 1,000 2,299,000 2,300,000 Stock options exercised, net of shares tendered 447,638 5,000 2,062,000 2,067,000 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 7,150,000 7,150,000 --------- --------- --------- ----------- ----------- ----------- Balances, December 31, 1996 7,949,442 $ 80,000 $(929,000) $39,560,000 $ 7,736,000 $ 46,447,000 ========= ========= ========= =========== =========== ============ Stock options exercised, net of shares tendered 257,666 2,000 1,852,000 1,854,000 Tax benefit of non-qualified stock options exercised 87,000 87,000 Previously recorded stock option compensation attributable to options exercised 167,000 167,000 Translation adjustment on investment in foreign subsidiaries (1,482,000) (1,482,000) Net income 10,806,000 10,806,000 ---------- --------- ----------- ----------- ----------- ------------ Balances, December 31, 1997 8,207,108 $ 82,000 $(2,411,000) $41,666,000 $18,542,000 $ 57,879,000 ========== ========= =========== =========== =========== ============
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, ----------------------------------------------- 1997 1996 1995 -------------- ---------------- ---------- Cash flows from operating activities: Net income $ 10,806,000 $ 7,150,000 $ 8,491,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,754,000 904,000 854,000 Disposal of fixed assets 0 293,000 0 Non-cash stock compensation expense 167,000 3,202,000 1,377,000 Changes in operating assets and liabilities: Accounts receivable and income tax receivable (6,600,000) (9,996,000) (3,387,000) Inventories (843,000) (2,138,000) (1,496,000) Prepaid expenses and deferred tax asset 1,792,000 510,000 (2,393,000) Accounts payable (1,913,000) 588,000 1,201,000 Accrued payables and expenses (1,853,000) 1,396,000 4,679,000 ------------ ------------ ------------ Total adjustments (7,496,000) (5,241,000) 835,000 ------------ ------------ ------------ Net cash provided by operating activities 3,310,000 1,909,000 9,326,000 ------------ ------------ ------------ Cash flows (used in) investing activities: Capital expenditures (2,356,000) (5,703,000) (2,415,000) Purchases of marketable securities 0 (2,500,000) 0 Sales and maturities of marketable securities 500,000 0 0 ------------ ------------ ------------ Net cash (used in) investing activities (1,856,000) (8,203,000) (2,415,000) ------------ ------------ ------------ Cash flows from financing activities: Principal payments under capital leases 0 0 (94,000) Proceeds from issuance of short-term debt 0 980,000 200,000 Principal payments on short-term debt (980,000) (200,000) (422,000) Proceeds from the exercise of stock options 1,854,000 2,071,000 594,000 Tax benefit of non-qualified options exercised 87,000 600,000 150,000 ------------ ------------ ------------ Net cash provided by financing activities 961,000 3,451,000 428,000 ------------ ------------ ------------ Effect of exchange rates on cash and cash equivalents (391,000) (175,000) 62,000 ------------ ------------ ------------ Net increase/(decrease) in cash and cash equivalents 2,024,000 (3,018,000) 7,401,000 Cash and cash equivalents, beginning of year 12,424,000 15,442,000 8,041,000 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 14,448,000 $ 12,424,000 $ 15,442,000 ============ ============ ============ Supplemental disclosure of cash flow information: Cash paid during the year for interest expense $ 31,000 $ 24,000 $ 45,000 ============ ============ ============ Cash paid during the year for income taxes $ 2,889,000 $ 2,711,000 $ 318,000 ============ ============ ============ Non-cash transactions: Equipment acquired under capital leases $ 0 $ 0 $ 128,000 Previously recorded compensation expense attributable to options exercised 167,000 534,000 127,000 Intangible assets acquired for stock 0 2,300,000 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 machine vision systems which are used primarily in the automotive industry, and to a lesser extent, in other industries. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the Company give effect to the acquisition by the Company of Autospect, Inc., which was consummated on February 3, 1997, Trident Systems Inc. ("Trident") and Nanoose Systems Corporation ("Nanoose"), which acquisitions were consummated on April 30, 1997. The acquisitions are being accounted for as poolings-of-interest. Accordingly, all amounts for prior periods have been restated to include the financial results of the acquired companies. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts for prior periods have been reclassified to conform with current period presentations. 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 and were not material for 1997 and 1996. 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, 1997 and 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. ACQUISITIONS Net sales and net income for the acquired companies and Perceptron for periods proceeding the acquisitions were as follows:
Year Ended Year Ended December 31, 1996 December 31, 1995 Net Sales Net Income Net Sales Net Income -------------------------- --------------------------- Perceptron, as previously reported $ 49,679 $ 7,894 $ 37,291 $ 8,409 Trident and Nanoose 7,933 (805) 3,901 (350) Autospect 3,990 453 2,272 432 Consolidation adjustments (2,627) (392) (310) 0 --------- ---------- ---------- --------- Combined $ 58,975 $ 7,150 $ 43,154 $ 8,491 ========= ========== ========== =========
24 25 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, --------------------------------------------- 1997 1996 ------------- ------------- Component parts $ 5,507,000 $ 4,627,000 Work in process 902,000 1,829,000 Finished goods 1,610,000 720,000 ------------- ------------- Total $ 8,019,000 $ 7,176,000 ============= =============
PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS Property and equipment is recorded at cost. Depreciation related to machinery and equipment and furniture and fixtures is primarily computed on a straight-line basis over estimated useful lives ranging from three to ten years. Depreciation on buildings is computed on a straight-line basis over 37 1/2 years. Intangible assets are being amortized over approximately 5 years. When assets are retired, the costs of such assets and related accumulated depreciation or amortization are eliminated from the respective accounts, and the resulting gain or loss is reflected in the consolidated statement of income. 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 The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share", for financial statements for the year ended December 31, 1997. Adoption of this standard did not have a material effect on reported earnings per share. Basic earnings per share is calculated by dividing net income by the average number of shares outstanding during the applicable period. Other obligations, such as stock options and warrants, are considered to be potentially dilutive common shares. The calculation of diluted earnings per share takes into account the effect of these potentially dilutive common shares. Earnings per share were as follows:
