FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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 or
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from to____
Commission file number 0-9919
PSC Inc.
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Exact name of registrant as specified in its charter
New York 16-0969362
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State or other jurisdiction of IRS Employer ID No.
incorporation or organization
675 Basket Road, Webster, New York 14580
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Address of principal executive offices zip code
Registrant's telephone number, including area code: 716-265-1600
Securities registered pursuant to Section 12(b) of the Act:
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None
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Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, $.01 par value
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(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
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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].
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As of March 23, 1998 the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $105,126,966 (Assumes
officers, directors and any shareholder holding 5% of the outstanding shares are
affiliates.)
As of March 23, 1998, there were outstanding 11,575,894 shares of Common Stock.
Documents incorporated by reference:
Portions of PSC Inc.'s Proxy Statement for the Annual Meeting of
Shareholders to be held on May 7, 1998 are incorporated into Part III of this
Form 10-K.
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TABLE OF CONTENTS
PART I
PAGE
Item 1: Business................................................ 4
Item 2: Properties.............................................. 17
Item 3: Legal Proceedings....................................... 17
Item 4: Submission of Matters to a Vote of Security Holders..... 17
Executive Officers of Registrant.................... 18
PART II
Item 5: Market for Registrant's Common Equity and Related
Security Holder Matters................................. 21
Item 6: Selected Financial Data................................. 22
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operation...................... 23
Item 8: Financial Statements and Supplementary Data............. 27
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................. 27
PART III
Item 10: Directors and Executive Officers of the Registrant...... 27
Item 11: Executive Compensation.................................. 27
Item 12: Security Ownership of Certain Beneficial Owners and
Management.............................................. 27
Item 13: Certain Relationships and Related Transactions.......... 28
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................. 29
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PART I
ITEM 1: BUSINESS
COMPANY OVERVIEW
PSC Inc., together with its subsidiaries, (the Company) was incorporated in
the State of New York in 1969. The Company manufactures the world's broadest
line of laser based handheld and fixed position bar code readers, verifiers,
integrated sortation and point-of-sale (POS) scanning systems for the worldwide
Automatic Identification and Data Capture (AIDC) market. The Company's products
serve as the "front end" of terminals or host computers and are used to
identify, capture, process and transmit data. The Company has developed products
for AIDC at every stage of the product supply chain from raw material,
manufacturing and warehousing, to logistics, transportation, inventory
management and POS. The Company's products are used throughout the world in
food, general retail, health care and other industries, and in government.
The Company has positioned itself within the AIDC industry by selling both
domestically and internationally. International sales accounted for
approximately 46% of the Company's 1997 total sales. The Company has a
diversified customer base composed of original equipment manufacturers (OEMs),
value-added resellers (VAR's), distributors, system integrators and end users.
The Company's distribution relationships have enabled it to introduce its
products (generally under non-PSC labels) to new vertical markets, and have
fostered the development of strategic relationships with leading AIDC
participants and end users. The Company operates within one industry segment:
automatic identification and data capture.
In September 1997, the Company completed a private placement of Convertible
Preferred Shares with Hydra Investissements S.A., a Luxembourg corporation. The
net proceeds to the Company from the offering were $10.2 million. The Company
used the proceeds for working capital purposes and to repay a portion of its
senior revolving credit facility.
In 1996, the Company acquired Spectra-Physics Scanning Systems Inc., TxCOM
S.A. and related businesses (Spectra). Spectra is one of the world's leading
manufacturers of countertop and in-counter fixed position bar code scanners for
retail POS applications. The purchase price was approximately $140 million and
was accounted for as a purchase and is included in the 1996 Consolidated
Financial Statements since the date of acquisition.
The Company's corporate headquarters are located in the Rochester, New York
suburb of Webster. The Company designs, manufactures, sells, distributes and
services its products from world-class manufacturing facilities in Webster, New
York and Eugene, Oregon. The Company has sales and service operations in the
Americas, Europe, Asia and Australia.
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MARKETS
The Company currently focuses on retail, and commercial and industrial
applications for the AIDC market.
Retail
The retail segment consists of many applications of bar code scanning
devices used to track the flow of goods, equipment, employees and customers
throughout the retail environment. The most traditional and identifiable
application of bar code scanners and scanning systems is in front end checkout
applications, such as in grocery stores, in which an employee uses a stationary
or handheld scanner to read product identifiers encoded in a bar code. The
retail segment has, however, expanded beyond this base with regard to both the
types of retail stores employing scanners and scanning systems, and the uses to
which these stores put the scanners and scanning systems. Discount, drug,
do-it-yourself, convenience, department and specialty retail stores now use
scanners in such diverse ways as price verification, shelf stocking, inventory
tracking and replenishment, receiving, coupon redemption,
promotion/merchandising and frequent shopper programs.
The Company is currently active in most retail applications and sells its
countertop and in-counter bar code scanners to customers in most retail
segments. In addition, the Company has begun to target systems-oriented and
segment-specific products. One such product currently being marketed by the
Company is U-Scan Express(TM), an automated grocery store self-checkout system
developed and licensed to the Company by Optimal Robotics Corporation. U-Scan
Express(TM), which has been installed in several major supermarket chains and is
currently being tested by several major national mass merchandise chains, is
designed to permit supermarket customers to scan, bag and pay for purchases with
little or no assistance from store personnel.
Commercial and Industrial
The commercial and industrial segment is comprised of commercial,
manufacturing, warehousing and distribution applications of bar code systems
within retail, service, manufacturing, logistics, healthcare and transportation
businesses and organizations. These industries have adopted bar code standards
and installed bar code systems in order to increase productivity and increase
the reliability of data transactions. Automated data collection and
communication is now used, for example, to track insurance forms and financial
documents, record quality levels of manufactured items, sort parcels, mail and
airline baggage, prepare shipping manifests and catalog blood and plasma
inventories. Automatic dimensioning of cartons allows shippers to maximize loads
and more accurately invoice shipping costs. The Company is currently active in
several of these applications across a variety of market segments.
COMPANY PRODUCTS AND SERVICES
The Company offers a wide range of laser based bar code scanning products
such as handheld, countertop, in-counter, fixed position and unattended scanners
and scan engines for use by business, industry and government in multiple
application areas. To ensure the quality of bar codes themselves, the Company
offers a full line of bar code verifiers. In addition, the Company markets a
full line of accessories, software and supplies to support its products. This
line includes such items as cables, stands, printers, mounts, electronic article
surveillance antennas, AC power supplies, product documentation and software
configurations, carrying cases, batteries and battery chargers. An early entrant
in the AIDC industry, the Company is committed to ongoing innovation in product
design, manufacturing, product performance and customer satisfaction.
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The Company's products include:
Fixed Position Scanners: Retail
360 Degree Scanner and Scanner/Scale (Magellan(R)). The Company sells the
Magellan(R), the industry's first 360 degree scanner and scanner/scale and the
Company's highest performing in-counter scanner. Magellan(R) is capable of
simultaneously reading the bottom and all four sides of grocery store items, a
full 360 degrees, thereby increasing productivity and improving ergonomics by
reducing the need for checkers to twist, turn or lift items for scanning.
Magellan(R) is available with an integrated, 30 pound capacity scale which
allows retailers to combine the scanner and scale functions into a single unit.
Both the scanner and scanner/scale are designed for easy installation into new
and existing checkstands. An integrated electronic article surveillance
deactivation antenna is also available for use in deactivating RF-based security
tags. Magellan(R) autodiscriminates UPC/EAN and up to three industrial bar
codes, and is available with advanced Edge(TM) decoding software that enables
the scanner to read torn and disfigured labels. Magellan(R) also reads UPC/EAN
and Code 128 supplemental codes, such as those found on books, periodicals and
coupons.
Magellan SL(TM) Slim Line Scanner. In 1997, the Company introduced the Magellan
SL(TM) SlimLine Series of 360 degree scanners and scanner/scales. The Magellan
SL(TM) is a variant of Magellan(R), and offers the same capabilities and
benefits as Magellan(R). One benefit unique to Magellan SL(TM) is its smaller
size which accommodates installation in the narrower checkstands common in
Europe, Asia and large cities throughout the world. A key feature of Magellan
SL(TM) is the L-shaped All-Weighs(TM) Platter. With the All-Weighs(TM) Platter
the scanner/scale's vertical window and frame are an integral part of the scale
weighing platter, allowing checkers to lean oversized items against the vertical
window, intentionally or unintentionally, and get an accurate weight.
High Performance Horizontal Scanner (HS1250). The Company sells the HS1250, a
compact, high performance horizontal scanner for grocery, drug, discount and
home improvement store applications. The HS1250 reads UPC/EAN and industrial bar
codes and features advanced Edge(TM) decoding software. It is also available
with an integrated electronic article surveillance antenna for use in
deactivating RF based security tags. The scanner includes an integrated mount to
simplify installation. A sleep mode, which turns off the motor and laser after
periods of inactivity, reduces power consumption and prolongs the life of the
scanner.
High Performance Vertical Scanners (VS1000 and VS1200). The Company sells the
VS1000 and VS1200 compact vertical scanners which include scan geometry
optimized for vertical scanning applications in limited space areas such as
pharmacies, variety and convenience stores. These products permit bar codes to
be read whether the handler is presenting the bar code to the scanner or
sweeping the bar code across the scanner in a continuous movement. The VS1000
autodiscriminates up to four bar code types and reads UPC/EAN and industrial bar
codes. The VS1200, in addition to the above features, also incorporates the
Company's advanced Edge(TM) decoding software. The VS1200 is well suited for
performance demanding applications in supermarkets and hypermarkets. Both the
VS1000 and VS1200 are available with an optional integrated electronic article
surveillance antenna for use in deactivating RF-based security tags.
Compact Scanners (Duet(TM) and SP*ACE(TM)). The Duet(TM) Scanner, announced in
1997, is a compact "dual action" scanner that combines features of both
countertop and handheld scanners. Standard bar coded items are presented or
swept by the scanner's 19 line omni-directional scan window. Pick lists and
large, bulky goods are easily processed using Duet's Targeted Handheld Mode by
simply picking up the scanner and pointing it at a bar code. With an innovative
scan pattern and a 9" depth of field, Duet(TM) provides superior performance,
fast throughput. The ergonomic design of the Duet(TM) scanner makes it
exceptionally easy to use and easy on the user.
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SP*ACE(TM) is the Company's smallest fixed position scanner. Because of its
compact size and multi-position scan head, the SP*ACE(TM) scanner adapts easily
to a variety of retail and industrial countertop or wall-mounted applications
where space and/or routing opportunities are limited. SP*ACE(TM) reads bar codes
up to eight inches away and autodiscriminates between up to four different bar
code types.
Retail Automation Systems
The Company is currently manufacturing and selling the U-Scan Express(TM)
system, a stand-alone self-checkout system, to major supermarkets and mass
merchandisers in the U.S. Designed and licensed to the Company by Optimal
Robotics Corporation, a Montreal based company, the system is targeted for
retail store express lanes and incorporates scanning, interactive video,
security system and money tendering (cash, credit or debit) into a complete
stand-alone unit. The U-Scan Express(TM) is designed to permit customers to
scan, bag and pay for their own purchases with little or no assistance from
store personnel, thereby speeding checkout and improving store productivity. To
date, the U-Scan Express(TM) system has been installed in a number of major
supermarket chains nationwide and discussions are underway for future
installations with several large food and non-food retailers.
Handheld Scanners
Light Industrial/Commercial Scanners (5300 HP). The Company's high performance
5300 HP handheld scanners are based on its 5301 scan engine platform. The 5300
HP series was designed for the light industrial, commercial and special retail
environments where performance is critical. These high performance scanners
provide snappy scanning of "real world" bar code labels. Depending on the size
and quality of bar codes, one model in the Series can read bar codes having bars
or spaces with a dimension as narrow as two millimeters (.002 inches). A two
millimeter dimension bar code is common on small jewelry items or on the side of
a printed circuit board which can then be tracked through a manufacturing
process. A higher powered laser in the 5300 HP series permits bar code reading
in bright sunlight, thereby allowing the operator to read through a windshield
for vehicle identification or through a glass showcase to read price tags.
Ruggedized Industrial Scanners (5300 IP). Like the 5300 HP, the Company's high
performance 5300 IP handheld scanners are based on its 5301 scan engine
platform. The 5300 IP series scanners were designed for extreme durability and
performance for jobs in demanding environments. They are ideal for use in
warehouses, distribution centers, automotive plants, utilities, in cold storage
warehouses and at chemical plants. They can withstand rugged conditions such as
multiple six-foot drops to concrete and temperatures as low as -22oF (-30oC) as
are encountered in walk-in freezers. In 1997, the Company introduced the
AutoRange(TM) scanner which is essentially two scanners in one. This scanner is
ideally suited for warehouse and distribution center applications for reading
bar code labels at long distances as well as up close.
5300 series scanners are designed with an open slot in the scanner handle that
accommodates circuit boards with additional capabilities such as decode,
interface and optional memory, thus enabling the Company to offer
custom-manufactured scanners that OEMs then sell under their private labels. The
Company's lifetime warranty on the scanning mechanism in each model of the 5300
series reflects the Company's confidence in the quality of these products.
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Retail, POS Service and Commercial Scanners (Quick Scan(TM) and SP400). The
Quick Scan(TM) is a full feature, full function, full performance scanner
incorporating the Company's smaller scan engine platforms. The Quick Scan GP(TM)
provides general performance scanning in lower volume POS, point-of-service and
commercial applications with consistent bar code placement and location. The
Quick Scan HP(TM) addresses the scanning requirements for higher volume retail
and commercial applications where handling mixed and inconsistently marked items
requires greater depth-of-field and enhanced scanning performance. The Quick
Scan(TM) EP provides extended performance and longer range scanning applications
up to five feet. The Quick Scan(TM) 6000 was designed specifically for the
retail POS and features an unprecedented combination: the superior performance
and rugged design of a high end POS scanner, priced affordably. Its advanced
ergonomic design was developed with operator comfort in mind -- a critical
factor that ensures prolonged operator productivity. The size and shape of Quick
Scan(TM) makes it comfortable to hold independent of handedness and hand size.
The SP400 offers higher performance levels by combining a visible laser diode
light source, patented signal processing technology, long depth-of-field and
wide angle reading. The SP400 family includes a variety of models for retail and
industrial applications. The SP400 EP (Extreme Performance) scanner is the only
handheld scanner on the market to offer a true seal against windblown dust and
rain. This feature, combined with other enhancements to the housing, gives the
SP400 EP the highest rating in the industry for ruggedness and durability, and
makes it ideal for outdoor use.
Specialty Handheld Scanners (538X Series). These specialty scanners offer custom
form factors and optics for unique applications. Included in this line are the
5380 Back-of-the-Hand Scanner, the 5381 Palm Top Scanner and the 5387
Scandle(TM).
The 5380 Back-of-the-Hand Scanner has a small profile and weighs only three
ounces, making it particularly suitable for "picking" applications in
distribution centers and other hands-free operations. This scanner, which allows
for hands-free scanning, attaches to a comfortable glove that can be worn on
either hand and can be actuated manually with a trigger or automatically by
PSC's Autosense(R) feature. Hands-free scanning allows an operator to use both
hands to select items from shelves or racks and transmit data regarding those
items to a data terminal.
The 5381 Palm Top Scanner, compactly designed and weighing 4.8 ounces, is about
the size of a TV remote control. It can be used in either hand and can be
slipped into a shirt pocket or attached to clothing with a Velcro(R) patch when
not in use. The 5381 is the appropriate choice for POS and industrial
applications where size, weight and accessibility are key factors. Top and side
triggers have been provided to allow for ease of scanning either vertical or
horizontal bar codes by left or right handed operators.
The 5387 Scandle(TM) has the approximate size, weight and shape of a telephone
handset. When snapped into place on a small portable computer, such as those
carried by telephone line workers, it functions as the computer's carrying
handle.
Fixed Position Scanners: Commercial and Industrial
Miniature Scanners. The 9000 scanner is a compact, versatile, industrial line
scanner intended primarily for high-speed automated sorting or identification in
the demanding environments of the manufacturing and material handling markets.
Through the use of advanced digital signal processors, this scanner can provide
scan rates of between 200 and 1500 scans per second. Both the scan engine and
the decoder may be contained in a single unit. Because the scanner can be
programmed either locally or from the host computer, it provides the user with
maximum flexibility.
High-End Line Scanners. The series 8000 and 8000LX provide a line of
high-powered, high-speed, adjustable rastering line scanners for demanding
applications, such as airline baggage handling, overnight package delivery
sortation and other high-speed sortation. They can read bar code labels moving
at speeds of up to 500 feet per minute. Features include auto-focusing and Time
Slice Decoding(TM) (TSD) which allows the scanner to read only
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a small portion of a code on each of several successive scans and reconstruct
the entire bar code. By multiplexing (interconnecting two or more of these
scanners having varying scanning ranges), a system can be configured to
simultaneously read and track bar codes as they move past the scanners at
different distances.
Omnidirectional Scanners. The model 990 SureScan(R) is a high-speed modular,
omnidirectional scanner for use in large volume distribution centers. It may be
equipped with TSD software to read randomly oriented bar codes as, for example,
labels on packages tumbling down a chute at speeds up to 600 feet per minute at
a distance of 30 inches. The model 990 can also be configured with up to four
multiplexed scanners.
Carton Dimensioning System. The SureCube(TM) is an automated carton dimensioning
system which measures the volume of cartons over conveyors or in-motion scales
for material handling systems. The system can be supplied with a bar code
scanner for identifying and dimensioning or integrated with an in-motion scale
to provide a completely automated system for identifying, sizing, weighing and
sorting of cartons. It captures the carton data regardless of the location,
orientation or angle of the carton. This is especially useful in large
warehouses, package delivery services and other shipping companies.
Scanning Tunnel Systems. By using multiple scanners oriented around a conveyor
belt, PSC offers a unique solution to solve high speed sortation problems where
cartons may have a bar code label on any surface of a carton, even the bottom,
or multiple labels on multiple sides of the carton. With the ScanManager(TM),
this system can track up to 16 cartons at one time at conveyor speeds up to 300
feet per minutes.
Scan Engines
The Company's scan engines are self-contained bar code reading components
which OEMs build into a variety of products. The Company's scan engines
incorporate all of the electronic, optical and mechanical components required
for laser scanning in a single package which can be easily integrated. The
various models manufactured by the Company are based on either its 5301 "large"
platform, the smaller 5303 version or the miniaturized Minuet(TM) DI(TM) or
LM-500. The 5301 platform is about the size of a deck of playing cards and
occupies a volume of 10 cubic inches. In response to industry demands for a
smaller scanning platform, the Company introduced the 5303 scan engine which is
about half the footprint of the 5301 and occupies 3.5 cubic inches. The Company
introduced an even smaller scan engine, the Minuet(TM) Direct Illumination(TM)
bar code engine. This miniature engine has a volume of only 1.2 cubic inches. In
a Direct Illumination(TM) bar code engine system, there are no reflective
optics; the laser is mechanically swept to directly illuminate the bar code. The
Minuet(TM) DI(TM) can significantly enhance bar code reading performance in a
variety of OEM products such as portable data collection devices; laptop,
handheld and palmtop computers; diagnostic and test equipment; and ticket
issuing machines. The newest addition to the Minuet(TM) scanner family is the
LM-500. The LM-500 continues the progress toward miniaturization of scanning
engines.
Quick Check (R) Verifiers
The Company's line of Quick Check(R) verifiers is designed to ensure that
the customer is producing, using and receiving quality bar code symbols. Quick
Check(R) verifiers can display a simple pass/fail report or provide a detailed
quality analysis. These verifiers are sold as handheld, desktop, PC based or
printer/labeler mounted on-line models. They analyze bar codes for traditional
print quality such as wide to narrow ratio, print contrast, bar growth or loss,
dimensions and formats, or analyze based upon quality parameters found in the
American National Standards Institute (ANSI) and European Committee for
Standardisation (CEN) guidelines such as edge determination, reflectance
minimum, symbol contrast, modulation, decodability and edge contrast minimum.
When mounted on-line, the Quick Check(R) verifier results can automatically
control the user's system and cause it to pause, reprint, shutdown or activate
an alarm. All Quick Check(R) verifiers are designed and manufactured to meet
national, international and industry specified standards (such as those created
by the Uniform Code Council and the Automatic Identification Manufacturers,
Inc.) and provide traceability to the National Institute of Standards and
Technology (NIST) for compliance to ISO 9000 and QS 9000 requirements.
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SALES AND MARKETING
The Company sells its products domestically and internationally through a
diversified customer base composed of OEMs, third party resellers and end users.
International sales increased from approximately $19.3 million, or 22% of net
sales, in 1995 to approximately $95.2 million, or 46% of net sales, in 1997.
Management believes that the international markets for bar code products are
less developed and intends to broaden its international sales and provide
additional sales and marketing support to its international operations.
The Company's OEM customers and third party resellers serve various
vertical markets and submarkets and a wide variety of end users. They introduce
the Company's products to their end users through their established sales and
distribution networks, thus sparing the Company the expense of supporting a
large in-house sales force. By forming strategic relationships with major OEM
customers, the Company has been able to conduct joint development and design
customer-specific products and applications and thereby further expand its
market presence and broaden its distribution network.
In addition to its sales and marketing staff in Webster, New York and
Eugene, Oregon, the Company has regional sales representatives in the United
States and sales offices throughout Europe and the Asia Pacific area that
provide sales, service and support to the Company's domestic and international
customers.
Foreign sales of the Company's products are subject to the normal risks of
foreign operations, such as currency fluctuations, protective tariffs,
export/import controls and transportation delays and interruptions. Because the
Company's products are manufactured in the United States, the Company's sales
and results of operations could be affected by fluctuations in the value of the
U.S. dollar.
The Company's marketing operations include product management, market
management, new business development and marketing communications. Marketing
personnel identify new business opportunities, develop business plans, identify
new product and market requirements, manage product positioning/introduction and
provide tactical sales support activities. They interact regularly with external
parties such as OEMs, VARs, distributors, systems integrators and end users,
technical partners and standards committees. The marketing personnel also, in
conjunction with outside vendors, conduct customer surveys and coordinate
advertising and public relations. This group creates advertising, brochures and
documentation, manages trade show exhibits and places articles highlighting
applications of the Company's products in trade and industry publications.
CUSTOMER SUPPORT AND SERVICE
The Company is dedicated to providing consistently high customer service on
a national and international basis. The Company maintains a highly responsive
customer support and service organization that bridges the Company's marketing,
engineering and manufacturing functions. The customer support and service
personnel receive extensive training in all of the Company's products and assist
customers with ordering, product scheduling, coordinating service repairs,
procuring replacement parts and managing warranties and service contracts. The
Company's Eugene, Oregon customer service and support organization has met ISO
9000 quality registration levels.
CUSTOMERS
The Company sells its products to OEMs, VARs, distributors, systems
integrators and end users. During 1997 and 1996, no individual customer
accounted for greater than 10% of net sales. During 1995, Telxon Corporation
accounted for 17% of sales. No other customers were responsible for greater than
10% of net sales in 1995. The Company's arrangements with major customers are
generally nonexclusive.
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ENGINEERING, RESEARCH AND PRODUCT DEVELOPMENT
The Company's engineering research and product development (ER&D) programs
are aimed at applying its technology to develop new products, improve its
existing products' reliability, ergonomics and performance and reduce
manufacturing and related support costs. Current programs focus on new advances
in bar code scanning, retail applications such as retail self-checkout systems
and new generations of portable data terminals. The Company also carries on
significant development programs in electronics design, bar code acquisition and
decoding, RF communications, optical signal detection, software, network
architectures, advanced mechanical structures and automated manufacturing
methods. Computer-aided design and computer-aided manufacturing tools assist the
Company's research and development efforts by permitting computer simulation of
proposed products. These tools include electronics circuit modeling, optics
analysis and three-dimensional mechanical product modeling.
Substantially all of the Company's research and development is performed by
its own staff. The Company believes its technical strengths are in the specialty
disciplines of lasers, electro-optics, video imaging, signal processing,
decoding, portable/fixed computers and software development.
The Company's ER&D expenses were approximately $13.0 million, $11.1
million, and $5.0 million in 1997, 1996, and 1995, respectively. Such amounts do
not include expenditures by the Company for manufacturing engineering
activities.
MANUFACTURING AND SUPPLIERS
The Company designs, engineers and manufactures substantially all of its
scanning products at its Webster, New York headquarters or its Eugene, Oregon
facility. The Company's design and process approach allows end-of-line
configuration of generic modules to meet a multitude of specific customer needs.
Statistical methods are used throughout the factory and with critical suppliers
in order to control important processes. The Company makes extensive use of
computer integrated systems and software for purposes of resource planning, such
as material requirements, assembly planning and scheduling and order management.
The Company seeks to design and manufacture products that optimize
performance, quality, reliability, durability and versatility. These designs
facilitate cost-efficient materials sourcing and assembly methods with high
standards of workmanship. The Company has invested and will continue to invest
in capital equipment such as printed circuit board surface mount machines that
automate production, increase capacity and reduce direct labor costs. Computer
operated equipment is used for testing at all levels of production to assure
repeatable, reliable performance and accurate data collection. The Company has
designed many of its own tools, fixtures and test equipment. The Quick Check(R)
product is manufactured by an independent third party. The Company believes its
relationship with this manufacturer to be good, and the loss of this
manufacturer would not have a material effect on the Company.
The Company does not have long-term supply contracts with its vendors. The
Company currently relies on single suppliers, some of whom manufacture at a
number of locations, for some key components of its products. The Company
believes that maintaining ongoing relationships with single suppliers who have
proven that they are capable of meeting the Company's standards of quality,
on-time delivery and cost containment has enabled it to increase the value of
its product to its customers. Although the Company maintains 30 to 60 day
inventories of key components and alternative sources of key materials are
available, the Company could incur set-up costs and delays in manufacturing
should it become necessary to replace key vendors due to work stoppages,
shipping delays, financial difficulty or other factors, and under certain
circumstances, these costs and delays could have a material adverse effect on
the Company's operations.
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COMPETITION
The AIDC industry is highly competitive with rapid technological change and
intellectual property developments being key competitive factors. The Company
also competes on the basis of innovative design, high quality manufacturing,
technical expertise in scanning and wireless RF systems, level of sales and
support services, price and overall product functionality and fitness for use.
Failure to keep pace with product and technological advances could negatively
affect the Company's competitive position and prospects for growth. Many firms
manufacture and market bar code reading equipment utilizing laser technology. In
addition, the Company's bar code reading equipment also competes with devices
which utilize technologies other than laser scanners such as CCDs and optical
wands. The Company faces competitive pressures from various companies in each of
its product categories. Many of the Company's competitors have substantially
greater financial, manufacturing, research and development and marketing
resources than the Company. The Company believes its principal competitors for
its handheld bar code scanner products are Symbol Technologies, Inc. (Symbol),
and Metrologic Instruments Inc. (Metrologic). The Company's principal
competitors in the fixed position scanner market are Accu-Sort Systems, Inc.
(Accu-Sort) and CI/Matrix. The Company believes its principal competitors for
its line of in-counter and on-counter scanner products are NCR Corporation,
Fujitsu Ltd., Symbol, Scantech B.V. and Metrologic. The principal competitors
for its line of verifiers are Stratix (formerly Bar Code Systems) and RJS Inc.
The Company's principal competitor for POS self-checkout systems is Productivity
Solutions, Inc.
No assurance can be given that the Company will be able to compete
successfully against current and future competitors or that the competitive
factors faced by the Company will not have a material adverse effect on the
Company's operations.
INTELLECTUAL PROPERTY
The Company believes that certain of its products are proprietary and
consequently relies on a combination of United States and foreign patent, trade
secret, copyright and trademark law to establish and protect its proprietary
rights. The Company currently holds more than 160 United States patents and also
has certain foreign patents pertaining to various technologies associated with
its products. These patents expire on various dates between 2003 and 2016. The
Company currently has a number of patent applications pending in the United
States and in a number of foreign countries. In addition, the Company expects
that its continuing research and development efforts will result in the creation
of new proprietary rights for which it will seek patent protection.
The Company maintains an active program to obtain patents and otherwise
protect its intellectual property. Nevertheless, its competitors could develop
technology or know-how or obtain patents that could limit the Company's ability
to compete in the future. Similarly, others could challenge the validity of the
Company's patents or assert that the Company is infringing on their proprietary
rights. The Company believes that its patents are valid and enforceable and does
not believe that it is infringing on the proprietary rights of others. While the
Company believes that its patents provide it with competitive advantages with
respect to the products they cover, the Company relies primarily upon the
technical know-how, competence, innovative skills and marketing abilities of its
engineers and other employees.
The Company currently holds certain trademarks that are registered with the
United States Patent and Trademark Office and a number of common law trademarks
and valuable trade secrets. It also has certain foreign trademarks and has
numerous domestic and foreign trademark registrations pending.
EMPLOYEES
As of March 1, 1998, the Company had approximately 1,150 full-time
employees. In addition, the Company at various times makes use of temporary
labor in its manufacturing operations. Approximately 8% of the work force is
located outside the United States, based in offices throughout Europe and the
Asia Pacific regions. The Company believes that its future success will depend
in part on its ability to recruit and maintain highly qualified management,
marketing, technical and administrative personnel. None of the Company's
employees is represented by a labor union. Management believes that its
relationship with employees is good.
GOVERNMENT REGULATION
Certain products of the Company must comply with regulations promulgated by
the United States Food and Drug Administration's Center for Devices and
Radiological Health (CDRH), the Federal Communications Commission (FCC), as well
as the Canadian Standard Association, the European Community Standards (CE) and
TUV Rheinland (Europe), which are corresponding agencies for certain foreign
countries. The regulations are in
<PAGE>
the areas of laser light emissions, intentional or non-intentional RF energy
emissions, standards for weighing instruments and European electromagnetic
compatibility (EMC) directives. The regulations mandate, among other items,
warning labels, safety features, and establish certain levels for laser power,
weight measuring, voltage and electromagnetic fields. The Company's operations
are also subject to certain federal, state and local requirements relating to
environmental, waste management, health and safety regulations. Management
believes that the Company's business is operated in compliance with applicable
government, environmental, waste management, health and safety regulations.
There can be no assurance that future regulations will not require the Company
to modify its products to meet revised energy output or other requirements.
Failure to comply with future regulations could result in a material adverse
effect on the Company's results of operations.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER SECURITIES LITIGATION REFORM
ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange Commission.
The words or phases "will likely result," "are expected to," "will continue,"
"is anticipated," "estimate," "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the Reform Act). The Company wishes to
ensure that such statements are accompanied by meaningful cautionary statements,
so as to maximize to the fullest extent possible the protections of the safe
harbor established in the Reform Act.
Accordingly, such statements are qualified in their entirety by reference
to and are accompanied by the following discussion of certain important factors
that could cause actual results to differ materially from such forward-looking
statements.The risks included here are not exhaustive. Furthermore, reference is
also made to other sections of this report which include additional factors
which could adversely impact the Company's business and financial performance.
Moreover, the Company operates in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible
for management to predict all of such risk factors, nor can it assess the impact
of all of such risk factors on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Accordingly,
forward-looking statements should not be relied upon as a prediction of actual
results.
Shareholders should be aware that while the Company does, from time to
time, communicate with securities analysts, it is against the Company's policy
to disclose to such analysts any material non-public information or other
confidential commercial information. Accordingly, shareholders should not assume
that the Company agrees with any statement or report issued by any analyst
irrespective of the content of such statement or report. Accordingly, to the
extent that reports issued by securities analysts contain any projections,
forecasts or opinions, such reports are not the responsibility of the Company.
Spectra Acquisition/Debt Service. The Company incurred substantial indebtedness
($127.5 million) in connection with the acquisition of Spectra. The indebtedness
could have important consequences, including the following: (i) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest on the indebtedness, thereby
reducing the funds available to the Company for other purposes; (iii) the
agreements governing the Company's long-term indebtedness contain certain
restrictive financial and operating covenants; (iv) certain indebtedness under
the senior debt will be at variable rates of interest which would cause the
Company to be vulnerable to increases in interest rates; (v) all of the
indebtedness outstanding under the senior debt is secured by substantially all
the assets of the Company; (vi) the Company is substantially more leveraged than
certain of its competitors which might place the Company at a competitive
disadvantage; (vii) the Company may be hindered in its ability to
<PAGE>
adjust rapidly to changing market conditions and (viii) the Company's
substantial degree of leverage could make it more vulnerable in the event of a
downturn in general economic conditions or its business.
As a result of the indebtedness incurred in connection with the acquisition
of Spectra, a substantial portion of the Company's cash flow will be devoted to
debt service. The ability of the Company to continue making payments of
principal and interest will be largely dependent upon its future financial
performance.
Technological Change. The market for the Company's products is characterized by
rapidly changing technology, evolving industry standards, changes in customer
requirements and frequent new product introductions and enhancements. The
Company's future success will depend on its ability to enhance its current
products, to develop new products on a timely and cost-effective basis and to
respond to changing customer requirements and technological developments.
Certain of the Company's competitors spend larger amounts on research and
development efforts than the Company. Any failure by the Company to anticipate
or respond adequately to changes in technology and customer preferences, or any
significant delay in product development or introduction, could have a material
adverse effect on the Company's financial condition and results of operations.