1997 1996 1995 ------------------------- ------------------------ ------------------------- Income Shares Income Shares Income Shares Net income and shares 10,806,000 8,064,589 7,150,000 7,661,153 8,491,000 7,251,320 Basic Earnings Per Share $1.34 $0.93 $1.17 Net income and shares 10,806,000 8,064,589 7,150,000 7,661,153 8,491,000 7,251,320 Net dilutive effect of stock options and warrants - 347,765 - 647,890 - 703,339 ----------- ----------- ----------- ----------- ----------- ----------- Diluted income and shares 10,806,000 8,412,354 7,150,000 8,309,043 8,491,000 7,954,659 Diluted Earnings Per Share $1.28 $0.86 $1.07
CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Fair value approximates carrying value because of the short maturity of the cash equivalents. Those with a greater life are recorded as marketable securities. 25 26 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. FINANCIAL INSTRUMENTS The carrying amount of the Company's financial instruments, which include cash, marketable securities, accounts receivable, accounts payable, and amounts due to bank, approximates their fair value at December 31, 1997 and 1996. Fair values have been determined through information obtained from market sources and management estimates. 2. MARKETABLE SECURITIES: At December 31, 1997 and 1996, marketable securities, which were classified as available for sale, consisted of mortgage backed securities whose fair value approximated cost. In 1997, proceeds from sales of available for sale securities were $500,000; no gross gains or losses were realized on those sales. 3. CREDIT FACILITY: At December 31, 1997 the Company has unsecured credit facilities totaling $5.0 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, 1997). The Company's credit facilities expire on May 31, 1998 unless canceled earlier by the Company or the bank. At December 31, 1996, borrowings under a portion of the facilities by Autospect and Trident, in the amounts of $830,000 and $150,000, respectively, were collateralized by substantially all of the assets of Autospect and Trident. 4. LEASES: The following is a summary, as of December 31, 1997, of the future minimum annual lease payments required under the Company's real estate and other operating leases having initial or remaining non-cancelable terms in excess of one year:
Year Operating Capital ---- ---------- ----------- 1998 $ 724,000 $ 27,000 1999 646,000 14,000 2000 620,000 2,000 2001 617,000 --- 2002 371,000 --- ---------- ----------- Total minimum lease payments $2,978,000 $ 43,000 ========== =========== Less amount representing interest $ 5,000 ----------- Present value of net minimum lease payments $ 38,000 ===========
Rental expense for operating leases in 1997, 1996 and 1995 was $719,000, $480,000 and $484,000, respectively. Depreciation of the assets recorded under capital leases is included in depreciation expense. The net book value of the leased assets included in property and equipment at December 31, 1997 was $38,000. 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, 1997, the Company had funded $25,000 of its commitment for the university's fiscal year ended June 30, 1998. 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. 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. 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 included all development costs incurred internally and subcontracted to the independent research organization and to the university in engineering, research and 26 27 development expense, and offset these costs with reimbursements 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. During 1997 and 1996, Autospect received revenue reimbursement of $0.6 million and $0.4 million, respectively, which offset the related costs. 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, 1997 and 1996, the Company had no forward contracts outstanding. 6. SHAREHOLDERS EQUITY: - Stock options and warrants 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:
1997 1996 1995 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------------------------------------------------------------------------------- Shares subject to option Outstanding at beginning of period 953,511 $ 15.22 1,060,943 $ 8.26 1,318,740 $ 5.85 New grants (based on fair value of Common Stock at dates of grant) 288,427 27.80 339,300 25.24 236,350 14.93 Exercised (228,653) 7.28 (430,129) 6.07 (353,944) 3.81 Terminated and expired (25,020) 16.60 (16,603) 9.90 (140,203) 7.93 Outstanding at end of Period** 988,265 20.77 953,511 15.22 1,060,943 8.26 Exercisable at end of period 237,180 16.42 154,287 9.36 231,738 8.13
** All outstanding shares at December 31, 1997, and December 31, 1996, are under the 1992 Plan. The following table summarizes information about stock options at December 31, 1997:
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 - --------------------------------------------------------------------------------------------------------------- $ 3.71 to $ 9.92 168,050 6.06 years $ 7.00 74,926 $ 7.88 $ 10.08 to $ 19.58 148,154 7.11 years $ 12.23 56,298 $ 12.39 $ 20.63 to $ 29.98 506,811 8.79 years $ 23.64 87,468 $ 22.19 $ 30.25 to $ 36.50 165,250 8.92 years $ 33.61 18,488 $ 36.02 - --------------------------------------------------------------------------------------------------------------- $ 3.71 to $ 36.50 988,265 8.10 years $ 20.77 237,180 $ 16.42 - ---------------------------------------------------------------------------------------------------------------
Option prices for options granted under these plans must not be less than fair market value of the Company's stock on the date of grant. Options outstanding under these Plans generally become exercisable at 25 percent per year beginning one year after the date of the grant and expire ten years after the date of the grant. At December 31, 1997, options covering 237,180 shares were exercisable and options covering 211,576 shares were available for future grants under these plans. 27 28 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.