There can be no assurance that the Company will be successful in developing and
marketing, on a timely and cost-effective basis, product enhancements or new
products that respond to technological advances by others, or that such new
products or product enhancements will achieve market acceptance.
Dependence on Intellectual Property Rights. The Company's success is dependent
in part on its ability to obtain patent protection for its products, maintain
trade secret protection and operate without infringing the proprietary rights of
others. The Company currently owns over 160 U.S. patents having expirations from
the year 2003 to the year 2016 and also has certain foreign patents. The Company
has filed, and intends to file, applications for additional patents covering its
products. There can be no assurance that any of these patent applications will
be granted, or that the Company will develop additional products that are
patentable and do not infringe upon the patents of others, or that the patents
issued to or licensed by the Company will provide the Company with a competitive
advantage or adequate protection for its products. In addition, there can be no
assurance that the Company's competitors will not develop technology or
know-how, to obtain patents, that could limit the Company's ability to compete
in the future or that patents issued to or licensed by the Company will not be
challenged, invalidated or circumvented by others.
Pending Litigation. The AIDC industry is characterized by substantial litigation
regarding patent and other intellectual property rights. The Company
aggressively defends its patents and other proprietary rights.
There is litigation pending in the United States District Court for the
Western District of New York between the Company and one of its customers, on
the one hand, and Symbol Technologies, Inc. (Symbol) on the other, involving
certain of Symbol's patents. In that action, the Company has also alleged
violation of the antitrust laws and unfair practices by Symbol and Symbol has
alleged breaches of certain license agreements between the Company and Symbol,
including claims that royalties have been underpaid. The Company has also
assumed the responsibility of defending the action on behalf of its customer and
has provided certain rights of indemnification to its customer. The Company
intends to defend itself and its customer vigorously. Although the Company
maintains that Symbol's patents are invalid, that the Company has not infringed
the patents, or both, and that the Company has not, as was alleged, breached the
Symbol license, nor underpaid royalties, there can be no assurance that this or
any other action will be decided or settled in the Company's favor. There can be
no assurance that others will not assert claims against the Company that result
in litigation. Any such litigation could result in significant expense,
adversely impact the Company's marketing, give rise to certain indemnity rights
on the part of customers and divert the Company's attention from other matters.
If any of the Company's products were found to infringe a third-party patent,
the third party could be entitled to injunctive relief, which would prevent the
Company from selling any such infringing products. In addition, the Company
could be required to pay monetary damages. Although the Company could seek a
license to sell products determined to infringe a third-party patent, there can
be no assurance that a license would be available on terms acceptable to the
Company. The Company could also attempt to redesign any infringing products so
as to avoid infringement,
<PAGE>
although any effort to do so could be expensive and time consuming and there can
be no assurance the effort would be successful. See "Business - Intellectual
Property."
Competition. The AIDC industry is highly competitive with rapid technological
change, product improvements, new product introduction and intellectual property
developments representing key competitive factors. The Company also competes on
the basis of innovative design, high quality manufacturing, technical expertise
in scanning, level of sales and support services, price and overall product
functionality and fitness for use. Failure to keep pace with product and
technological advances could negatively affect the Company's competitive
position and prospects for growth. Several of the Company's competitors have
substantially greater financial, technical, marketing and other resources than
the Company. As a result, they may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products, than
can the Company. In addition, other larger corporations could enter the AIDC
industry. Increased competition is likely to result in average selling price
reductions, reduced operating margins or loss of market share. No assurance can
be given that the Company will be able to compete successfully against current
and future competitors or that the competitive factors faced by the Company will
not adversely affect its business, financial condition or results of operations.
See "Business--Competition."
Product Transitions. The Company is dependent upon the introduction of new and
improved products. The Company's financial performance is dependent upon the
successful introduction of these products. The success will be dependent, among
other things, upon the ability of the Company to complete development of certain
products, customer acceptance of and demand for these products and the ability
of the Company to efficiently manufacture these products and to meet delivery
schedules. The introduction of new and enhanced products requires the Company to
manage the transition from older products in order to minimize disruption in
customer ordering patterns, avoid excess levels of older material inventories
and ensure that adequate supplies of new product can be delivered to meet
customer demand. There can be no assurance that the Company will successfully
manage the transition to selling new products. The failure to do so could have a
material adverse effect on the Company's business and results of operations.
Dependence on Sales by Third Parties: Significant Customers. A significant
portion of the Company's net sales are dependent upon the ability of its OEM,
value-added reseller (VAR), distributor and systems integrator customers to
develop and sell products that incorporate the Company's scanning products.
Factors, including economic conditions, patent positions, inventory positions,
the ability to sell the Company's products to end users, regulatory requirements
and other marketing restrictions that adversely affect the operations of the
Company's OEM, VAR, distributor and systems integrator customers can have a
substantial impact upon the Company's financial results. No assurances can be
given that the Company's OEM, VAR, distributor and systems integrator customers
will not experience financial or other difficulties that could adversely affect
their operations and, in turn, the results of operations of the Company. During
1997 and 1996, no individual customer accounted for more than 10% of net sales.
During 1995, Telxon Corporation accounted for 17% of the Company's net sales.
See "Business--Sales and Marketing" and "--Customer Support and Services."
Risks Associated with International Operations. The Company's sales to
international customers increased from $19.3 million or 22% of total net sales
in 1995 to $95.2 million or 46% of net sales in 1997. The Company intends to
continue to expand its operations outside of the United States and to enter
additional international markets, which will require significant management
attention and financial resources and which will result in a significant portion
of the Company's net sales being subject to the normal risks associated with
international sales. Such risks include unexpected changes in regulatory
requirements, compliance costs associated with quality control standards,
special standards requirements, longer accounts receivable collections in
certain geographic regions, tariffs and other barriers, difficulties in staffing
and managing international subsidiary operations, potentially adverse tax
consequences, country-specific product requirements and political and regulatory
uncertainties. There can be no assurance that these factors will not have an
adverse impact on the Company's ability to increase or maintain its
international sales or results of operations. See "Management's
<PAGE>
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Sales and Marketing."
Exposure to Currency Fluctuations. Historically, the Company's revenue from
international operations has primarily been denominated in United States
dollars. During 1997, approximately 50% of its revenue from international
operations and 75% of its consolidated revenue were denominated in United States
dollars. The Company expects that a growing percentage of its business will be
conducted in currencies other than the United States dollar. As a result,
fluctuations in the value of certain foreign currencies could materially affect
the Company's business operating results and financial condition. Also, an
increase in the value of the United States dollar relative to foreign currencies
could make the Company's products more expensive and, therefore, less
competitive in certain markets. Due to the constantly changing currency
exposures and the volatility of currency exchange rates, there can be no
assurance that the Company will not experience currency losses in the future,
nor can the Company predict the effect of exchange rate fluctuations upon future
operating results. The Company may occasionally enter into forward foreign
exchange contracts as a hedge against currency fluctuations relating to foreign
sales denominated in foreign currencies. The forward contracts generally have
maturities of approximately 30 days and require the Company to exchange foreign
currencies for United States dollars at maturity, at rates agreed to at the
inception of the contracts. Gains and losses on forward contracts are offset
against the foreign exchange gains and losses on the underlying hedged items and
are recorded in the Consolidated Statements of Operations.
Price. Traditionally, the selling price of the Company's products decreases over
the life of the product. The Company endeavors to reduce manufacturing costs of
existing products and to introduce new products, functions and other
price/performance-enhancing features in order to mitigate the effect of such
decreases. To the extent that such cost reductions, product enhancements and new
product introductions do not occur in a timely manner or do not achieve market
acceptance, the Company's operating results could be materially, adversely
affected.
Acquisitions. The Company has in the past and may in the future acquire
businesses or product lines as a way of expanding its product offerings and
acquiring new technology. Failure of the Company to identify future acquisition
opportunities and/or to integrate effectively businesses that it may acquire
could have a material adverse effect on the Company's growth.
Dependence on Key Vendors. The Company's ability to produce and ship its
products on schedule is highly dependent on timely receipt of an adequate supply
of components and materials from its key vendors. The Company currently relies
on single suppliers, some of whom manufacture at a number of locations, for some
of the key components of its products. The Company could incur significant
set-up costs and experience delays in manufacturing should it be necessary to
replace key vendors due to work stoppages, shipping delays, quality problems,
financial difficulties or other factors. There can be no assurance that these
potential costs and delays would not have a material adverse impact on the
Company's business or results of operations. See "Business--Manufacturing and
Suppliers."
Fluctuations in Quarterly Operating Results. Historically, the Company has
experienced variability in its quarterly results and the Company anticipates
that such variability will continue in the future as a result of a number of
factors, many of which are beyond the Company's control. The factors affecting
this variability include demand for the Company's products, the size and timing
of large customer orders, the entry of new competitors and new technological
advances by competitors, changes in pricing policies by the Company or
competitors, customer order deferrals in anticipation of product enhancements or
new product offerings by the Company or its competitors, changes in the mix of
products sold by the Company and general economic factors.
Since customers order products for delivery within 30 to 45 days, backlog is not
a reliable predictor of future results beyond the current quarter. The Company's
expense levels are based, in part, on expectations of future revenue. If revenue
levels are below expectations, expense levels would be disproportionately high
as a percentage of total revenue and operating results would be adversely
affected. The Company believes that quarterly period-to-period comparisons of
its financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<PAGE>
Government Regulation. The Company's products and operations are subject to
regulation by federal, state and local agencies in the United States and its
products are subject to regulation in certain foreign countries where the
Company's products are sold. While the Company believes that its products and
operations comply with all applicable regulations, there can be no assurance of
continued compliance if these regulations were to change. Noncompliance with
respect to these regulations could have a material adverse impact on the
Company's results of operations. See "Business--Government Regulation."
ITEM 2: PROPERTIES
The Company's principal manufacturing, engineering, and administrative
facility consists of an approximately 132,000 square foot Company-owned building
in Webster, New York, a suburb of Rochester, New York. This facility, completed
in 1995, was custom-designed to serve the Company's operations and to permit a
relatively rapid 45,000 square foot manufacturing addition. An adjacent 20 acre
parcel of land owned by the Company is also available for expansion. The Company
leases approximately 28,000 square feet of offsite storage and shop space
immediately adjacent to its principal facility. This lease expires January 2,
2000.
The Company also owns a 32 acre site in Eugene, Oregon. Engineering,
marketing and administrative functions are contained in a sixteen year old
54,000 square foot facility. Manufacturing and warehousing are contained in a
separate eleven year old 56,000 square foot building. In addition, the Company
leases 9,000 square feet of offsite storage and shop space approximately two
miles from the manufacturing facility. This lease expires June 30, 1998.
Domestically, the Company maintains offices under short-term leases for
individual sales and support personnel in or near Dallas, Texas; Dayton, Ohio;
Raleigh, North Carolina; Denver, Colorado; Miami, Florida and Skaneateles, New
York in order to serve North, Central and South America.
Internationally, the Company maintains offices in or near Tokyo, Beijing,
Sydney, Hong Kong, London, Paris, Milan, Frankfurt, Brussels, Madrid, Malmo, and
Ontario. These offices house from one to 20 people in 300 to 10,000 square foot
facilities under short-term leases.
All of the Company's locations are in good condition and management
believes that the Company has sufficient manufacturing capacity for the
foreseeable future.
ITEM 3: LEGAL PROCEEDINGS
There is litigation pending in the United States District court for the
Western District of New York located in Rochester, New York between the Company
and one of its customers, Data General, on the one hand, and Symbol on the
other, involving certain of Symbol's patents. In that action, the Company has
also alleged violations of the antitrust laws and unfair practices by Symbol.
Symbol has alleged patent infringement and breaches of certain license
agreements between the Company and Symbol, including claims that royalties have
been underpaid. The Company has assumed the responsibility of defending the
action on behalf of Data General.
The litigation is in the early stages of discovery. The Court had set a
hearing in July, 1997 which was to have been solely related to claim
construction of the patent claims alleged by Symbol to be infringed. That
hearing was taken off the Court's calendar. More recently, a status conference
was held on February 19, 1998 at which time the parties and the Court discussed
the status of the suit and, in particular, whether the patent or contract issues
would be heard first. The parties have since proposed a schedule to the Court,
seeking a trial of the contract issues in late fall 1998.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the period ended December 31, 1997.
<PAGE>
<TABLE>
EXECUTIVE OFFICERS OF REGISTRANT
The Company's executive officers as of December 31, 1997, were as follows.
<CAPTION>
Name Age Officer/Position
- ---- --- ----------------
<S> <C> <C>
Robert C. Strandberg .. 40. ..President and Chief Executive Officer
Edward J. Biernat ..... 43....Vice President, Quality
Charles E. Biss ....... 45....Vice President, Verification
Cecil F. Bowes ........ 55....Vice President, Sales - The Americas, Asia Pacific
Nigel P. Davis ........ 47....Vice President, Sales - Europe, Middle East, Africa
Scott D. Deverell ..... 32....Assistant Treasurer
G. William Hartman .... 52....Vice President, Automation
Dennis T. Hopwood ..... 48....Vice President, Human Resources
William L. Parnell, Jr 41....Vice President, Operations
Brad R. Reddersen ..... 45....Vice President, Chief Technology Officer
Matt D. Schler ........ 42....Vice President, Engineering and Product Development
Michael J. Stachura ... 42....Vice President, Finance
Roger D. Tedford ...... 44....Vice President, Chief Information Officer
William J. Woodard .... 46....Vice President, Chief Financial Officer and Treasurer
</TABLE>
<PAGE>
Robert C. Strandberg has served as President and Chief Executive Officer of
the Company since April 1997 and was Executive Vice President from November 1996
until April 1997. Prior to joining the Company, Mr. Strandberg was Chairman of
the Board of Directors, President and Chief Executive Officer of Datamax
International Corporation ("Datamax"), Orlando, Florida, from 1991 to 1996.
Datamax designs and manufactures thermal bar code printers. Mr. Strandberg holds
a B.S. in Industrial Engineering Operations Research from Cornell University and
an M.B.A. from Harvard University.
Edward J. Biernat has served as Vice President, Quality, since January
1996. Prior to joining the Company, Mr. Biernat was the manager of Quality
Systems for Thin Film Technology, a division of Bausch and Lomb, Inc. based in
Rochester, New York (1989-1996). Mr. Biernat holds B.S. degrees in Electrical
and Mechanical Engineering from Clarkson University.
Charles E. Biss has served as Vice President, Verification Products since
January 1996, as General Manager, Verification Products (1995-1996) and as
Product and technical Support Manager (1985-1995). Mr. Biss has served the
Company in a variety of technical and production related roles since 1973. Mr.
Biss represents the Company on a number of National and International standards
creating committees relating to bar codes and the automatic identification and
data capture industry. Mr. Biss holds a B.S. degree in Photographic Science and
Engineering from Rochester Institute of Technology.
Cecil F. Bowes has served as Vice President, Sales - The Americas, Asia
Pacific since December 1996. Prior thereto, he was Group Director, North America
for Spectra from November 1990 until December 1996. Mr. Bowes holds a B.S.
degree in Education from the University of Dayton.
Nigel P. Davis has served as Vice President, Sales - Europe, Middle East,
Africa (EMEA) since July 1996. Prior thereto, he was Group Director for Spectra
- - EMEA from March 1993 to May 1996.
Scott D. Deverell has served as Assistant Treasurer since September 1997
and was Controller from 1990 until September 1997. Mr. Deverell, a certified
public accountant, received a B.S. in Accounting from SUNY at Geneseo and an
M.B.A. from Rochester Institute of Technology.
G. William Hartman has served as Vice President, Automation since September
1997. Prior to joining the Company, he was Senior Vice President and Chief
Operating Officer of Datamax from 1991 to 1996. Mr. Hartman holds a B.S. in
Mechanical Engineering from the University of Utah and an M.S. in Mechanical
Engineering from Villanova University.
Dennis T. Hopwood has served as Vice President, Human Resources since July
1997. Prior thereto, he was Vice President, Human Resources for Spectra from May
1985 to January 1997. Mr. Hopwood holds a B.S. in Sociology from the University
of Idaho and an M.S. in higher education administration from the University of
Wisconsin.
William L. Parnell, Jr. has served as Vice President, Operations since
October 1996. Prior thereto, he was Vice President - Operations of Spectra from
November 1990 until October 1996. Mr. Parnell received a B.S. in Physics from
Utah State University and an M.B.A. from the University of Washington.
Brad R. Reddersen has served as Vice President, Chief Technology Officer
since December 1997, as Vice President, Engineering and Product Development from
April 1997 to November 1997 and as Vice President of New Products from July 1996
to March 1997. Prior thereto, he was Vice President, New Products of Spectra
from June 1993 until July 1996. Mr. Reddersen received a B.S. in Physics and an
M.S. in Optical Engineering from the University of Rochester.
<PAGE>
Matt D. Schler has served as Vice President, Engineering and Product
Development since November 1997. Prior thereto, he was Vice President of
Engineering at Percon Inc., Eugene, Oregon, a manufacturer of bar code reading
products, from February 1997 to November 1997 and Vice President of New
Products, Engineering Manager of Spectra from March 1992 until January 1997. Mr.
Schler received a B.S. degree in Electrical Engineering from the University of
Colorado.
Michael J. Stachura has served as Vice President, Finance since September
1997. Prior thereto, he was Vice President, Corporate Controller of Genencor
International, Inc. from January 1991 until August 1997. Mr. Stachura, a
certified public accountant, received a B.S. in Accounting from Canisius College
in Buffalo.
Roger D. Tedford has served as Vice President, Chief Information Officer
since November 1996. Prior thereto, he was Vice President, Treasurer and
Secretary of Spectra from November 1990 until November 1996. Mr. Tedford
received a B.A. in Accounting/Finance and an M.B.A. from California University
at Fullerton.
William J. Woodard has served as Vice President, Chief Financial Officer
and Treasurer since October 1996. Prior to that, he served as Vice President,
Finance and Treasurer from August 1994 until September 1996. Prior to joining
the Company, he was Vice President and Chief Financial Officer, Champion
Products (1987-1994). Mr. Woodard, a certified public accountant, received a
B.B.A. degree in Accounting from St. Bonaventure University.
<PAGE>
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
a) Market Information: The Company's common shares are traded on The Nasdaq
Stock MarketSM under the symbol PSCX. The following table sets forth, for the
periods indicated, the high and low sale prices for the Common Shares.
High Low
1997
Fourth Quarter....................... $13.50 $9.06
Third Quarter........................ $10.13 $6.63
Second Quarter....................... $ 7.88 $6.13
First Quarter........................ $ 9.00 $6.88
1996
Fourth Quarter....................... $ 9.63 $6.88
Third Quarter........................ $10.00 $7.00
Second Quarter....................... $13.50 $7.13
First Quarter........................ $ 9.75 $7.63
b) Holders: As of December 31, 1997, there were approximately 1,600 holders of
record of common shares.
c) Dividends: The Company has not paid any cash dividends since 1979 and does
not anticipate paying cash dividends in the foreseeable future. The Company's
senior debt and subordinated term loan agreements restrict payment of dividends
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
(All amounts in thousands, except per share data)
The selected consolidated financial data presented below for each of
the five years in the period ended December 31, 1997 have been derived from the
Company's consolidated financial statements, which statements have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports thereon. The selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- - ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales .................................. $207,840 $146,051 $87,516 $60,447 $38,894
Cost of sales .............................. 122,995 (1) 83,675 50,634 32,198 20,256
---------------------------------------------------------------------------
Gross profit ............................ 84,845 62,376 36,882 28,249 18,638
Operating expenses:
Engineering, research and development.... 13,018 11,069 4,962 3,810 3,754
Selling, general and administrative ..... 44,154 37,855 23,024 16,031 11,826
Write-off of intangible assets .......... -- -- -- -- 167
Acquisition related restructuring and
other costs ........................... -- 70,068 (2) -- 6,894 (3) --
Severance and other costs ............... 4,191 (1) -- -- -- --
Amortization of intangibles from
business acquisitions ................ 6,715 3,564 877 485 220
---------------------------------------------------------------------------
Income/(loss) from operations .............. 16,767 (60,180) 8,019 1,029 2,671
Interest and other income/expense .......... (12,016) (5,747) 676 110 45
---------------------------------------------------------------------------
Income/(loss) from continuing operations
before income tax provision/(benefit).. 4,751 (1) (65,927) (2) 8,695 1,139 (3) 2,716
Income tax provision/(benefit) ............. 1,761 (24,393) 3,246 527 865
---------------------------------------------------------------------------
Income/(loss) from continuing operations.... 2,990 (41,534) 5,449 612 1,851
Loss from discontinued operations ......... (101) (5,446) -- -- --
---------------------------------------------------------------------------
Net income/(loss) ........................ $ 2,889 (1) $(46,980) (2) $ 5,449 $ 612 (3) $ 1,851
===========================================================================
Net income/(loss) per common and common equivalent share:
Basic:
Continuing operations .................. $0.27 $(3.96) $0.58 $0.08 $0.26
Discontinued operations ................ (0.01) (0.52) -- -- --
===========================================================================
Net income/(loss) ...................... $0.26 (1) $(4.48) (2) $0.58 $0.08 (3) $0.26
===========================================================================
Diluted:
Continuing operations .................. $0.25 $(3.96) $0.54 $0.08 $0.25
Discontinued operations ................ (0.01) (0.52) -- -- --
===========================================================================
Net income/(loss) ...................... $0.24 (1) $(4.48) (2) $0.54 $0.08 (3) $0.25
===========================================================================
Weighted average number of common and
common equivalent shares outstanding:
Basic ................................. 11,197 10,490 9,329 7,319 7,202
Diluted ............................... 11,843 10,490 10,013 7,617 7,476
</TABLE>
(1) Severance and other costs reduced 1997 income before income taxes, net
income, basic EPS and diluted EPS by $5.2 million, $3.3 million, $0.29 and
$0.28, respectively.
(2) The acquisition related restructuring and other costs reduced 1996 income
before income taxes, net income, basic EPS and diluted EPS by $70.1 million,
$44.2 million, $4.21 and $4.21, respectively.
(3) The acquisition related restructuring and other costs reduced 1994 income
before income taxes, net income, basic EPS and diluted EPS by $6.9 million, $4.5
million, $0.61 and $0.59, respectively.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents .................. $2,271 $10,838 $5,538 $2,720 $9,120
Working capital ............................ 12,112 13,320 20,397 8,014 11,779
Total assets ............................... 172,798 183,361 71,237 52,763 32,063
Long-term debt, including current maturities 108,554 127,453 623 13,609 1,806
Total shareholders' equity ................. 29,330 15,301 53,327 22,233 21,265
</TABLE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this report.
Results of Operations
The following table sets forth, for the years indicated, certain
consolidated financial data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- ----------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales ................................. $207,840 100.0% $146,051 100.0% $87,516 100.0%
Cost of sales ............................. 122,995 (1) 59.2 83,675 57.3 50,634 57.9
----------- --------- ----------- -------- ---------- ----------
Gross profit ............................ 84,845 40.8 62,376 42.7 36,882 42.1
Operating expenses:
Engineering, research and development ... 13,018 6.3 11,069 7.6 4,962 5.7
Selling, general and administrative ..... 44,154 21.2 37,855 25.9 23,024 26.3
Severance and other costs ............... 4,191 (1) 2.0 -- -- -- --
Acquisition related restructuring and
other costs ........................... -- -- 70,068 (2) 48.0 -- --
Amortization of intangibles from business
acquisitions ......................... 6,715 3.2 3,564 2.4 877 1.0
----------- --------- ----------- -------- ---------- ----------
Income/(loss) from operations ............ 16,767 8.1 (60,180) (41.2) 8,019 9.1
Interest and other income/(expense) ....... (12,016) (5.8) (5,747) (3.9) 676 0.8
----------- --------- ----------- -------- ---------- ----------
Income/(loss) from continuing operations
before income tax provision/(benefit)...... 4,751 (1) 2.3 (65,927) (2) (45.1) 8,695 9.9
Income tax provision/(benefit) ............ 1,761 0.9 (24,393) (16.7) 3,246 3.7
----------- --------- ----------- -------- ---------- ----------
Income/(loss) from continuing operations .. 2,990 1.4 (41,534) (28.4) 5,449 6.2
Loss from discontinued operations ......... (101) -- (5,446) (3.7) -- --
=========== ========= =========== ======== ========== ==========
Net income/(loss) ......................... $ 2,889 (1) 1.4% $ (46,980) (2) (32.1%) $5,449 6.2%
=========== ========= =========== ======== ========== ==========
</TABLE>
(1) Severance and other costs reduced 1997 income before income taxes and
net income by $5.2 million and $3.3 million, respectively.
(2) The acquisition related restructuring and other costs reduced 1996
income before income taxes and net income by $70.1 million and $44.2
million, respectively.
<PAGE>
Overview
Nineteen ninety-seven was the first full year in which the Company included
Spectra in its consolidated financial results. The Spectra acquisition was
accounted for as a purchase and is included in the 1996 financial statements
since July 12, 1996, the acquisition date.
During the second half of 1997, the Company's focus was on improving operational
results. In the second half of 1997, income from continuing operations improved
327% versus the first half of 1997. In the fourth quarter, the Company's net
income of $2.8 million was a record quarterly performance. The Company completed
a private equity placement with net proceeds of $10.2 million and implemented
certain actions which are expected to reduce annualized operating expenses by
$6.0 million. The Company expects that 1998 results will further reflect the
benefits of these initiatives.
For the Year Ended December 31, 1997
Net sales of $207.8 million for the year ended December 31, 1997 increased 42%
versus 1996. The increase in net sales is primarily due to the inclusion of
Spectra product sales for the full year in 1997 and increased sales volume
offset by lower average selling prices. International net sales increased 73%
over the prior year primarily due to the Spectra acquisition and represented 46%
of sales versus 38% in 1996.
Gross profit of $84.8 million for the year ended December 31, 1997 increased 36%
versus 1996. As a percentage of sales, gross profit was 40.8% in 1997 compared
to 42.7% in 1996. The increase in gross profit dollars is primarily due to the
inclusion of Spectra for the full year, while the decrease in gross profit as a
percentage of sales is primarily due to a change in the mix of products and
lower selling prices for handheld and fixed position scanner products and the
$1.0 million inventory write-off recorded in the second quarter for the
discontinuation of certain products to streamline the Company's product lines.
Engineering, research and development (ER&D) expenses of $13.0 million for the
year ended December 31, 1997 increased $1.9 million or 18% versus 1996. As a
percentage of sales, ER&D was 6.3% versus 7.6% in 1996. The dollar increase in
1997 was primarily due to the inclusion of Spectra for the full year in 1997. As
a result of efficiencies developed due to the integration of Spectra, ER&D as a
percentage of sales declined in 1997.
Selling, general and administrative (SG&A) expenses of $44.2 million for the
year ended December 31, 1997 increased $6.3 million or 16.6% versus 1996. As a
percentage of sales, SG&A declined to 21.2% in 1997 from 25.9% in 1996. The 1997
dollar increase is due to the inclusion of Spectra for the full year in 1997.
The decrease in SG&A as a percentage of sales is a result of efficiencies
developed due to the integration of Spectra. In addition, the Company is now
operating under the Spectra-Symbol License Agreement which resulted in a lower
royalty expense.
During the second quarter of 1997, the Company recorded a one-time pretax charge
of $4.2 million for severance and other costs. Of the total charge,
approximately $2.3 million was associated with the Severance Agreement with the
former CEO, $1.2 million was for employee severance and benefit costs for the
elimination of approximately 30 positions including several senior executives,
and $0.7 million was for the centralization of the research and development
efforts and relocation of manufacturing of certain product lines between its two
manufacturing facilities. Accrued expenses for these activities as of December
31, 1997 was approximately $2.9 million, of which $1.1 million related to
long-term contractual obligations. These costs and the inventory write-off
reduced 1997 income before income taxes, net income, basic EPS and diluted EPS
by $5.2 million, $3.3 million, $0.29 and $0.28, respectively.
<PAGE>
The Company's effective tax rate was 37.1% in 1997 versus 37.0% in 1996.
For the Year Ended December 31, 1996
Net sales of $146.1 million for the year ended December 31, 1996 increased $58.5
million or 67% versus 1995. The increase in net sales was due to the inclusion
of Spectra product sales offset, in part, by the lower sales volumes of the
Company's scan engine products. International sales increased 185% in 1996
primarily due to the Spectra acquisition and represented 38% of sales versus 22%
in 1995.
Gross profit of $62.4 million for the year ended December 31, 1996 increased 69%
versus 1995. As a percentage of sales, gross profit was 42.7% in 1996 up from
42.1% in 1995. The increase in gross profit dollars and percentage of sales was
primarily due to the inclusion of Spectra.
ER&D expenses of $11.1 million for the year ended December 31, 1996 increased
$6.1 million or 123% versus 1995. As a percentage of sales, ER&D was 7.6%, an
increase from 5.7% in 1995. The 1996 dollar increase was primarily due to the
inclusion of Spectra, as well as increased expenses related to the Company's new
product development activities for its handheld and fixed position scanner
products.
SG&A expenses of $37.9 million for the year ended December 31, 1996 increased
$14.8 million or 64% versus 1995. As a percentage of sales, SG&A declined to
25.9% in 1996 from 26.3% in 1995. The 1996 dollar increase was primarily related
to the inclusion of Spectra, start-up costs associated with the Company's new
subsidiary responsible for sales and support in South and Central America and
increased patent related expenses.
During the third quarter of 1996, the Company recorded a one-time, pretax charge
of $10.0 million for the costs of restructuring its existing operations with
those of Spectra which was acquired in July 1996. Of the total restructuring
charge, approximately $5.0 million was associated with the closing of the
Company's Sanford, Florida manufacturing facility, $3.6 million was related to
the write-off of previously existing intangible and tangible assets and $1.4
million was recorded for employee severance and benefit costs for the
elimination of seven positions. As of December 31, 1997, all positions targeted
in the restructuring program have been eliminated. Restructuring activities are
expected to be substantially complete by the end of the first quarter of 1998.
The restructuring accrual as of December 31, 1997 was approximately $1.0
million.
In addition, in the third quarter of 1996, the Company allocated $60.1 million
of the Spectra purchase price to acquired in-process research and development
projects, which represents the estimated fair values related to these projects
determined by an independent appraisal. Proven valuation procedures and
techniques were utilized in determining the fair market value of each intangible
asset. The development technologies were evaluated to determine that there were
no alternative future uses. Such evaluation consisted of a specific review of
the efforts, including the overall objectives of the project, progress toward
the objectives and uniqueness of the developments toward these objectives. To
bring these projects to fruition, high risk developmental issues need to be
resolved which will require substantial additional effort and testing.
Therefore, technological feasibility of these new products has not yet been
achieved. As these projects had not reached technological feasibility and
alternative future use of these developmental technologies, apart from the
objectives of the individual projects did not exist, these costs were expensed
as of the acquisition date. The acquisition related restructuring and other
costs reduced 1996 income before income taxes, net income, basic EPS and diluted
EPS by $70.1 million, $44.2 million, $4.21 and $4.21, respectively.
<PAGE>
The Company's effective tax rate was 37.0% in 1996 versus 37.3% in 1995. In
1996, the Company recognized a $24.4 million income tax benefit as a result of
the acquisition related restructuring and other costs discussed above.
Discontinued Operations
During the third quarter of 1996, the Company adopted a plan to dispose of its
TxCOM subsidiary. TxCOM was acquired as a part of the Spectra acquisition.
Results from operations of TxCOM were a gain of $0.2 million in 1997 and a loss
of $0.2 million in 1996. Disposal of TxCOM, which occurred in June 1997,
resulted in the recording of losses of $ 0.3 million in 1997 and $5.2 million in
1996. These losses include the write-down of the assets to their net realizable
value and the costs of disposing of the subsidiary, net of applicable tax
benefits.
Liquidity and Capital Resources
Current assets declined $3.2 million from December 31, 1996 primarily due to
decreased cash balances which were utilized to reduce the outstanding balance of
the revolving credit facility, offset by increased levels of accounts receivable
from increased sales in Europe where customers have longer credit terms. Current
liabilities declined $2.0 million from December 31, 1996 primarily due to
reduced accrued expenses and acquisition related restructuring costs, offset by
an increase in the current portion of long-term debt. As a result, working
capital decreased $ 1.2 million in 1997.
In 1996, current assets increased $23.2 million primarily due to increased
accounts receivable and inventory levels due to the acquisition of Spectra.
Current liabilities increased $30.3 million in 1996 primarily due to accrued
acquisition costs, restructuring costs and increased accounts payable to support
higher operating levels. As a result, working capital decreased $7.1 million
from 1995 to 1996.
Property plant and equipment expenditures totaled $6.6 million in 1997 and $4.8
million in 1996. The 1997 expenditures primarily related to manufacturing and
research equipment and new product tooling. The 1996 expenditures primarily
related to manufacturing equipment and new product tooling.
In September 1997, the Company completed a private placement of equity with
Hydra Investissements S.A., a Luxembourg Corporation (the Purchaser). The
Company issued and sold 110 thousand shares of Series A Convertible Preferred
Shares (the Preferred Shares) which are convertible into 1.375 million Common
Shares. In connection with the issuance of the Preferred Shares, a warrant
evidencing the right to purchase an aggregate of 180 thousand Common Shares of
the Company was issued to the Purchaser. This warrant has an exercise price of
$8.00 per share and may be exercised before September 10, 2001. As a result, the
Purchaser is the beneficial owner of 1.555 million Common Shares of the Company.