1997 1996 1995 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------------------------------------------------------------------ Shares subject to option Outstanding at beginning of period 108,000 $ 23.28 60,000 $ 12.58 New grants 22,500 $ 28.00 64,500 $ 30.75 60,000 $ 12.58 Exercised (30,000) $ 12.83 0 $ 0 0 Terminated and expired 0 $ 0 (16,500) $ 13.55 0 Outstanding at end of period 100,500 $ 27.46 108,000 $ 23.28 60,000 $ 12.58 Exercisable at end of period 76,000 $ 27.21 45,000 $ 12.58 0
The following table summarizes information about stock options outstanding at December 31, 1997 under the Directors Stock Option Plan:
Outstanding Stock Options Weighted-Average Exercisable Stock Options ----------------------------------------------------- ------------------------------ Range of Remaining Weighted-Average Weighted-Average Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price - ----------------------------------------------------------------------------------------------------------------- $ 11.83 to $ 12.83 15,000 7.11 years $ 12.83 15,000 $ 12.83 $ 28.00 to $ 30.75 85,500 8.78 years $ 30.03 61,000 $ 30.75 - ----------------------------------------------------------------------------------------------------------------- $ 11.83 to $ 30.75 100,500 8.53 years $ 27.46 76,000 $ 27.21 - -----------------------------------------------------------------------------------------------------------------
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 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 (the "Annual Option"). 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. Option prices for options granted under this plan must not be less than fair market value of the Company's stock on the date of grant. At December 31, 1997, 76,000 of these options were exercisable and options covering 45,000 shares were available for future grants under this plan. The estimated fair value as of the date options were granted in 1997 and 1996, using the Black-Scholes option-pricing model was as follows:
1997 1996 1995 ------------- ------------- ------------ Weighted average estimated fair value per share of options granted during the year $ 12.82 $ 16.55 $ 12.33 Assumptions: Amortized dividend yield - - - Common Stock price volatility 42.57% 57.94% 57.94% Risk-free rate of return 6.20% 5.78% 6.46% Expected option term (in years) 5 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 1997, 1996 and 1995, consistent with the methodology in SFAS 123, the Company's net income and 28 29 income per share would have been adjusted to the pro forma amount indicated below:
1997 1996 1995 -------------- ------------- ------------- Net income ..As reported $ 10,806,000 $ 7,150,000 $ 8,491,000 ..Pro forma $ 8,379,000 $ 4,051,000 $ 7,625,000 Earnings per share - diluted ..As reported $ 1.28 $ .86 $ 1.07 ..Pro forma $ 1.00 $ .49 $ .96
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. NON-CASH STOCK COMPENSATION EXPENSE Beginning in late 1994, some participants in the Company's stock option plan used Perceptron stock options to pay the exercise price of stock options issued under the plan. Accounting rules required the recording of a non-cash compensation expense relating to certain option exercises during 1996 and 1995. 7. 401K PLAN: The Company has 401(k) tax deferred savings plans that cover all eligible employees. The Company may make discretionary contributions to the plans. The Company's contributions to the plans during 1997, 1996 and 1995 were $361,000, $292,000 and $181,000, respectively. 8. INCOME TAXES: The income tax provision reflected in the statement of income consists of the following for the years ending December 31, 1997 and 1996:
1997 1996 ------------- ------------- Current provision: U.S. federal $ 2,591,000 $ 1,184,000 Foreign 1,227,000 1,136,000 Deferred taxes 1,385,000 775,000 ------------- ------------- Total provision $ 5,203,000 $ 3,095,000 ============= =============
The Company's deferred tax assets are substantially represented by the tax benefit of future deductions represented by reserves for bad debts, warranty expenses and inventory obsolescence. The components of deferred tax assets as of December 31, 1997 and 1996 were as follows:
1997 1996 ------------- ------------- Minimum tax credits $ 0 $ 400,000 Investment tax credits 0 100,000 Research activities and general business credits 0 600,000 Other, principally reserves 180,000 465,000 ------------- ------------- Subtotal 180,000 1,565,000 ------------- ------------- Deferred tax asset $ 180,000 $ 1,565,000 ============= =============
Rate reconciliation: 1997 1996 ------------- ------------- Provision at U.S. statutory rate 34% 34% Recognition of net operating loss carryforwards and other credits 0 2% Net effect of taxes on foreign activities (1.5%) (4%) Change in valuation allowance 0 (2%) ------------- ------------- 32.5% 30% ============= =============
No provision was made with respect to retained earnings as of December 31, 1997 that have been retained for use by foreign subsidiaries. It is not practicable to estimate the amount of unrecognized deferred tax liability for the undistributed foreign earnings. 29 30 9. INFORMATION ABOUT MAJOR CUSTOMERS: The Company sells its products directly to both domestic and international automotive assembly companies. During 1997, 38% of net sales were derived from three automotive companies. During 1996 and 1995, 46% and 34% of net sales, respectively, were derived from these same three automotive companies. Net sales by the Company to each of these three companies exceeded 7% in 1997, 12% in 1996, and 7% in 1995. The Company also sells to system integrators or original equipment manufacturers ("integrators"), who in turn sell to these same automotive companies. For the years ended December 31, 1997, 1996 and 1995, 17%, 16% and 26% of net sales, respectively, were to integrators for the benefit of the same three automotive companies. 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. 11. FOREIGN OPERATIONS: The Company operates in two primary geographic areas: North America and Europe, with limited operations in Asia and South America. Geographical area data is as follows ($000):
Years ended December 31, ------------------------------------------------- 1997 1996 1995 ---------- ---------- ---------- Net sales: North America* $ 58,423 $ 53,217 $ 32,762 Europe, Asia and South America 16,847 12,744 13,049 Intercompany Sales (10,168) (6,986) (2,657) ---------- ---------- ---------- Total Net Sales $ 65,102 $ 58,975 $ 43,154 ========== ========== ========== Income from operations: North America* $ 9,319 $ 4,905 $ 1,945 Europe, Asia and South America 5,799 4,597 5,754 ---------- ---------- ---------- Total Income from Operations $ 15,118 $ 9,502 $ 7,699 ========== ========== ========== Identifiable assets at December 31: North America* $ 55,980 $ 48,959 $ 34,244 Europe, Asia and South America 12,162 12,497 7,773 ---------- ---------- ---------- Total Assets $ 68,142 $ 61,456 $ 42,017 ========== ========== ==========
- -------------------------- * Includes intercompany amounts; intercompany sales prices are based on cost plus a transfer fee. 30 31 12. 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. 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): Selected unaudited quarterly financial data for the years ended December 31, 1997 and 1996, are as follows ($000's except earnings per share):
Quarter ended --------------------------------------------------------------- 1997 3-31 6-30 9-30 12-31 - ---- --------- -------- --------- ------- Net Sales $ 12,383 $ 18,806 $ 16,256 $ 17,657 Gross profit 6,930 12,158 10,007 10,930 Net income 911 3,771 2,778 3,346 Basic earnings per share $ .11 $ .47 $ .34 $ .41 Diluted earnings per share .11 .45 .33 .40 1996 3-31 6-30 9-30 12-31 - ---- --------- -------- --------- --------- Net sales $10,117 $ 13,823 $ 15,008 $ 20,027 Gross profit 5,948 8,242 9,390 11,787 Net income 755 964 1,541 3,890 Basic earnings per share $ .10 $ .13 $ .20 $ .49 Diluted earnings per share .09 .12 .19 .46