The net proceeds to the Company from the offering were $10.2 million. The
Company used the proceeds for working capital purposes and to repay a portion of
its senior revolving credit facility.
The long-term debt-to-capital percentage was 76.6% at December 31, 1997 versus
88.5% at December 31,1996 primarily due to the private placement described
above. At December 31, 1997, liquidity immediately available to the Company
consisted of cash and cash equivalents of approximately $2.3 million. The
Company's credit facilities consist of senior term loans of $ 71.0 million, a
senior revolving credit facility of $20.0 million and a subordinated term loan
of $30.0 million. The Company has $104.0 million outstanding on these
facilities. The Company believes that its cash resources and available credit
facilities, in addition to its operating cash flows, are sufficient to meet its
requirements for the next twelve months.
In the opinion of management, inflation has not had a material effect on the
operations of the Company.
<PAGE>
The Company generates a portion of its sales from customers in the Asia Pacific
region. Less than 5% of consolidated accounts receivable as of December 31, 1997
were generated from these customers. All accounts are remitted in U.S. dollars.
The Company believes it has appropriate reserves such that the current economic
crisis and continued volatility in exchange rates in this region will not
materially affect results of operations of the Company.
The Company has evaluated its information technology infrastructure to ensure
that computer systems and software will recognize and process the year 2000 and
beyond with no significant effect on customers or disruptions to business
operations. The Company does not expect the cost of modifying its information
technology infrastructure for Year 2000 compliance to be material to its
financial condition or results of operations. The Company does not anticipate
any material disruption in its operations as a result of any failure by the
Company to be in compliance.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This item is submitted as a separate section of this report. See Exhibits
in Part IV.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
matters.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is presented under the caption
entitled "Election of Directors - Information Concerning Nominees for Directors
and Other Incumbent Members of the Board of Directors" contained in the
definitive proxy statement issued in connection with the Annual Meeting of
Shareholders to be held May 7, 1998 and is incorporated in this report by
reference thereto. The information regarding Executive Officers of the
Registrant is found in Part I of this report.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item is presented under the caption
entitled "Executive Officer Compensation" contained in the definitive proxy
statement issued in connection with the Annual Meeting of Shareholders to be
held May 7, 1998 and is incorporated in this report by reference thereto,
except, however, the sections entitled "Performance Graph" and the "Report of
the Compensation Committee of the Board of Directors" are not incorporated in
this report by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is presented under the caption
entitled "Security Ownership of Certain Beneficial Owners and Management"
contained in the definitive proxy statement issued in connection with the Annual
Meeting of Shareholders to be held May 7, 1998 and is incorporated in this
report by reference thereto.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is presented under the caption
"Executive Officer Compensation - Interest of Directors and Management in
Certain Transactions" contained in the definitive proxy statement issued in
connection with the Annual Meeting of Shareholders to be held May 7, 1998 and is
incorporated in this report by reference thereto.
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 Financial Statements Page
Report of Independent Public Accountants...............34
Consolidated Financial Statements......................35
Notes to Consolidated Financial Statements.............39
(a) 2 Financial Statement Schedules:
Included in Part IV of this report:
Schedule II Valuation and Qualifying Accounts.......58
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
consolidated financial statements or notes thereto.
(a) 3 Exhibits:
2.1 Stock Purchase Agreement among BTR Dunlop Inc., Electro Corporation and
LazerData Holdings, Inc. dated December 21, 1994 (incorporated by reference
to Exhibit 2.1 of the Company's Current Report on Form 8-K dated December
21, 1994).
2.2 Asset and Stock Purchase Agreement among PSC Inc., Spectra-Physics, Inc.
and Spectra-Physics Holdings, S.A. dated May 20, 1996, as amended by letter
dated July 12, 1996 (incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K dated July 29, 1996 (the "1996 8-K")).
3.1 Restated Certificate of Incorporation of the Company and amendments thereto
(incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report
on Form 10-Q for the Quarter ended June 30, 1996).
3.2 Certificate of Amendment of Certificate of Incorporation of PSC Inc. filed
with the Secretary of State of the State of New York on September 5, 1997
(incorporated by reference to Exhibit 3.1 of the Company's Current Report
on Form 8-K dated as of September 10, 1997 (the "1997 Form 8-K")).
3.3 Certificate of Amendment of Certificate of Incorporation of PSC Inc. filed
with the Secretary of State of the State of New York on December 30, 1997
.........................................................................59
3.4 Bylaws of the Company as currently in effect (incorporated by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994).
4.1 Form of Certificate for Common Shares of the Company (incorporated by
reference to Exhibit 4.3 of the Company's Registration Statement on Form
S-3, effective March 24, 1995 (No. 33-89178)).
4.2 Form of the 11.25% Senior Subordinated Note of SpectraScan, Inc., due June
30, 2006 (Notes were issued to seven Purchasers in the aggregate principal
amount of $30,000,000) (incorporated by reference to Exhibit 4.1 of the
1996 8-K).
4.3 Form of Note Guarantee dated July 12, 1996 made by PSC Inc. and each of the
domestic subsidiaries of PSC Inc. to each of the purchasers of the Senior
Subordinated Notes (incorporated by reference to Exhibit 4.2 of the 1996
8-K).
<PAGE>
4.4 Form of Warrant issued to the Purchasers named in the Securities Purchase
Agreements dated July 12, 1996 (Warrants were issued to seven Purchasers
for an aggregate of 975,000 common shares of the Company) (incorporated by
reference to Exhibit 4.3 of the 1996 8-K).
4.5 Subordinated Installment Promissory Note of PSC Acquisition, Inc. issued to
Spectra-Physics, Inc. on July 12, 1996 in the principal amount of
$5,000,000 (incorporated by reference to Exhibit 4.4 of the 1996 8-K).
4.6 Note Guarantee dated July 12, 1996 made by PSC Inc. to Spectra-Physics,
Inc. (incorporated by reference to Exhibit 4.5 of the 1996 8-K).
4.7 Form of Certificate for Preferred Stock issued to Hydra Investissements
S.A. on September 10, 1997 (incorporated by reference to Exhibit 4.1 of the
1997 Form 8-K).
4.8 Form of Warrant issued to Hydra Investissements S.A. on September 10, 1997
(incorporated by reference to Exhibit 4.2 of the 1997 Form 8-K).
4.9 Form of Rights Agreement dated as of December 30, 1997 between PSC Inc. and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent, which includes
as Exhibit A - Form of Right Certificate; Exhibit B - Summary of Rights to
Purchase Preferred Stock; and Exhibit C - Form of Certificate of Amendment
designating the relative rights, preferences and limitations of the Series
B Preferred Shares (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K dated December 30, 1997).
10.1*Severance Agreement between the Company and L. Michael Hone, dated April
30, 1997 (incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the quarter ended April 4, 1997).
10.2*Agreement between the Company and Robert S. Ehrlich as of June 2, 1997
(incorporated by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended July 4, 1997 (the "July 4, 1997
Form 10-Q")).
10.3*Form of Change-in-Control/Severance Agreement between the Company and
certain of its executive officers (incorporated by reference to Exhibit
10.3 of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "December 31,1996 Form 10-K")).
10.4*Form of third party severance letter between Spectra-Physics Scanning
Systems, Inc. and certain executive officers (incorporated by reference to
Exhibit 10.4 of the December 31, 1996 Form 10-K).
10.5*Employment Agreement between the Company and Robert C. Strandberg, as of
June 2, 1997 (incorporated by reference to Exhibit 10.1 of the July 4, 1997
Form 10-Q).
10.6*Severance and Consulting Agreement between the Company and Jay M. Eastman
dated as of July 15, 1997................................................64
10.7*Form of Indemnification Agreement between the Company and its Directors and
Officers (incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1991).
10.8*Plan for Deferral of Directors' Fees dated as of March 4, 1992
(incorporated by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1992).
10.9*Amended and Restated 1987 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994).
<PAGE>
10.10* 1994 Stock Option Plan (incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-8 dated June 20, 1995 No.
33-60389).
10.11* 1995 Employee Stock Purchase Plan (incorporated by reference to Exhibit
4.1 of the Company's Registration Statement on Form S-8 dated June 19, 1995
No. 33-60343).
10.12* 1997 Management Incentive Plan.........................................74
10.13* Third Restatement of the PSC Inc. 401(K) Plan dated as of July 1,
1997.....................................................................78
10.14Credit Agreement dated July 12, 1996 among PSC Acquisition, Inc., as
Borrower, PSC Inc. and Guarantor, the Initial Lenders named therein and
Fleet Bank as Initial Issuing Bank and Administrative Agent, together with
Form of Term A Note, Form of Term B Note and Form of Working Capital Note
(incorporated by reference to Exhibit 10.2 of the 1996 8-K).
10.15First Amendment dated as of September 27, 1996 to the Credit Agreement
dated as of July 12, 1996 among PSC Scanning Inc., as Borrower, PSC Inc.,
as Guarantor, the financial institutions party thereto and Fleet Bank as
initial Issuing Bank and administrative agent (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 27, 1996 (the "September 27, 1996 Form 10-Q")).
10.16Second Amendment dated as of July 4, 1997 to the Credit Agreement dated as
of July 12, 1996 among PSC Scanning Inc., as Borrower, PSC Inc., as
Guarantor, the financial institutions party thereto and Fleet Bank as
initial Issuing Bank and administrative agent (incorporated by reference to
Exhibit 10.3 of the July 4, 1997 Form 10-Q).
10.17Amendment Three dated as of August 13, 1997 to the Credit Agreement dated
as of July 12, 1996 among PSC Scanning Inc., as Borrower, PSC Inc., as
Guarantor, the financial institutions party thereto and Fleet Bank as
initial Issuing Bank and administrative agent (incorporated by reference to
Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q/A for the
quarter ended July 4, 1997 (the "July 4, 1997 Form 10-Q/A").
10.18Consent dated as of December 8, 1997 to the Credit Agreement dated as of
July 12, 1996 among PSC Scanning Inc., as Borrower, PSC Inc., as Guarantor,
the financial institutions party thereto and Fleet Bank as initial Issuing
Bank and administrative agent...........................................107
10.19Securities Purchase Agreement dated July 12, 1996 among PSC Inc.,
SpectraScan, Inc. and Equitable Life Assurance Society of the United States
(separate but identical Securities Purchase Agreements were addressed to
each of the Other Purchasers of the Senior Subordinated Notes)
(incorporated by reference to Exhibit 10.1 of the 1996 8-K).
10.20Amendment No. 1 dated October 10, 1996 to Securities Purchase Agreements
among PSC Inc., PSC Scanning Inc., and Equitable Life Assurance Society of
the United States (separate but identical amendments were addressed to each
of the other purchasers of the Senior Subordinated Notes) (incorporated by
reference to Exhibit 10.2 of the September 27, 1996 10-Q).
10.21Amendment No. 2 dated July 4, 1997 to Securities Purchase Agreements among
PSC Inc., PSC Scanning Inc., and Equitable Life Assurance Society of the
United States (separate but identical amendments were addressed to each of
the other purchasers of the Senior Subordinated Notes) (incorporated by
reference to Exhibit 10.4 of the July 4, 1997 Form 10-Q).
<PAGE>
10.22Amendment No. 3 dated August 18, 1997 to Securities Purchase Agreements
and Warrants among PSC Inc., PSC Scanning Inc., and the Purchasers named in
the Securities Purchase Agreements (incorporated by reference to Exhibit
10.6 of the July 4, 1997 Form 10-Q/A).
10.23Consent dated as of December 29, 1997 to Securities Purchase Agreements
and Warrants among PSC Inc., PSC Scanning Inc., and the Purchasers named in
the Securities Purchase agreements......................................109
10.24Stock and Warrant Purchase Agreement dated September 4, 1997 by and
between PSC Inc. and Hydra Investissements S.A. (incorporated by reference
to Exhibit 10.1 of the 1997 Form 8-K).
10.25Registration and Investor Rights Agreement dated September 10, 1997 by and
between PSC Inc. and Hydra Investissements S.A. (incorporated by reference
to Exhibit 10.2 of the 1997 Form 8-K).
22.1 Subsidiaries of Registrant..............................................115
24.1 Consent of Independent Public Accountant, dated March 25,
1998....................................................................116
(b):Reports on Form 8-K:
Report on Form 8-K, dated December 30, 1997
* Management contract or compensatory plan or arrangement
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 24, 1998 PSC Inc.
/s/ Robert C. Strandberg
Robert C. Strandberg
President and Chief Executive Officer
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.
Date: March 24, 1998 Principal Executive Officer
/s/ Robert C. Strandberg
Robert C. Strandberg
President and Chief Executive Officer
Date: March 24, 1998 Chief Financial Officer
/s/ William J. Woodard
William J. Woodard
Vice President, Chief Financial
Officer and Treasurer
Date: March 24, 1998 Principal Accounting Officer
/s/ Michael J. Stachura
Michael J. Stachura
Vice President, Finance
<PAGE>
Date: March 24, 1998 /s/ Jay M. Eastman
------------------
Jay M. Eastman
Director
Date: March 24, 1998 /s/ Robert S. Ehrlich
---------------------
Robert S. Ehrlich
Director, Chairman of the Board
Date: March 24, 1998 /s/ James W. Henry
------------------
James W. Henry
Director
Date: March 24, 1998 /s/ Donald K. Hess
------------------
Donald K. Hess
Director
Date: March 24, 1998 /s/ Thomas J. Morgan
--------------------
Thomas J. Morgan
Director
Date: March 24, 1998 /s/ James C. O'Shea
-------------------
James C. O'Shea
Director
Date: March 24, 1998 /s/ Jack E. Rosenfeld
---------------------
Jack E. Rosenfeld
Director
Date: March 24, 1998 /s/ Justin L. Vigdor
--------------------
Justin L. Vigdor
Director
Date: March 24, 1998 /s/ Romano Volta
----------------
Romano Volta
Director
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PSC Inc.:
We have audited the accompanying consolidated balance sheets of PSC Inc. (a New
York corporation) and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the 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 financial position of PSC Inc. and subsidiaries as of
December 31, 1997 and 1996, and the 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.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a)2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Rochester, New York
January 30, 1998
<PAGE>
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
<CAPTION>
ASSETS
December 31,
-------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................. $ 2,271 $ 10,838
Accounts receivable, net of allowance for doubtful accounts
of $1,169 in 1997 and $1,101 in 1996 .................... 35,094 29,501
Inventories, net .......................................... 17,723 18,306
Prepaid expenses and other ................................ 1,569 1,244
-------- --------
Total current assets ................................... 56,657 59,889
Property, Plant and Equipment, net .......................... 35,469 35,612
Deferred Tax Assets ......................................... 23,576 24,773
Intangible and Other Assets, net ............................ 57,096 63,087
======== ========
Total assets ........................................... $172,798 $183,361
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ........................ $ 12,406 $ 9,459
Accounts payable ......................................... 18,000 15,681
Accrued expenses ......................................... 7,405 9,911
Accrued payroll and related employee benefits ............ 5,559 7,509
Accrued acquisition related restructuring costs........... 1,175 4,009
-------- --------
Total current liabilities ............................. 44,545 46,569
Long-Term Debt, less current maturities .................... 96,148 117,994
Other Long-Term Liabilities ................................ 2,775 3,497
Commitments and Contingencies
Shareholders' Equity:
Preferred shares, par value $.01; 10,000 authorized,
110 and 0 issued and outstanding at December 31,
1997 and 1996, respectively.