14. SUBSEQUENT EVENT (UNAUDITED): On March 23, 1998, the Board of Directors implemented a Shareholder Rights Plan ("Rights Plan"). In connection with the adoption of the Rights Plan, the Board of Directors declared a dividend of one right to purchase one one-hundredth (1/100th) of a share of Series A Preferred Stock on each share of its outstanding Common Stock. The initial exercise price of a right is $135 and the rights expire on March 23, 2008. Distribution of these rights will be made to shareholders of record on April 6, 1998. The rights will generally become exercisable if a person or group acquires 15% or more of the Company's Common Stock or announces a tender offer which would cause that result. In addition, generally if a person or group acquires 15% or more of the Company's Common Stock, the Rights will entitle shareholders (other than the acquirer) to purchase the Company's Common Stock, or in certain cases, stock of the acquirer, at a discount to market prices. 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" of the registrant's proxy statement for 1998 Annual Meeting of Shareholders (the "Proxy Statement") is incorporated herein by reference. ITEM 11: EXECUTIVE COMPENSATION The information contained under the caption "Further Information - Compensation of Directors and Executive Officers" of the Proxy Statement is incorporated herein by reference. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the captions "Further Information - Share Ownership of Management and Certain Shareholders Principal Shareholders" and "Further Information - Share Ownership of Management and Certain Shareholders - Beneficial Ownership by Directors and Executive Officers" of the Proxy Statement is incorporated herein by reference. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS No response to Item 13 is required. 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 39. B. Reports on Form 8-K: The Company did not file any reports on Form 8-K in the fourth quarter of 1997 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 23, 1998 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 23, 1998 - ------------------------------------ President, Chief Executive Officer Alfred A. Pease /S/ John G. Zimmerman Vice President and Chief March 23, 1998 - ------------------------------------ Financial Officer (Principal Financial Officer) John G. Zimmerman /S/ Paul J. Tripodi Controller (Principal Accounting Officer) March 23, 1998 - ------------------------------------ Paul J. Tripodi /S/ David J. Beattie Director March 23, 1998 - ------------------------------------ David J. Beattie Philip J. DeCocco Director March 23, 1998 - ------------------------------------ Philip J. DeCocco /S/ Robert S. Oswald Director March 23, 1998 - ------------------------------------ Robert S. Oswald /S/ Harry T. Rein Director March 23, 1998 - ------------------------------------ Harry T. Rein /S/ Louis R. Ross Director March 23, 1998 - ------------------------------------ Louis R. Ross /S/ Terryll R. Smith Director March 23, 1998 - ------------------------------------ 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, 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 $ 84,000 $ 11,000 $ 108,000 INVENTORY RESERVES $ 670,000 $ 200,000 $ 10,000 $ 860,000 December 31, 1997: - ----------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 108,000 $ 104,000 $ 37,000 $ 175,000 INVENTORY RESERVES $ 860,000 $ 0 $ 0 $ 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 Credit Authorization Agreement, dated June 25, 1997, between Perceptron, Inc. and NBD Bank and related Master 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, 1997. 4.4 Form of certificate representing Rights (included as Exhibit B to the Rights Agreement filed as Exhibit 4.5) is incorporated herein by reference to Exhibit 2 of the Company's Report on Form 8-K filed March 24, 1998. Pursuant to the Rights Agreement, Rights Certificates will not be mailed until after the earlier of (i) the tenth business day after the Shares Acquisition Date (or, if the tenth day after the Shares Acquisition Date occurs before the Record Date, the close of business on the Record Date) (or, if such Shares Acquisition Date results from the consummation of a Permitted Offer, such later date as may be determined before the Distribution Date, by action of the Board of Directors, with the concurrence of a majority of the Continuing Directors), or (ii) the tenth business day (or such later date as may be determined by the Board of Directors, with the concurrence of a majority of the Continuing Directors, prior to such time as any person becomes an Acquiring Person) after the date of the commencement of, or first public announcement of the intent to commence, a tender or exchange offer by any person or group of affiliated or associated persons (other than the Company or certain entities affiliated with or associated with the Company), other than a tender or exchange offer that is determined before the Distribution Date to be a Permitted Offer, if, upon consummation thereof, such person or group of affiliated or associated persons would be the beneficial owner of 15% or more of such outstanding shares of Common Stock. 4.5 Rights Agreement, dated as of March 24, 1998, between Perceptron, Inc. and American Stock Transfer & Trust Company, as Rights Agent, is incorporated herein by reference to Exhibit 2 of the Company's Report on Form 8-K filed March 24, 1998. 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. 37 38 10.2 Patent License Agreement, dated as of August 23, 1990, between the Company and Diffracto Limited, is incorporated herein by reference to Exhibit 10.10 of the Company's Report on Form S-1 Registration Statement No. 33-47463. 10.3 Form of Proprietary Information and Inventions Agreement between the Company and all of the employees of the Company is incorporated herein by reference to Exhibit 10.11 of the Company's Form S-1 Registration Statement No. 33-47463. 10.4 Form of Confidentiality and Non-Disclosure Agreement between the Company and certain vendors and customers of the Company is incorporated herein by reference to Exhibit 10.12 of the Company's Form S-1 Registration Statement No. 33-47463. 10.5 Two Forms of Agreement Not to Compete between the Company and certain officers of the Company, is incorporated herein by reference to Exhibit 10.50 of the Company's Report on Form 10-Q for the Quarter Ended June 30, 1996. 10.6 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. 10.7@ Amended and Restated 1992 Stock Option Plan is incorporated herein by reference to Exhibit 10.53 of the Company's Report on Form 10-Q for the Quarter Ended September 30, 1996. 10.8@ First Amendment to Amended and Restated 1992 Stock Plan is incorporated by reference to Exhibit 10.39 of the Company's Report on Form 10-Q for the Quarter Ended March 31, 1997. 10.9@ Form of Stock Option Agreements for July 1993 Stock Option Grants is incorporated herein by reference to Exhibit 10.23 of the Company's Report on Form 10-Q for the Quarter Ended September 30, 1993, and Exhibit 10.32 of the Company's Report on Form 10-Q for the Quarter Ended March 31, 1994. 10.10@ Form of Stock Option Agreements for Performance Options is incorporated herein by reference to Exhibit 10.27 of the Company's Annual Report on Form 10-K for the Year Ended December 31, 1993. The performance standards under these options were waived effective March 2, 1994. 10.11@ First Amendments to Stock Option Agreements for Performance Options is incorporated herein by reference to Exhibit 10.20 of the Company's Annual Report on Form 10-K for the Year Ended December 31, 1994. 10.12@ Form of Stock Option Agreements under 1992 Stock Option Plan, (Team Members and Officers) prior to February 9, 1995, is incorporated herein by reference to Exhibit 10.28 of the Company's Annual Report on Form 10-K for the Year Ended December 31, 1993. 10.13@ Forms of Master Amendments to Stock Option Agreements (Team Members and Officers) under 1992 Stock Option Plan, prior to February 9, 1995 is incorporated herein by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1994. 10.14@ Forms of Incentive Stock Option Agreements (Team Members and Officers) under 1992 Stock Option Plan after February 9, 1995 is incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1994. 10.15@ Forms of Incentive Stock Option Agreements (Team Members and Officers) and Non-Qualified Stock Option Agreements under 1992 Stock Option Plan after January 1, 1997, and Amendments to existing Stock Option Agreements under the 1992 Stock Option Plan is 38 39 incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1996. 10.16@ Incentive Stock Option Agreement, dated February 14, 1996, between the Company and Alfred A. Pease is incorporated by reference to Exhibit 10.29 of the Company's Annual Report on From 10-K for the Year Ended December 31, 1995. 10.17@ Non-qualified Stock Option Agreement, dated February 14, 1996, between the Company and Alfred A. Pease is incorporated by reference to Exhibit 10.30 of the Company's Annual Report on Form 10-K for the Year Ended December 31, 1995. 10.18@ Amended and Restated Directors Stock Option Plan is incorporated by reference to Exhibit 10.56 to the Company's Report on Form 10-Q for the Quarter Ended September 30, 1996. 10.19@ Form of Non-Qualified Stock Option Agreements and Amendments under the Director Stock Option Plan is incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1996. 10.20*@ 1998 Global Team Member Stock Option Plan and Form of Non-Qualified Stock Option Agreements under such Plan. 10.21@ 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. 10.22@ 1996 Management Bonus Plan is incorporated herein by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1996. 10.23*@ 1997 Management Bonus Plan. 10.24@ 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. 10.25@ Letter Agreement, dated February 14, 1996, between the Company and Alfred A. Pease is incorporated herein by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1996. 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 10-K for the year ended December 31, 1997. @ Indicates a management contract, compensatory plan or arrangement. 39 EX-10.20 2 EX-10.20 1 EXHIBIT 10.20 PERCEPTRON, INC. 1998 GLOBAL TEAM MEMBER STOCK OPTION PLAN SECTION 1. PURPOSE This Stock Option Plan, which shall be known as the Perceptron, Inc. 1998 Global Team Member Stock Option Plan (the "Plan"), is intended to encourage Team Members (as defined in Section 3.1) of Perceptron, Inc. (the "Company") and its subsidiaries to acquire shares of the Common Stock of the Company ("Common Stock") through Non-Qualified Stock Options ("Options"). It is believed that the Plan will encourage Team Members to have a greater financial investment in the Company through ownership of its Common Stock, will stimulate their efforts on the Company's behalf, will maintain and strengthen their desire to remain with the Company, and generally will be in the interest of the Company and its shareholders. SECTION 2. ADMINISTRATION 2.1 ADMINISTRATION BY THE PRESIDENT. The Plan shall be administered by the President of the Company (the "President"). In addition to the powers granted to the President in Section 2.2, and subject to the limitations in Section 2.4, the President shall have the authority to grant Options to Team Members under the terms of the Plan. The Board of Directors of the Company (the "Board") shall designate the maximum number of shares of Common Stock available under the Plan, which may become subject to Options granted by the President. Such number of shares may be revised from time to time by the Board. 2.2 POWERS. The President shall have full and final authority to administer the Plan on behalf of the Company. Subject to the provisions of the Plan, this authority includes, but is not limited to, the power to: (a) determine the persons to whom Options shall be granted; (b) determine the number of shares to be covered by the Option granted to each such person; (c) determine the price to be paid for the shares upon the exercise of each Option; (d) prescribe the period within which Options may be exercised; (e) grant Options conditionally or unconditionally; and (f) prescribe the form(s) of the Stock Option Agreement(s) evidencing the grant of Options under the Plan. 2 2.3 ADDITIONAL POWERS. Subject to the provisions of the Plan, the President may: (i) adopt rules and regulations for the administration of the Plan, (ii) make interpretations of and determinations under the Plan, and (iii) take such action in connection with the Plan, or the Options granted hereunder, as he deems necessary or advisable. Each interpretation, determination or other action made or taken by the President pursuant to the Plan shall be final and conclusive for all purposes and upon all persons. 2.4 LIMITATIONS. Notwithstanding the foregoing provisions of the Plan, the President shall not have the authority: (i) to grant Options to any single Team Member to purchase more than 10,000 shares of Common Stock in any fiscal year of the Company, or (ii) to grant more than 50,000 shares of Common Stock, in the aggregate, to Team Members at any one time, without first obtaining the prior written approval of the Company's Management Development, Compensation and Stock Option committee, or such other committee as determined by the Board (the "Committee"). 2.5 QUARTERLY REPORTS. The President shall provide quarterly reports to the Committee which summarize the terms and conditions of any Options granted by him during the previous calendar quarter. SECTION 3. ELIGIBILITY 3.1 ELIGIBLE PERSONS. An individual shall be eligible to receive Options under the Plan if such individual is: (i) a full-time or part-time employee of the Company or one of its subsidiaries, (ii) not subject to Section 16 of the Securities Exchange Act of 1934, as amended, and (iii) not serving as an officer of the Company at the time of the grant ("Team Member"). A Team Member may serve as an officer of a subsidiary of the Company. 3.2 RELEVANT FACTORS. The President shall grant Options to those Team Members who, in the opinion of the President, are capable of contributing to the successful performance of the Company. SECTION 4. GRANTING OF OPTIONS 4.1 SHARES AVAILABLE FOR OPTIONS. The Board shall reserve a total of 300,000 shares of Common Stock for purposes of the Plan. 4.2 EFFECT OF EXPIRATION, TERMINATION OR SURRENDER. Shares subject to any unexercised portion of a terminated, canceled or expired Option may again be subjected to grants under the Plan. In the event that an Option granted under the Plan is exercised by delivering shares of Common Stock that previously were acquired by exercising Options granted under the Plan, such shares of previously-acquired Common Stock so delivered to the Company may again be subjected to grants under the Plan. 2 3 4.3 TERM OF OPTIONS. Subject to the provisions of this Section 4.3, the President shall have full discretion to determine the period during which an Option may be exercised. In no event shall any Option granted under the Plan, by its terms, have an exercise period that extends beyond ten (10) years from the date of the grant. Unless specified otherwise in an optionee's Stock Option Agreement, twenty-five percent (25%) of the shares covered by an Option shall become exercisable on the first (1st) anniversary of the date of the grant, and another twenty-five percent (25%) of the shares shall become exercisable on each anniversary of the date of the grant until all shares covered by the Option become exercisable on the fourth (4th) anniversary of the date of the grant. 