($11,000 aggregate liquidation value) ................... 1 --
Common shares, par value $.01; 40,000 authorized,
11,390 and 11,161 issued at December 31, 1997 and 1996,
respectively ............................................ 114 112
Additional paid-in capital ............................. 66,734 54,891
Retained earnings/(Accumulated deficit) ................ (36,543) (39,432)
Cumulative translation adjustment ...................... (739) (33)
Less - 39 treasury shares, repurchased at cost ......... (237) (237)
-------------- -------------
Total shareholders' equity 29,330 15,301
============== =============
Total liabilities and shareholders' equity $172,798 $183,361
============== =============
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
<PAGE>
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net Sales ................................................ $207,840 $146,051 $87,516
Cost of Sales ............................................ 122,995 83,675 50,634
------------- ------------- -------------
Gross profit ........................................ 84,845 62,376 36,882
Operating Expenses:
Engineering, research and development ............... 13,018 11,069 4,962
Selling, general and administrative ................. 44,154 37,855 23,024
Amortization of intangibles resulting from business
acquisitions ................................. 6,715 3,564 877
Severance and other costs ........................... 4,191 -- --
Acquisition related restructuring and other costs ... -- 70,068 --
------------- ------------- -------------
Income/(loss) from operations ................. 16,767 (60,180) 8,019
Interest and Other Income/(Expense):
Interest expense .................................... (12,563) (5,835) (306)
Interest income ..................................... 440 568 594
Other income/(expense) .............................. 107 (480) 388
------------- ------------- -------------
(12,016) (5,747) 676
------------- ------------- -------------
Income/(Loss) from Continuing Operations Before
Income Tax Provision/(Benefit) ...................... 4,751 (65,927) 8,695
Income Tax Provision/(Benefit) ........................... 1,761 (24,393) 3,246
------------- ------------- -------------
Income/(Loss) from Continuing Operations ................. 2,990 (41,534) 5,449
Discontinued Operations:
Gain/(loss)from discontinued operations, net of tax . 164 (229) --
Loss on disposal of discontinued operations ......... (265) (5,217) --
------------- ------------- -------------
Total Loss from Discontinued Operations .................. (101) (5,446) --
============= ============= =============
Net Income/(Loss) ........................................ $2,889 $(46,980) $5,449
============= ============= =============
Net Income/(Loss) Per Common and
Common Equivalent Share:
Basic:
Continuing operations ............................... $0.27 $(3.96) $0.58
Discontinued operations ............................. (0.01) (0.52) --
============= ============= =============
Net income/(loss) ................................... $0.26 $(4.48) $0.58
============= ============= =============
Diluted:
Continuing operations ............................... $0.25 $(3.96) $0.54
Discontinued operations ............................. (0.01) (0.52) --
============= ============= =============
Net income/(loss) ................................... $0.24 $(4.48) $0.54
============= ============= =============
Weighted Average Number of Common
and Common Equivalent Shares Outstanding:
Basic ............................................... 11,197 10,490 9,329
Diluted ............................................. 11,843 10,490 10,013
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
<PAGE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(All amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
---------- -------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Preferred Shares
Balance, beginning of year .......... -- $-- -- $-- -- $--
Issuance of preferred shares ........ 110 1 -- -- -- --
---------- -------------- ---------- ------------- ---------- -----------
Balance, end of year ............... 110 $1 -- $-- -- $--
========== ============== ========== ============= ========== ===========
Common Shares
Balance, beginning of year .......... 11,122 $112 9,946 $100 7,433 $ 75
Issuance of shares pursuant to
Employee Stock Purchase Plan ...... 67 1 26 -- 9 --
Issuance of common shares ........... -- -- 977 10 2,310 23
Exercise of options ................. 162 1 173 2 194 2
========== ============== ========== ============= ========== ===========
Balance, end of year ................ 11,351 $114 11,122 $112 9,946 $100
========== ============== ========== ============= ========== ===========
Additional Paid-In Capital
Balance, beginning of year .......... $54,891 $ 45,881 $20,288
Issuance of shares pursuant to
Employee Stock Purchase Plan ...... 390 201 87
Exercise of options 1,150 1,079 1,269
Issuance of common shares, net ...... -- 6,990 23,552
Issuance of preferred shares, net ... 9,595 -- --
Issuance of warrants ................ 617 600 --
Tax benefit from exercise or early
disposition of stock options ...... 91 140 685
============== ============= ===========
Balance, end of year ................ $66,734 $ 54,891 $45,881
============== ============= ===========
Retained Earnings/(Accumulated
Deficit)
Balance, beginning of year .......... $(39,432) $ 7,548 $2,099
Net income/(loss) ................... 2,889 (46,980) 5,449
============== ============= ===========
Balance, end of year ................ $(36,543) $(39,432) $7,548
============== ============= ===========
Cumulative Translation Adjustment
Balance, beginning of year .......... $( 33) $ 35 $ 8
Translation adjustment .............. (706) (68) 27
============== ============= ===========
Balance, end of year ................ $ (739) $( 33) $ 35
============== ============= ===========
Treasury Shares
Balance, beginning of year .......... $(237) $(237) $(237)
Shares repurchased .................. -- -- --
============== ============= ===========
Balance, end of year ................ $(237) $(237) $(237)
============== ============= ===========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
<PAGE>
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) ................................................ $2,889 ($46,980) $5,449
Adjustments to reconcile net income/(loss) to
net cash provided by operating activities:
Depreciation and amortization .............................. 13,735 9,169 2,784
(Gain)/loss on disposition of assets ....................... 109 3,860 (161)
Acquired research and development write-off ................ -- 60,100 --
Loss on disposal of discontinued operations ................ 265 5,217 --
Deferred tax assets ........................................ 1,197 (23,033) 668
(Increase) decrease in assets:
Accounts receivable, net ................................ (6,705) 1,760 (2,669)
Inventories ............................................. 581 (1,199) (4,031)
Prepaid expenses and other .............................. 80 (147) 301
Increase (decrease) in liabilities:
Accounts payable ........................................ 2,467 1,461 699
Accrued expenses ........................................ (3,190) (5,535) 1,297
Accrued payroll and related employee benefits ........... (1,855) 6,272 (333)
Accrued acquisition related restructuring costs ......... (3,830) 4,278 (1,107)
----------- ------------ -----------
Net cash provided by operating activities ............. 5,743 15,223 2,897
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................. (6,557) (4,843) (7,418)
Cash paid for acquisition of business ............................ -- (10,124) --
Additions to intangible and other assets ......................... (343) (1,238) (4,443)
Issuance of notes for stock option activity ...................... -- (382) (593)
Repayment of notes for stock option activity ..................... 278 -- --
Proceeds from sale of marketable securities ...................... -- 4,167 --
----------- ------------ -----------
Net cash used in investing activities ................. (6,622) (12,420) (12,454)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt ...................................... 5,000 --- 1,046
Additions to other long-term liabilities ......................... 1,398 648 230
Principal repayments of long-term debt ........................... (23,899) (105) (14,126)
Payment of other long-term liabilities ........................... (655) -- (420)
Exercise of options and the issuance of common shares and warrants 1,542 1,882 24,933
Issuance of preferred shares and warrants, net ................... 10,213 -- --
Tax benefit from exercise or early disposition of stock options .. 91 140 685
----------- ------------ -----------
Net cash (used in) provided by financing activities ... (6,310) 2,565 12,348
----------- ------------ -----------
Foreign currency translation ..................................... (1,378) (68) 27
----------- ------------ -----------
Net Increase (Decrease) in Cash and Cash Equivalents ............. (8,567) 5,300 2,818
CASH AND CASH EQUIVALENTS:
Beginning of year ................................ 10,838 5,538 2,720
=========== ============ ===========
End of year ...................................... $ 2,271 $10,838 $5,538
=========== ============ ===========
Supplemental disclosures of cash flow information:
Interest paid .................................................. $13,804 $3,994 $ 306
Income taxes paid .............................................. $ 438 $ 833 $ 3,009
Capital leases ................................................. $ -- $ 35 $ 131
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
1. DESCRIPTION OF BUSINESS
PSC Inc. (the Company) manufactures the world's broadest line of
handheld and fixed position bar code readers, verifiers, integrated sortation
and point-of-sale scanning systems. The Company has developed products for
automatic data collection at every stage of the product supply chain from raw
material, manufacturing and warehousing, to logistics, transportation, inventory
management and point-of-sale. These products are used throughout the world in
food, general retail, health care and other industries, and in government.
The Company's corporate headquarters are located in the Rochester, New
York suburb of Webster. The Company designs, manufactures, sells, distributes
and services its products from world-class manufacturing facilities in Webster,
New York and Eugene, Oregon. These products are sold through original equipment
manufacturers, value-added resellers, distributors, systems integrators and a
professional sales force worldwide. The Company has sales and service operations
in the Americas, Europe, Asia and Australia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts
of PSC Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less. The cost of the cash equivalents
approximates fair market value.
Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and includes certain
capitalized leases. For financial reporting purposes, depreciation and
amortization are computed using the straight-line method over the following
estimated useful lives:
Building and improvements 10-40 years
Office furniture and equipment 3-7 years
Production equipment 3-8 years
Leasehold improvements 3-15 years
Equipment under capital leases and leasehold improvements are amortized
using the straight-line method over the shorter of the estimated useful lives of
the assets or the lease term.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
Intangibles Resulting from Business Acquisitions
Intangibles resulting from business acquisitions represent the excess purchase
price over the fair value of net assets acquired and are amortized using the
straight-line method over five to ten years, their current estimated useful
lives.
Other Intangibles
Other intangibles, which consist of technology and license agreements,
patents and trademarks, are recorded at cost. Amortization is calculated on a
straight-line basis over periods ranging from two to five years, their current
estimated useful lives.
The Company reviews its long-lived assets, including certain
intangibles and goodwill, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-lived Assets and
Long-lived Assets to be Disposed of" for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. If such events or changes in circumstances are present, a loss is
recognized to the extent the carrying value of the asset is in excess of the sum
of the undiscounted cash flows expected to result from the use of the asset and
its eventual disposition.
Income Taxes
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109) "Accounting for Income
Taxes." SFAS No. 109 requires an asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for temporary differences between financial statement
and income tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using tax rates expected to apply to taxable income in
the years that the temporary differences are expected to be realized. In
addition, the amount of any future tax benefits is reduced by a valuation
allowance until it is more likely than not that such benefits will be realized.
Net Income per Common and Common Equivalent Share
In February 1997, Statement of Financial Accounting Standards No.
128 (SFAS No. 128), "Earnings Per Share" was issued. SFAS No. 128 replaces
Accounting Principles Board Opinion No. 15. SFAS No. 128 replaces primary
Earnings Per Share (EPS) with basic EPS. Basic EPS is computed by dividing
reported earnings available to common shareholders by the weighted average
shares outstanding during the year. No dilution for common share equivalents is
included. Fully diluted EPS, now called diluted EPS, also is required to be
presented. The Company adopted SFAS No. 128 retroactively for all periods
presented. Accordingly, the Company has restated its previously presented EPS
amounts.
Foreign Currency Translation
The financial statements of foreign operations are translated into
U.S. dollars in accordance with Statement of Financial Accounting Standards No.
52 "Foreign Currency Translation." Accordingly, all
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
assets and liabilities are translated at year-end exchange rates. The gains and
losses that result from this process are shown in the cumulative translation
adjustment account in the shareholders' equity section of the balance sheet.
Operating transactions are translated at weighted average rates prevailing
during the year. Transaction gains and losses are reflected in net income and
were not material.
Derivatives
The Company monitors its exposure to interest rate and foreign currency
exchange risk. The Company has limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company uses
derivative instruments solely to reduce the financial impact of these risks.
Interest Rate Risk:
The Company's exposure to interest rate changes relates to its
long-term debt. The Company has entered into interest rate swap agreements with
its senior lending banks in accordance with the terms of the senior credit
agreement. The Company uses these interest rate swap agreements to reduce its
exposure to interest rate changes. The differentials to be received or paid
under these interest rate swap agreements are recognized as a component of
interest expense in the consolidated statements of operations.
Foreign Currency Exchange Rate Risk:
The Company's exposure to foreign currency exchange changes relates
primarily to its international subsidiaries. Sales to certain countries are
denominated in their local currency. The Company may occasionally enter into
forward foreign exchange contracts as a hedge against currency fluctuations
relating to these foreign transactions and commitments denominated in foreign
currencies. The foreign exchange contracts generally have maturities of
approximately 30 days and require the Company to exchange foreign currencies for
U.S. dollars at maturity, at rates agreed to at the inception of the contracts.
Gains and losses on forward contracts are offset against the foreign exchange
gains and losses on the underlying hedged items and are recorded in the
Consolidated Statements of Operations. There were no foreign exchange contracts
outstanding at December 31, 1997.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade receivables,
other current assets, accounts payable, and amounts included in accruals meeting
the definition of a financial instrument, approximate fair value because of the
short-term maturity of these instruments. The carrying value and related
estimated fair values for the Company's remaining financial instruments are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Interest rate swap agreements $ -- $ 451 $ -- $ --
Long-term debt, including current portion $108,554 $108,554 $127,453 $127,453
</TABLE>
Based on borrowing rates currently available to the Company for loans with
similar terms and average maturities, the fair value of its debt approximates
its recorded value. Interest rate swap agreements are estimated by obtaining
quotes from brokers and reflecting the cost to terminate the agreements.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
Product Warranty
The Company's products have a warranty period of 12 to 30 months.
Estimated warranty costs are provided at the time of sale. The Company maintains
an accrual for warranty claims and adjusts this accrual periodically based on
historical experience and known warranty claims.
Research and Development Costs
All research and development costs are expensed as incurred.
Revenue Recognition
Revenue from sales of the Company's scanning products is recognized
upon shipment. In conjunction with these sales, field service maintenance
agreements are entered into for certain products. Maintenance revenues are
deferred and recognized ratably over the term of the related maintenance period,
which is typically one to three years. Revenue from sales of the Company's
self-checkout systems is recognized upon installation and acceptance from the
customer.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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.
Reclassification
Certain amounts in prior years have been reclassified to conform to the
1997 presentation.
3. ACQUISITIONS AND DISPOSITIONS
On July 12, 1996, the Company completed its purchase agreement with
Spectra-Physics AB of Sweden to acquire Spectra-Physics Scanning Systems, Inc.,
TxCOM S.A. and related businesses (Spectra). Spectra, which is headquartered in
Eugene, Oregon, is one of the world's leading manufacturers of countertop and
in-counter fixed position bar code scanners for retail point-of-sale
applications. The purchase price was approximately $140.0 million. The purchase
was funded by $125.0 million in cash, $10.0 million in the Company's common
shares less a $3.0 million discount as the shares were unregistered and a $5.0
million subordinated promissory note. The $125.0 million cash portion was funded
by a combination of the Company's cash, senior debt of $92.5 million and
subordinated debt of $30.0 million. The acquisition was accounted for as a
purchase and is included in the 1996 Consolidated Financial
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
Statements since the date of acquisition. The Company allocated $60.1 million of
the purchase price to acquired in-process research and development as required
by generally accepted accounting principles, resulting in a one-time charge to
the Company's earnings in the third quarter of 1996. The remaining excess of the
purchase price over the fair value of net assets acquired was approximately
$58.0 million and is being amortized on a straight-line basis over 10 years.
The following table sets forth the unaudited pro forma results of
operations of the Company for the years ended December 31, 1996 and 1995. The
unaudited pro forma results of operations assume that the operations of the
Company were combined with those of Spectra as if the acquisition occurred on
January 1, 1995. The unaudited pro forma results of operations are presented
after giving effect to certain adjustments for depreciation, amortization of
goodwill, interest expense on the acquisition financing and related income tax
effects. The unaudited pro forma results of operations were based upon currently
available information and upon certain assumptions that the Company believes
were reasonable. The unaudited pro forma results do not purport to be indicative
of the results that actually would have been achieved during the periods
indicated and are not intended to be indicative of future results.
Pro Forma
Twelve Months Ended
-------------------
12/31/96 12/31/95
---------- ---------
Net sales ...................................... $210,961 $189,143
Income/(loss) from operations .................. (51,800) 15,444
Income/(loss) from continuing operations ....... (40,148) 1,931
Total loss from discontinued operations ........ (5,446) --
Net income/(loss) .............................. (45,594) 1,931
Net income/(loss) per common and common
equivalent share:
Basic:
Continuing operations ....................... $ (3.83) $ 0.21
Discontinued operations ..................... (0.52) --
------ -----------
Net income/(loss) ........................... $ (4.35) $ 0.21
========== ==========
Diluted:
Continuing operations ....................... $ (3.65) $ 0.17
Discontinued operations ..................... (0.49) --
------ -----------
Net income/(loss) ........................... $ (4.14) $ 0.17
========== ==========
Weighted average shares outstanding:
Basic ....................................... 10,490 9,329
Diluted ..................................... 11,008 11,216
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
In connection with the acquisition, liabilities assumed and cash paid
were as follows:
Fair value assets acquired ............ $161,162
Liabilities assumed ................... 17,138
Total consideration paid ............ 144,024
Less issuance of stock ................ 7,000
Less amounts borrowed ................. 126,900
-------
Net cash paid for acquisition .......$ 10,124
=========
In April 1995, the Company completed the sale of substantially all of
the assets related to its image products business. This resulted in a gain of
approximately $161 which was included in other income in 1995.
4. INVENTORY
Inventory consists of the following at December 31:
1997 1996
----------- ------------
Raw materials ...... $10,979 $10,688
Work-in-process .... 3,727 3,547
Finished goods ..... 3,017
4,071
=========== ============
$17,723 $18,306
=========== ============
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following at
December 31:
1997 1996
------------ ------------
Land $ 2,312 $ 2,304
Building and improvements 17,782 17,592
Office furniture and equipment 11,169 9,583
Production equipment 16,529 13,849
Leasehold improvements 701 509
------------ ------------
48,493 43,837
Less: accumulated depreciation and amortization 13,024 8,225
============ ============
$35,469 $35,612
============ ============
Depreciation expense for 1997, 1996 and 1995 amounted to $6,478, $4,947 and
$1,673, respectively. Amortization of capital lease assets is included in
depreciation expense.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
6. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following at December 31:
1997 1996
------------ ------------
Intangibles resulting from business acquisitions $66,846 $65,750
Other intangibles 2,565 2,234
Other assets 691 1,341
------------- ------------
70,102 69,325
Less: accumulated amortization 13,006 6,238
------------ ------------
$57,096 $63,087
============ ============
Amortization expense for 1997, 1996 and 1995 amounted to $7,257, $4,222
and $1,111, respectively.
SCHEDULE 7. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
1997 1996
----------- -----------
Accrued warranty .......... $1,818 $1,641
Accrued royalty ........... 862 1,261
Accrued interest .......... 105 1,687
Accrued relocation ........ 939 1,185
Deferred revenue .......... 758 714
Other expenses ............ 2,923 3,423
=========== ===========
$7,405 $9,911
=========== ===========
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1997 1996
---------------- -------------
Senior term loan A ................. $ 47,000 $ 55,000
Senior term loan B ................. 24,000 25,000
Senior revolving credit ............ 3,000 12,500
Subordinated term loan ............. 29,488 29,428
Subordinated promissory note ....... 4,688 5,000
Other .............................. 378 525
---------------- -------------
108,554 127,453
Less: current maturities ........ 12,406 9,459
---------------- -------------
$ 96,148 $117,994
================ =============
During 1996, the Company negotiated a series of debt agreements in
connection with the funding of its acquisition of Spectra. Term loan A is a
senior loan with five lenders, having a final maturity in June
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
2001, at a current floating interest rate of 8.7% and a swapped fixed rate of
9.4%. Term loan B is a senior loan with four lenders, having a final maturity in
December 2002, at a current floating interest rate of 9.2% and a swapped fixed
rate of 9.9%. The swaps for both loans expire on September 30, 1998.
The revolving credit is with the term loan lenders, matures in 2001 and
has a current floating interest rate of 9.0%. The total revolving credit
facility is $20.0 million, of which $3.0 million is outstanding at December 31,
1997. The unused portion of the revolving credit facility is subject to a
commitment fee of between 0.375% and 0.5%. The senior debt facilities have
collateral in all of the assets of the Company.
The subordinated term loan is from five lenders, at a fixed rate of
11.25%, with principal payments starting in June 2003 and a final maturity in
June 2006. This debt has an associated unamortized discount of $512 which has
been netted against the total outstanding balance of $30.0 million.
The subordinated promissory note matures in 2001 and has a current
floating interest rate of 9.5%. The subordinated term loan and promissory note
are unsecured.
The other debt is principally composed of capital lease obligations.
The senior debt and subordinated term loan agreements restrict payment
of dividends, limit stock repurchases and require the maintenance of certain
financial ratios. The Company was in compliance with all of these covenants and
ratios as of December 31, 1997.
Long-term debt maturities are as follows for years ending December 31:
1998 $ 12,406
1999 14,402
2000 16,281
2001 25,449
2002 10,507
Thereafter 29,509
----------------
$108,554
================
The Company is a guarantor under a mortgage agreement through February
2001 relating to its former principal manufacturing facility up to $500.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
9. INCOME TAXES
The provision for (benefit from) income taxes consisted of the
following for the years ended December 31:
1997 1996 1995
------------ ------------- -----------
Current:
Federal .................... $ 244 $ (1,589) $1,686
State ...................... 59 65 341
Foreign .................... 261 164 551
Deferred:
Federal .................... 1,658 (21,176) 585
State ...................... (461) (1,857) 83
============ ============= ===========
Total .................. $1,761 $(24,393) $3,246
============ ============= ===========
A reconciliation between the statutory U.S. federal income tax rate and
the Company's effective tax rate is as follows for the years ended December 31:
1997 1996 1995
----------- ---------- -----------
Computed "expected" tax expense 34.0% 34.0% 34.0%
Change in valuation reserve -- 2.3% (4.7%)
State income taxes, net of
federal income tax benefit 4.2% 1.8% 3.2%
Goodwill amortization 2.7% 0.2% 1.4%
FSC benefit (3.7%) (0.1%) (1.0%)
Meals and entertainment 2.1% 0.3% 0.7%
Miscellaneous items, net (2.2%) (1.5%) 3.7%
----------- ---------- -----------
37.1% 37.0% 37.3%
=========== ========== ===========
The deferred tax assets/(liabilities) are comprised of the following at December
31:
1997 1996
------------ ------------
Acquired in-process research and development costs . $21,703 $23,305
Intangibles resulting from business acquisitions ... (2,869) (1,079)
Tax credit carryforward ............................ 1,271 --
Warranty reserve ................................... 1,170 1,175
Severance accrual .................................. 1,072 --
Inventory reserve .................................. 1,018 1,405
Acquisition related restructuring and other costs .. 494 1,828
Other, net ......................................... 1,283 275
------------ ------------
25,142 26,909
Less: valuation allowance ......................... (1,566) (2,136)
============ ============
Net deferred tax asset ............................. $23,576 $24,773
============ ============
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management considers among other
things, the scheduled reversal of deferred tax liabilities, projected future
taxable income, tax planning strategies and positions taken by taxing
authorities on various issues related to the deductibility of certain costs in
making this assessment. The Company has recorded a valuation allowance to
reflect the estimated realizable amount of deferred tax assets and it primarily
relates to state tax benefits. The deferred tax asset related to the acquisition
of Spectra has been adjusted along with the related valuation allowance.
10. COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
Certain equipment and properties are rented under noncancelable
operating leases that expire at various dates through 2002. Total rental expense
under operating leases was approximately $2,214, $1,214 and $786, for the years
ended December 31, 1997, 1996 and 1995, respectively.
Future minimum lease payments required under these agreements are as follows for
the years ending December 31:
1998 $2,232
1999 1,709
2000 1,080
2001 878
2002 233
---
$6,132
Royalty Agreements
The Company currently has cross-license agreements with certain
industry competitors. Under these agreements, royalties are paid by the Company
on sales of certain licensed products. Royalty expense under these agreements
was included in selling, general and administrative expense in 1997, 1996 and
1995.
Legal Matters
The automatic identification and data capture industry is characterized
by substantial litigation regarding patent and other intellectual property
rights. There is litigation pending in the United States District Court for the
Western District of New York between the Company and one of its customers, on
the one hand, and Symbol Technologies, Inc. (Symbol) on the other, involving
certain of Symbol's patents. In that action, the Company has also alleged
violation of the antitrust laws and unfair practices by Symbol and Symbol has
alleged breaches of certain license agreements between the Company and Symbol,
including claims that royalties have been underpaid. The Company has also
assumed the responsibility of defending the action on behalf of its customer and
has provided certain rights of indemnification to its
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
customer. The Company intends to defend itself and its customer vigorously.
Although the Company maintains that Symbol's patents are invalid, that the
Company has not infringed the patents, or both, and that the Company has not, as
was alleged, breached the Symbol license, nor underpaid royalties, there can be
no assurance that this or any other action will be decided or settled in the
Company's favor. There can be no assurance that others will not assert claims
against the Company that result in litigation. Any such litigation could result
in significant expense, adversely impact the Company's marketing, give rise to
certain indemnity rights on the part of customers and divert the Company's
attention from other matters. If any of the Company's products were found to
infringe a third-party patent, the third party could be entitled to injunctive
relief, which would prevent the Company from selling any such infringing
products. In addition, the Company could be required to pay monetary damages.
Although the Company could seek a license to sell products determined to
infringe a third-party patent, there can be no assurance that a license would be
available on terms acceptable to the Company. The Company could also attempt to
redesign any infringing products so as to avoid infringement, although any
effort to do so could be costly and time-consuming, and there can be no
assurance the effort would be successful.
11. SHAREHOLDERS' EQUITY
In September 1997, the Company completed a private placement of equity
with Hydra Investissements S.A., a Luxembourg Corporation (the Purchaser). The
Company issued 110 shares of Series A Convertible Preferred Shares (the
Preferred Shares) which are convertible into 1.375 million Common Shares. The
Preferred Shares are convertible at anytime at the option of the holders into
Common Shares of the Company. The conversion price is $8.00 per Common Share or
one Preferred Share for 12.5 Common Shares. In connection with the issuance of
Preferred Shares, a warrant evidencing the right to purchase an aggregate of 180
Common Shares of the Company was issued to the Purchaser. This warrant has an
exercise price of $8.00 per share and may be exercised at anytime prior to
September 10, 2001. As a result, the Purchaser beneficially owns 1.555 million
Common Shares of the Company. The net proceeds to the Company from the offering
were $10.2 million. The Company used the proceeds for working capital purposes
and to repay a portion of its senior revolving credit facility.
In March 1995, the Company completed a secondary stock offering. The
Company sold approximately 2.3 million shares at a price of $11.00 per share.
The net proceeds to the Company from the offering were approximately $23.6
million. The Company used approximately $7.2 million of the net proceeds from
the offering to repay in full the outstanding indebtedness under the Company's
construction loan used to finance its new headquarters, manufacturing and
engineering facility. The Company also used approximately $6.8 million of the
net proceeds from the offering to repay in full the outstanding indebtedness
under the Company's term loan that was used to finance a portion of its
acquisition of LazerData Corporation in December 1994.
Shareholder Rights Plan
In December 1997, the Company adopted a Shareholder Rights Plan in
which one Preferred Share Purchase Right (the Right) was granted for each
outstanding Common Share. The Rights are exercisable only if a person or group
acquires or tenders an offer that would result in the beneficial ownership of
20% or more of the then outstanding Common Shares of the Company. Each Right
entitles the holder to
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
purchase one one-thousandth of a share of the Company's Series B Preferred
Shares at a purchase price of $45. Under certain circumstances, the Rights are
redeemable at a price of $0.01 per Right and, unless redeemed earlier, will
expire in December 2007. There were no issued or outstanding Series B Preferred
Shares at December 31, 1997.
Stock Option Plans
Options under the Company's Stock Option Plans (the SOP) may be granted
to employees, consultants, directors and officers and may vest over time or
based upon the performance of the Company's stock, or both, at the discretion of
the Board of Directors. Options must be issued at an exercise price not less
than fair market value on date of grant and expire five to ten years from date
of grant unless employment is terminated or death occurs earlier.
In accordance with the provisions of the SOP, the Company may make
loans to participants to finance the exercise price and related income taxes
upon the exercise of an option. During 1997, the Company received loan
repayments from participants totaling $278. During 1996, the Company granted two
loans to the Chairman and Chief Executive Officer, totaling $382. Each loan is a
five-year loan at an interest rate of 9.50% and is secured by the shares
purchased with the proceeds of the loan. During 1995, the Company granted a loan
to the Chairman and Chief Executive Officer and a loan to a member of the Board
of Directors of the Company, totaling $593. Each loan is a five-year loan at an
interest rate of 7.34% and is secured by the shares purchased with the proceeds
of the loan.
The Company accounts for its SOP and Employee Stock Purchase Plan under APB
Opinion No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost was recognized. In October 1995, Statement of Financial
Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation," was issued. This statement encourages, but does not require,
companies to use the fair value based method to measure compensation cost, which
is then recognized over the service period (usually the vesting period). The
Company continues to measure compensation cost using the intrinsic value method
as prescribed by APB Opinion No. 25. Had compensation cost for these plans been
determined based on the fair value at the grant dates for awards consistent with
SFAS No. 123, the Company's pro forma amounts for net income and earnings per
share would have been as follows:
1997 1996 1995
---- ---- ----
Net income/(loss) as reported ............ $2,889 $(46,980) $5,449
Net income/(loss) pro forma .............. $2,175 $(48,501) $5,325
Net income/(loss) per common and common
equivalent share as reported:
Basic ................................ $0.26 $(4.48) $0.58
Diluted .............................. $0.24 $(4.48) $0.54
Net income/(loss) per common and
common equivalent share pro forma:
Basic ................................ $0.19 $(4.62) $0.57
Diluted .............................. $0.18 $(4.62) $0.53
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
SFAS No. 123 has only been applied to options granted and Employee
Stock Purchase Plan purchases after January 1, 1995. As a result, the pro forma
compensation expense may not be representative of that to be expected in future
years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Risk free interest rate 6.19% 5.95% 6.66%
Expected dividend yield 0% 0% 0%
Expected lives 4 years 4 years 4 years
Expected volatility 45% 45% 45%
Fair value of options granted $2.89 $3.31 $5.45
The following is a summary of the activity in the Company's SOP for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ----------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
---------- -------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
period .................................. 2,818 $8.33 2,138 $8.41 2,299 $8.02
Options granted ............................ 1,094 6.98 953 7.78 105 12.54
Options exercised .......................... (162) 7.51 (173) 6.27 (200) 6.52
Options forfeited/canceled ................. (704) 9.00 (100) 8.06 (66) 6.84
---------- ----------
==========
Options outstanding at end of period ....... 3,046 $7.76 2,818 $8.33 2,138 $8.41
========== ========== ==========
Number of options at end of period:
Exercisable ............................. 1,884 1,630 1,575
Available for grant ..................... 394 784 1,637
</TABLE>
The Company was able to realize an income tax benefit in 1997, 1996 and
1995 from the exercise or early disposition of stock options. For financial
reporting purposes, this benefit resulted in a decrease in current income taxes
payable and an increase in additional paid-in capital.
Warrants
In connection with the issuance of Preferred Shares, a warrant
evidencing rights to purchase an aggregate of 180 Common Shares of the Company
were issued and sold to the Purchaser of the Preferred Shares. This warrant has
an exercise price of $8.00 per share and may be exercised prior to September 10,
2001.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
The acquisition of Spectra was financed, in part, by the subordinated term loan.
In connection with the subordinated term loan, warrants evidencing rights to
purchase an aggregate of 975 Common Shares of the Company were issued and sold
to the purchasers of the subordinated term loan. These warrants have an exercise
price of $8.00 per share and may be exercised at anytime prior to July 12, 2006.
The holders of these warrants have certain rights relating to
registration and to the repurchase by the Company of the warrants and the shares
issued upon the exercise of the warrants under certain circumstances.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the Plan) under which
250 Common Shares can be issued. Under the terms of the Plan, eligible employees
may purchase the Company's Common Shares semi-annually on approximately January
1 and July 1 through payroll deductions. The purchase price is the lower of 85%
of the fair market value of the shares on the first or last day of each six
month offering period. Employees purchased approximately 67 shares at an average
price of $5.81 per share, 26 shares at an average price of $7.82 per share and 9
shares at an average price of $9.16 per share during 1997, 1996 and 1995,
respectively. The Plan expires on December 31, 2000.
The fair value of the purchase rights is estimated on the first day of
the offering period using the Black-Scholes option pricing model with the
following weighted average assumptions for grants in 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Risk free interest rate 5.12% 5.89% 6.10%
Expected dividend yield 0% 0% 0%
Expected lives 6 mos. 6 mos. 6 mos.
Expected volatility 45% 45% 45%
Fair value of purchase rights granted $2.06 $2.54 $3.78
12. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------------- ------------------ ----------------
<S> <C> <C> <C>
Basic EPS
Income available to
common shareholders $2,889 11,197 $0.26
================
Effect of dilutive securities:
Options -- 29
Warrants -- 422
Preferred shares -- 195
---------------- ------------------
Diluted EPS
Income available to common
shareholders and assumed conversions $2,889 11,843 $0.24
================ ================== ================
</TABLE>
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------------- ------------------- ---------------
<S> <C> <C> <C>
Basic EPS
Income available to
common shareholders ...................... $(46,980) 10,490 $(4.48)
================ =================== ===============
Diluted EPS
Income available to common
shareholders and assumed conversions ..... $(46,980) 10,490 $(4.48)
================ =================== ===============
Year Ended December 31, 1995
--------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------------- ------------------ ---------------
Basic EPS
Income available to
common shareholders ....................... $5,449 9,329 $0.58
===============
Effect of dilutive securities:
Options .................................. -- 684
---------------- ------------------
Diluted EPS
Income available to common
shareholders and assumed conversions ...... $5,449 10,013 $0.54
================ ================== ===============
</TABLE>
Basic EPS were computed by dividing reported earnings available to
common shareholders by weighted average shares outstanding during the year.
Diluted EPS for the years 1997 and 1996 were determined on the following
assumptions: 1) warrants issued in connection with the private placement of
equity were converted upon issuance on September 10, 1997, 2) warrants issued in
connection with the acquisition of Spectra were converted on July 12, 1996 and
January 1, 1997 and 3) Preferred Shares were converted on September 10, 1997.