4.4 OPTION PRICE. The President shall have the discretionary authority to establish, at the time an Option is granted, the purchase price of each share of Common Stock covered by such Option ("Option Exercise Price"); provided, however, that the Option Exercise Price shall not be less than 100% of the fair market value of the shares covered by the Option on the date of such grant. The Option Exercise Price shall be subject to adjustment in accordance with the procedures contained in Section 8 of the Plan. For purposes of the Plan, the fair market value of each share shall be deemed to be: (a) the average of the closing sales price of the Common Stock on the principal securities exchange on which the Common Stock may be listed at the time (or, if there have been no sales on such exchange on any day, the average of the closing high bid and low asked prices on such exchange at the end of such day) for the five (5) consecutive trading days on such exchange immediately preceding the date of the grant of the Option; or (b) if the Common Stock is not listed on a securities exchange, the average of the closing sales prices of the Common Stock on The Nasdaq Stock Market (or, if there have been no sales on The Nasdaq Stock Market on any such day, the average of the closing high bid and low asked prices on The Nasdaq Stock Market at the end of such day) for the five (5) consecutive trading days on The Nasdaq Stock Market immediately preceding the date of the grant of the Option; or (c) if the Common Stock is not listed on any domestic stock exchange or The Nasdaq Stock Market, the average of the mean between the closing high bid and low asked price as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") (or, if not so reported, by the system then regarded as the most reliable source of such quotations) for the five (5) consecutive trading days on NASDAQ or other such system immediately preceding the date of the grant of the Option; or (d) if none of the foregoing clauses apply, the fair value as determined in good faith by the President. 4.5 EFFECT OF MERGER, CONSOLIDATION OR SALE OR TRANSFER OF ASSETS. If, in connection with any merger, consolidation, or sale or transfer by the Company of substantially all of its assets, any Option is not assumed or continued by the surviving corporation or the purchaser, any portion of such Option that is then not exercisable shall become exercisable immediately and the date of 3 4 termination of such Option and the date on or after which such Option 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 an 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. 4.6 NON-TRANSFERABILITY OF OPTIONS. No Option granted under the Plan shall be transferable by the optionee other than by will or by the laws of descent and distribution; an Option only may be exercised during an optionee's lifetime by such optionee. No transfer of an Option by will or by the laws of descent and distribution shall be effective to bind the Company unless the Company is furnished with written notice of such transfer and a copy of the will, or such other evidence as the Company may deem necessary, to establish the validity of the transfer and the acceptance by the transferee of the terms and conditions of the Option. If an optionee is declared legally incompetent, the optionee's duly appointed personal representative may exercise any Options which the optionee was eligible to exercise at the time when the optionee was declared incompetent, to the extent provided in Section 6 of the Plan, and upon furnishing to the Company such evidence of such legal representative's authority, as the Company may deem necessary, to establish the validity of such exercise. 4.7 WRITTEN CONFIRMATION OF GRANTS. Each Option granted under the Plan shall be confirmed by a Stock Option Agreement which shall be executed by the Company and the person to whom the Option is granted. SECTION 5. EXERCISE OF OPTIONS 5.1 EXERCISE. Each Option granted under the Plan shall be exercisable for such number of shares and on such date(s) or during such period(s) as shall be provided in the Stock Option Agreement evidencing such Option. 5.2 NOTICE OF EXERCISE. An optionee who elects to exercise an Option granted under the Plan shall give written notice to the Company. Such notice shall state the number of full shares (no fractional shares may be purchased) to which the election applies. 5.3 PURCHASE OF SHARES. The Option Exercise Price of each share purchased pursuant to the exercise of an Option shall be paid in full at the time of purchase by cash, personal check, bank draft, money order or the tender of Permitted Shares (as defined below) with a fair market 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"). "Permitted Shares" are shares of Common Stock to be delivered to pay the Option Exercise Price (the "Delivered Shares") which have been owned by the 4 5 optionee for at least six (6) months prior to the date of delivery, or, if they have not been owned by the optionee for at least six (6) months prior to the date of delivery, the optionee then owns, and has owned for at least six (6) months prior thereto, a number of shares of Common Stock at least equal in number to the Delivered Shares. Shares which have been counted during the prior six (6) 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, may not be used as Delivered Shares and may not be counted as owned by the optionee for purposes of making calculations under the Delivered Shares Method. The Option Exercise Price also may be paid by delivering a properly executed exercise notice to the Company, together with irrevocable instructions to the optionee's broker to deliver to the Company sufficient cash to pay the exercise price and any applicable income and employment withholding taxes, in accordance with a written agreement between the Company and the brokerage firm ("cashless exercise" procedure). Until an optionee has been issued a certificate or certificates for the shares so purchased, the optionee shall possess no rights of a shareholder with respect to any such shares. 5.4 DELIVERY AND REGISTRATION OF STOCK. The Company shall not be required to deliver any shares of Common Stock under the Plan prior to (i) the admission of such shares to listing on any stock exchange on which such shares may then be listed and (ii) the completion of such registration or other qualification of such shares under any federal, state or local law, rule or regulation as the President shall determine to be necessary or advisable. 5.5 WITHHOLDING AND TAXES. Upon the exercise of an Option, the Company shall have the right to withhold applicable income and employment withholding taxes from a Team Member's compensation or require a Team Member to remit sufficient funds to satisfy such obligation. 5.6 SECURITIES LAWS. Notwithstanding any provision of the Plan to the contrary, the Company's obligation to sell and deliver stock pursuant to the exercise of an Option is subject to compliance with federal, state and foreign 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 unless and until it receives satisfactory assurance that the issuance or transfer of such shares shall not violate any provisions of any federal or state law governing the sale of securities, or that there has been compliance with the provisions of such acts, rules, regulations and laws. The Board may impose such restrictions on any shares of Common Stock acquired pursuant to the exercise of an Option under the Plan as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, or under any blue sky or state securities laws applicable to such shares. SECTION 6. TERMINATION OF EMPLOYMENT 6.1 GENERAL. Upon an optionee's termination of employment for any reason other than death or "total and permanent disability," as defined in Section 22(e) of the Internal Revenue Code of 1986, as amended, any Option which such optionee was entitled to exercise on the date of such termination of employment shall be exercisable by the optionee at any time on or before the earlier 5 6 of: (i) the expiration date of the Option, or (ii) three (3) months after the date of such termination, but only to the extent of the accrued right to purchase on the date of such termination. Any Option which such optionee was not entitled to exercise on the date of such termination of employment shall automatically terminate and all rights thereunder shall cease. Termination of employment shall be defined as the last day on which an optionee performs services for the Company or any of its subsidiaries and shall not include severance pay periods, paid vacation periods or periods during which compensation in lieu of notice is paid following an optionee's actual termination of employment. Leaves of absence from the Company or any of its subsidiaries for military or government service, or for other special purposes approved by the President, shall not constitute a termination of employment under this Section 6.1. SECTION 6.2 DISABILITY. If an optionee's employment is terminated because of such optionee's total and permanent disability, any Option which such optionee was entitled to exercise on the date of such total and permanent disability shall be exercisable by the optionee at any time on or before the earlier of: (i) the expiration date of the Option, or (2) one (1) year after the date of such total and permanent disability, but only to the extent of the accrued right to purchase on the date of such total and permanent disability. SECTION 6.3 DEATH. If an optionee's employment is terminated because of such optionee's death, any Option which such optionee was entitled to exercise on the date of death shall be exercisable by the legal representative of such optionee's estate (on behalf of the optionee's estate, or on behalf of the person to whom the Option passed by will or by the laws of descent and distribution) at any time on or before the earlier of: (i) the expiration date of the Option, or (ii) one (1) year after the optionee's date of death, but only to the extent of the accrued right to purchase on the date of death. SECTION 7. EFFECT OF PLAN ON EMPLOYMENT Neither the adoption of the Plan, nor the granting of any Option under the Plan, shall be deemed to create any right in any individual to be retained or continued in the employ of the Company or any of its subsidiaries. Option grants under the Plan are discretionary and are not a part of regular salary. Option grants may not be used to determine the amount of compensation for any purpose under the Company's benefit plans. No optionee shall have any rights as a shareholder with respect to any shares covered by an Option until a certificate is issued to the optionee for such shares. No adjustment shall be made for dividends or other rights with respect to such shares for which the record date is prior to the date such certificate is issued. SECTION 8. ADJUSTMENTS In the event of any stock dividend on the Common Stock, subdivision or combination of shares of the Common Stock, or reclassification of the Common Stock, and in the event of a merger, consolidation, share exchange, reorganization, recapitalization or other change in the capitalization of the Company directly affecting the outstanding Common Stock, the aggregate number and class 6 7 of shares available for the granting of Options under the Plan, the number and class of shares subject to each outstanding Option and the Option Exercise Prices, shall be proportionately adjusted by the Board. The Board may (but shall not be obligated to) make any appropriate adjustment of the aggregate number and class of shares subject to each outstanding Option, the aggregate number and class of shares available for the granting of Options under the Plan, and the Option Exercise Prices, to reflect any spin-off, spin-out or other distribution of assets to shareholders or any acquisition of the Company's stock or assets or other change which the Board determines to be similar, in its substantive effect upon the Plan or its Options, to any of the changes expressly indicated in this sentence. The foregoing adjustments, and their application to particular circumstances, shall be determined by the Board in its sole discretion. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an Option. SECTION 9. AMENDMENT AND TERMINATION The Board shall have the right to suspend, terminate or amend the Plan at any time. However, no such amendment, modification or termination of the Plan shall in any manner affect any Option granted under the Plan without the consent of the Optionee holding the Option. SECTION 10. GOVERNING LAW The Plan and all actions taken under the Plan shall be governed and construed in accordance with Michigan law. SECTION 11. EFFECTIVE DATE AND DURATION This Plan shall become effective February 26, 1998, subject to the approval of the Board of Directors of the Company. No Options shall be granted under the Plan subsequent to February 25, 2008. THIS PLAN is hereby executed on February 26, 1998. PERCEPTRON, INC. By:/s/ ALFRED A. PEASE --------------------------- Alfred A. Pease, Chairman, President and Chief Executive Officer BOARD APPROVAL: 2/26/1998 7 8 NON-QUALIFIED STOCK OPTION AGREEMENT UNDER THE PERCEPTRON, INC. 1998 GLOBAL TEAM MEMBER 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. 2. RIGHT TO EXERCISE OPTION. The Optionee may purchase from the Company on and after the first (1st) 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 (4th) anniversary of the date of grant this option shall be fully exercisable. Notwithstanding any provision of this Agreement, no portion of this option shall be exercisable on or after the tenth (10th) anniversary of the date of grant. 3. TERMINATION OF EMPLOYMENT. If, prior to the date on which this option first shall become exercisable, the Optionee's employment with the Company or any of its subsidiaries is 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 on which this option first shall become exercisable, the Optionee's employment is terminated for any reason other than death or disability, the Optionee shall have the right to exercise this option, to the extent that it was exercisable and unexercised on the date of the Optionee's termination of employment, at any time on or before the earlier of: (i) the expiration date of the option, or (ii) three (3) months after the date of such termination of employment, subject to any other limitation on the exercise of such option in effect on the date of exercise. If, on or after the date on which this option first shall become exercisable, the Optionee's employment is terminated due to the Optionee's death or disability, the Optionee, the executor or the administrator of the estate of the Optionee, or the person(s) to whom the option has been transferred by will or by the laws of descent and distribution, shall have the right to exercise this 1 9 option at any time on or before the earlier of: (i) the expiration date of the option, or (ii) one (1) year from the date of the Optionee's death or disability, to the extent that the option was exercisable and unexercised on the date of the Optionee's death or disability, subject to any other limitation on the exercise of such option in effect on the date of exercise. For purposes of this Agreement, the transfer of an Optionee to/from the Company to/from any of its subsidiaries, shall not constitute a termination of employment. In addition, a leave of absence by an Optionee shall not constitute a termination of employment, provided the Optionee obtains the prior written consent of the Company for such leave of absence. Notwithstanding the provisions contained in Section 2 "Right to Exercise Option" and Section 3 "Termination of Employment" of this Agreement, 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 Company's Management Development, Compensation and Stock Option committee, or such other committee as determined by the Board of Directors (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 during which 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 delivering a written notice to the Company, in the form attached hereto, signed by the Optionee. (b) In addition, the Optionee shall deliver, on the date of exercise: (i) cash, personal check, bank draft or money order equal to the purchase price of the shares being purchased, (ii) such documents as are or may be required to effect a cashless exercise pursuant to Section 5.3 of the 1998 Global Team Member Stock Option Plan (the "Plan"), or (iii) Permitted Shares with a fair market value (determined as of the date of exercise of the option and as defined in the Plan) equal to the purchase price of the shares being purchased (the "Delivered Shares Method") pursuant to Section 5.3 of the Plan. 2 10 (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 (6) months prior to the date of delivery, or (ii), if they have not been owned by the Optionee for at least six (6) months prior to the date of delivery, the Optionee then owns, and has owned for at least six (6) months prior thereto, a number of shares of Company Common Stock at least equal in number to the Delivered Shares. (d) Shares which have been counted during the prior six (6) 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, may not be used as Delivered Shares and may not be counted as owned by the Optionee for purposes of making calculations under the Delivered Shares Method. 5. COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any provision in this Agreement to the contrary, the Company's obligation to sell and deliver stock under this option is subject to such compliance with federal, state and foreign laws, rules and regulations applying 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 by the laws of descent and distribution, and the option may be exercised only during the Optionee's lifetime by the Optionee. Any person to whom this option is transferred shall take such option subject to the terms and conditions of this Agreement. No such transfer of an option shall be effective to bind the Company unless the Company is furnished with written notice of the transfer, 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(s) 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, shall vest in the purported assignee or transferee any interest or right herein whatsoever, except to the extent an Optionee makes a transfer by will or by the laws of descent and distribution. 7. DISPUTES. The granting of this option under this Agreement is conditioned upon the agreement by the Optionee, and the Optionee's successors and assigns, that any dispute or disagreement which may arise under or as a result of this Agreement shall be resolved by the Committee in its sole discretion and judgment, and that any such determination or interpretation by the Committee of the terms of this Agreement shall be final, binding and conclusive for all purposes. 8. ADJUSTMENTS. In the event of any stock dividend on the Common Stock, subdivision or combination of shares of the Common Stock, or reclassification of the Common Stock, and in the 3 11 event of a merger, consolidation, share exchange, reorganization, recapitalization or other change in the capitalization of the Company directly affecting the outstanding Common Stock, the rights of the Optionee shall be determined pursuant to Section 8 of the Plan and any adjustment to this option 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 certificate(s) are issued upon the exercise of the option, in full or in part, and then only with respect to the shares represented by such certificate(s). 10. NOTICES. Any notice which relates to this Agreement shall be made in writing and if such notice is mailed, it shall be mailed by either registered or certified mail, with return receipt requested. Any notice to the Company either shall be delivered or addressed to the Secretary of the Company at the Company's headquarters. Any notice by the Company to the Optionee shall be delivered to the Optionee personally or addressed to the Optionee at the Optionee's last known address, as then contained in the records of the Company, or such other address as the Optionee may designate. Either party may designate a different address to which notices shall be addressed, provided the other party has received sufficient notification of such designation. Any notice given by the Company to an Optionee at the Optionee's last designated address shall be effective to bind any other person who shall acquire any rights hereunder. 11. "OPTIONEE" TO INCLUDE CERTAIN TRANSFEREES. Whenever the word "Optionee" is used in any provision of this Agreement under circumstances in which the provision logically should apply to any other person(s) 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 other person(s). 12. GOVERNING LAW. This Agreement is made under and shall be construed in accordance with the laws of the State of Michigan. 13. PROVISIONS OF PLAN CONTROLLING. The provisions of this Agreement are subject to the terms and provisions of the Plan. Copies of the Plan are available for review upon request. In the event a conflict arises 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 an Optionee to a greater extent than that which is set forth in the Plan. 4 12 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 13 NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION UNDER THE PERCEPTRON, INC. 1998 GLOBAL TEAM MEMBER 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 $________ 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 1 14 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.] 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 EX-10.23 3 EX-10.23 1 EXHIBIT 10.23 PERCEPTRON, INC. 1997 BONUS PROGRAM 1. OPERATING GOALS: --------------- 1997 Operating Goals % Bonus Allocation -------------------- ------------------- Bookings Goals $80,855,000 40% of Total Revenue Goal $76,076,000 30% of Total Pre-Tax Income Goal $20,016,000 30% of Total (Pre-tax Income goal is after budgeted expense for bonus and stock option compensation expense) 2. BONUS PLANS: ----------- Plan 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 Proposal is to change for 1998 (1999 payout) the Manager and Team Plans to correspond with Officer Plan 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 pre-tax income equals at least $15,021,000. 3. To be eligible for a bonus, participants must be employed on or before June 30, 1997 and must be employed on the date of payment of the bonus. Those employed between January 1, 1997 and June 30, 1997 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 30 days of the completion of the 1997 audit but not later than March 31, 1998. 5. That portion of the 1997 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 (banking, revenue and pre-tax income). 6. Earned bonuses will be based on the attached graph, 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 pre-tax income. The sum of the three will be the total bonus earned. 2 PERCEPTRON, INC. 1997 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-21 4 EX-21 1 EXHIBIT 21 SUBSIDIARIES OF PERCEPTRON, INC. The following four 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. 4. Trident Systems, Inc., a corporation organized under the laws of Georgia. 41 EX-23 5 CONSENT OF IND. ACCTS. 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, 333-00444 and 333-00446) and on Form S-3 (File No. 33-78594 and 333-29263) of our report dated February 6, 1998, on our audits of the consolidated financial statements and financial statement schedule of Perceptron, Inc. and Subsidiaries as of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and 1995, which report is included in this Annual Report on Form 10-K for the year ended December 31, 1997. COOPERS & LYBRAND L.L.P. Detroit, Michigan March 30, 1998 EX-27 6 FDS
5 THIS 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-31-1997 JAN-01-1997 DEC-31-1997 14,448,000 2,000,000 30,867,000 (175,000) 8,019,000 55,867,000 13,932,000 (3,308,000) 68,142,000 10,263,000 0 0 0 82,000 57,797,000 68,142,000 65,102,000 65,102,000 25,077,000 24,907,000 0 0 (891,000) 16,009,000 5,203,000 10,806,000 0 0 0 10,806,000 1.34 1.28
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