Options to purchase 1,148, 2,495, and 151 Common Shares at an average
price of $9.52, $9.70 and $12.72 per share were outstanding for the years ending
December 31, 1997, 1996, and 1995, respectively, but were not included in the
computation of diluted EPS since the options' exercise price was greater than
the average market price of Common Shares.
The Company is required to adopt SFAS No. 128 retroactively for all
periods presented. The effect of this accounting change on previously reported
EPS data was as follows:
1996 1995
---------------- ----------------
Primary EPS as reported $(4.48) $0.54
Effect of SFAS No. 128 ............ -- 0.04
---------------- ----------------
Basic EPS as restated ............. $(4.48) $0.58
================ ================
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
13. 401(K) PLANS
During 1997, the former Spectra 401(k) plan was merged into the
Company's 401(k) plan. The plan is available to U.S. employees meeting certain
service and eligibility requirements. The Company pays a monthly matching
contribution equal to 50% of the employees' contributions up to a maximum of 6%
of their eligible compensation. Plan expense was $717, $377 and $193 for 1997,
1996 and 1995, respectively.
14. SEVERANCE AND OTHER COSTS
During the second quarter of 1997, the Company recorded a one-time
pretax charge of $5.2 million for severance and other costs. Of the total
charge, approximately $2.3 million was associated with the Severance Agreement
with the former CEO, $1.2 million was for employee severance and benefit costs
for the elimination of approximately 30 positions including several senior
executives, a $1.0 million inventory write-off for the discontinuation of
certain products, and $0.7 million for the centralization of research and
development efforts and the relocation of manufacturing of certain product lines
between its two manufacturing facilities.
15. ACQUISITION RELATED RESTRUCTURING AND OTHER COSTS
During the third quarter of 1996, the Company recorded a one-time,
pretax charge of $10.0 million for the cost of restructuring its existing
operations with those of Spectra which was acquired in July 1996. Of the total
restructuring charge, approximately $5.0 million was associated with the closing
of the Company's Sanford, Florida manufacturing facility and relocating those
operations to its Webster, New York facility, $3.6 million was related to the
write-off of previously existing intangible and tangible assets and $1.4 million
was recorded for employee severance and benefit costs for the elimination of
seven positions. As of December 31, 1997, all positions targeted in the
restructuring program were eliminated. Restructuring actions are expected to be
completed by the end of 1998. The Company recorded charges against the accrual
of $3.7 million and $5.3 million in 1997 and 1996, respectively. The
restructuring accrual as of December 31, 1997 was approximately $1.0 million
which relates to current contractual obligations. There have been no
reallocations or reestimates to date.
In addition, in the third quarter of 1996, the Company allocated $60.1
million of the Spectra purchase price to acquired in-process research and
development projects, which represents the estimated fair values related to
these projects determined by an independent appraisal. Proven valuation
procedures and techniques were utilized in determining the fair market value of
each intangible asset. The development technologies were evaluated to determine
that there were no alternative future uses. Such evaluation consisted of a
specific review of the efforts, including the overall objectives of the project,
progress toward the objectives and uniqueness of developments toward these
objectives. To bring these projects to fruition, high risk developmental issues
need to be resolved which will require substantial additional effort and
testing. Therefore, technological feasibility of these new products has not yet
been achieved. As these projects have not reached technological feasibility and
alternative future use of these developmental technologies, apart from the
objectives of the individual projects, does not exist, these costs were expensed
as of the acquisition date. The acquisition related restructuring and other
costs reduced 1996 income before income taxes, net income, basic EPS and diluted
EPS by $70.1 million, $44.2 million, $4.21 and $4.21, respectively.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
16. DISCONTINUED OPERATIONS
In June 1997, the Company disposed of its TxCOM subsidiary, which was
acquired as part of the Spectra acquisition. For 1997 and 1996, results of
operations were reported as discontinued operations in the Consolidated
Statements of Operations. The Company recognized a net gain on operations of
$164 in 1997 and a net loss on operations of $229 in 1996. Disposal of TxCOM,
which occurred in June 1997, resulted in the recording of losses of $265 and
$5,217 in 1997 and 1996, respectively. These losses include the write-down of
the assets to their net realizable value and the costs of disposing of the
subsidiary, net of applicable tax benefits.
17. SIGNIFICANT CUSTOMER INFORMATION
The Company sells its products principally to original equipment
manufacturers, value-added resellers, distributors and systems integrators.
During 1997 and 1996, no individual customer accounted for greater than 10% of
net sales. During 1995, net sales to the Company's largest customer accounted
for approximately 17%. No other customers were responsible for greater than 10%
of net sales in 1995. The Company's arrangements with major customers are
generally nonexclusive.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data
18. SELECTED QUARTERLY FINANCIAL DATA: (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ----------- ------------
Year Ended December 31, 1997
- ----------------------------
<S> <C> <C> <C> <C>
Net sales ............................................. $54,236 $47,301 $53,191 $53,112
Gross profit .......................................... 22,701 17,913 22,167 22,064
Income (loss) from continuing
operations ........................................ 886 (3,246) 2,542 2,808
Loss from discontinued operations ..................... (16) (85) -- --
Net income (loss) ..................................... 870 (3,331) 2,542 2,808
Net income (loss) per common
and common equivalent share:
Basic:
Continuing operations .............................. $0.08 $(0.29) $0.23 $0.25
Discontinued operations ............................ -- (0.01) -- --
---------- ---------- ----------- ------------
Net income (loss) .................................. $0.08 $(0.30) $0.23 $0.25
========== ========== =========== ============
Diluted:
Continuing operations .............................. $0.08 $(0.29) $0.22 $0.20
Discontinued operations ............................ -- (0.01) -- --
========== ========== =========== ============
Net income (loss) .................................. $0.08 $(0.30) $0.22 $0.20
========== ========== =========== ============
Year Ended December 31, 1996
- ----------------------------
Net sales ............................................. $21,499 $22,052 $46,486 $56,014
Gross profit .......................................... 9,156 8,564 20,283 24,373
Income (loss) from continuing
operations ........................................ 435 211 (43,444) 1,264
Loss from discontinued operations ..................... -- -- (5,331) (115)
Net income (loss) ..................................... 435 211 (48,775) 1,149
Net income (loss) per common
and common equivalent share:
Basic:
Continuing operations .............................. $0.04 $0.02 $(3.99) $0.11
Discontinued operations ............................ -- -- (0.49) (0.01)
---------- ---------- ----------- ------------
Net income (loss) .................................. $0.04 $0.02 $(4.48) $0.10
========== ========== =========== ============
Diluted:
Continuing operations .............................. $0.04 $0.02 $(3.99) $0.11
Discontinued operations ............................ -- -- (0.49) (0.01)
========== ========== =========== ============
Net income (loss) .................................. $0.04 $0.02 $(4.48) $0.10
========== ========== =========== ============
</TABLE>
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(All amounts in thousands, except per share data)
19. OPERATIONS BY GEOGRAPHIC AREA
The Company is engaged in one industry, specifically the design,
manufacture and marketing of handheld and fixed position bar code readers,
verifiers, integrated sortation and point-of-sale scanning systems. Operations
in this business segment are summarized below by geographic area. The Company's
operations in Europe and the Rest of the World (ROW) primarily consist of
selling and performing field service maintenance on products designed and
manufactured in the United States.
In determining earnings before provision for income taxes for each
geographic area, sales and purchases between areas have been accounted for on
the basis of internal transfer prices set by the Company. Certain U.S. operating
expenses are allocated between geographic areas based upon the percentage of
geographic area revenue to total revenue.
Identifiable assets are those tangible and intangible assets used in
operations in each geographic area.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 North
America Europe ROW Eliminations Total
--------------- --------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers ..................... $120,606 $57,518 $29,716 $ $207,840
--
Transfers between
geographic areas .............. 39,820 157 -- (39,977) --
--------------- --------------- -------------- ---------------- ---------------
Total net sales .................. 160,426 57,675 29,716 (39,977) 207,840
=============== =============== ============== ================ ===============
Earnings before provision
for income taxes .............. 2,333 1,284 1,134 -- 4,751
=============== =============== ============== ================ ===============
Identifiable assets .............. $187,943 $17,996 $ 3,730 $(36,871) $172,798
=============== =============== ============== ================ ===============
Year Ended December 31, 1996 North
America Europe ROW Eliminations Total
--------------- -------------- -------------- ---------------- --------------
Sales to unaffiliated
customers ......................... $ 96,321 $31,968 $17,762 $ -- $146,051
Transfers between
geographic areas .................. 18,165 -- -- (18,165) --
--------------- -------------- -------------- ---------------- --------------
Total net sales ...................... 114,486 31,968 17,762 (18,165) 146,051
=============== ============== ============== ================ ==============
Earnings before provision
for income taxes .................. (49,843) (3,102) (12,982) -- (65,927)
=============== ============== ============== ================ ==============
Identifiable assets .................. $204,414 $12,962 $ 4,196 $(38,211) $183,361
=============== ============== ============== ================ ==============
Year Ended December 31, 1995 North
America Europe ROW Eliminations Total
-------------- -------------- --------------- --------------- ---------------
Sales to unaffiliated
customers ......................... $70,189 $10,996 $6,331 $ -- $87,516
Transfers between
geographic areas ................. 1,861 -- -- (1,861) --
-------------- -------------- --------------- --------------- ---------------
Total net sales ...................... 72,050 10,996 6,331 (1,861) 87,516
============== ============== =============== =============== ===============
Earnings before provision
for income taxes .................. 5,837 2,295 563 -- 8,695
============== ============== =============== =============== ===============
Identifiable assets .................. $69,006 $ 2,231 $ - $ -- $71,237
============== ============== =============== =============== ===============
</TABLE>
<PAGE>
SCHEDULE II
PSC INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(All amounts in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Accounts Receivable Reserve-
BALANCE, at beginning of year $1,101 $387 $576
Provision for doubtful accounts 346 168 (134)
Write-offs of doubtful accounts,
net of recoveries (278) (200) (55)
Other -- 746 (1) --
================ ================ ================
BALANCE, at end of year $1,169 $1,101 $387
================ ================ ================
</TABLE>
(1) Amount represents the reserve recorded in connection with the acquisition of
Spectra.
Exhibit 3.1
Restated Certificate of Incorporation
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PSC INC.
Pursuant to Section 805 of the
Business Corporation Law of
the State of New York
We, being the President and Secretary of PSC Inc. (the "Corporation"), a
corporation organized and existing under the Business Corporation Law of the
State of New York (the NYBCL"), in accordance with the provisions of Section 805
thereof, do hereby certify and set forth:
FIRST: The name of the Corporation is PSC Inc. The name under which the
Corporation was formed was Photographic Sciences Corporation.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State on December 8, 1969.
THIRD: The Certificate of Incorporation is hereby amended by the addition
of a provision to Paragraph 4 thereof stating the number, designation, relative
rights, preferences and limitations of the Series B Preferred Shares as fixed by
the Board of Directors of the Corporation and to set forth in full the text of
such provision. To effect the foregoing, Paragraph 4 of the Certificate of
Incorporation is amended in the following respects:
(a) Paragraph 4.(a) is hereby amended to read as follows:
"4. (a) Statement of Authorized Stock. The aggregate number of shares which
the Corporation shall have the authority to issue is Fifty Million (50,000,000)
shares of capital stock of the following classes in the following amounts:
(i) Forty Million (40,000,000) shares shall be Common Shares, having a
par value of $.01 per share ("Common Shares");
(ii) One Hundred Ten Thousand (110,000) shares shall be Series A
Convertible Preferred Shares, having a par value of $.01 per share ("Series A
Convertible Preferred Shares");
(iii) One Hundred Seventy-five Thousand (175,000) shares shall be
Series B Preferred Shares, having a par value of $.01 per share ("Series B
Preferred Shares"); and
(iv) Nine Million Seven Hundred Fifteen Thousand (9,715,000) shares
shall be Preferred Shares, having a par value of $.01 per share (the
"Undesignated Preferred Stock"), which shares of Undesignated Preferred Stock
may be issued from time to time in or one or more series, each of which shall
have such distinctive designation or title as shall be fixed by the Board of
Directors prior to the issuance of any shares thereof. Each such series of
Undesignated Preferred Stock shall have such voting powers, full or limited, or
no voting power, and have such preferences and relative participating, optional
or other special rights and such qualifications, limitations or restrictions
thereof, as shall be stated in such resolution or resolutions providing for the
issue of such class or series of Undesignated Preferred Stock as may be adopted
from time to time by the Board of Directors prior to the issuance of any shares
thereof pursuant to the authority hereby expressly vested in it, all in
accordance with the laws of the State of New York.
<PAGE>
(b) A new paragraph 4.(c) is hereby added as follows:
(4. (c) Statement of Rights and Preferences of Series B Preferred Shares.
The respective powers, designations, preferences and relative participating,
optional and other special rights, and the qualifications, limitations and
restrictions of, the Series B Preferred Shares are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series B Preferred Shares" and the number of shares constituting
such series shall be One Hundred Seventy-five Thousand (175,000) shares. Such
number of shares may be increased or decreased by resolution of the Board of
Directors' provided, that no decrease shall reduce the number of shares of
Series B Preferred Shares to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series B
Preferred Shares.
Section 2. Dividends and Distributions. (A) Subject to the rights of
the holders of any shares of any series of Preferred Stock of the Corporation
(the "Preferred Stock") (or any similar stock) ranking prior and superior to the
Series B Preferred Shares with respect to dividends, each holder of one
one-thousandth of a share (a "Unit") of Series B Preferred Shares, in preference
to the holders of Common Shares, par value $.01 per share of the Corporation
(the "Common Shares") and of any other stock of the Corporation ranking junior
to the Series B Preferred Shares, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, dividends payable in cash in an amount per Unit (rounded to the nearest
cent) equal to the per share amount of cash dividends declared on the Common
Shares. In the event the Corporation shall at any time after December 30, 1997
(the "Rights Declaration Date"), (i) declare any dividend on outstanding Common
Shares, payable in Common Shares, (ii) subdivide outstanding Common Shares, or
(iii) combine outstanding Common Shares into a smaller number of shares, then in
each such case the amount to which the holder of a Unit of Series B Preferred
Shares was entitled immediately prior to such event pursuant to the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of Common Shares outstanding immediately after
such event and the denominator of which is the number of Common Shares, that
were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Units of Series B Preferred Shares as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Shares
(other than a dividend payable in Common Shares).
Section 3. Voting Rights. The holders of Units of Series B Preferred Shares
shall have the following voting rights:
<PAGE>
(A) Subject to the provision for adjustment hereinafter set forth and
except as otherwise provided in the Certificate of Incorporation or required by
law, each Unit of Series B Preferred Shares shall entitle the holder thereof to
one vote on all matters upon which the holders of the Common Shares of the
Corporation are entitled to vote. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on outstanding Common
Shares, payable in Common Shares, (ii) subdivide outstanding Common Shares, or
(iii) combine outstanding Common Shares into a smaller number of shares, then in
each such case the number of votes per Unit to which holders of Units of Series
B Preferred Shares were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which is the
number of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or in any other Amendment creating a series of Preferred Stock or
any similar stock, and except as otherwise required by law, the holders of Units
of Series B Preferred Shares and the holders of Common Shares and any other
capital stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of shareholders of the
Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Units of Series B Preferred Shares shall have no special voting
rights and their consents shall not be required (except to the extent they are
entitled to vote with holders of Common Shares as set forth herein) for taking
any corporate action.
Section 4. Reacquired Shares. Any Units of Series B Preferred Shares
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
Units shall, upon their cancellation, become authorized but unissued Units of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
Section 5. Liquidation, Dissolution or Winding Up. (A) Upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of shares of
junior stock unless the holders of Units of Series B Preferred Shares shall have
received, subject to adjustment as hereinafter provided in paragraph (B), the
greater of either (a) $1.00 per Unit or (b) the amount equal to the aggregate
per share amount to be distributed to holders of Common Shares, or (ii) to the
holders of shares of parity stock, unless simultaneously therewith distributions
are made ratably on Units of Series B Preferred Shares and all other shares of
such parity stock in proportion to the total amounts to which the holders of
Units of Series B Preferred Shares are entitled under clause (i)(a) of this
sentence and to which the holders of shares of such parity stock are entitled,
in each case upon such liquidation, dissolution or winding up.
(B) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding Common Shares, payable
in Common Shares, (ii) subdivide outstanding Common Shares, or (iii) combine
outstanding Common Shares into a smaller number of shares, then in each such
case the aggregate amount to which holders of Units of Series B Preferred Shares
were entitled immediately prior to such event pursuant to clause (i)(b) of
paragraph (A) of this Section 5 shall be adjusted by multiplying such amount by
a fraction the numerator of which shall be the number of Common Shares that are
outstanding immediately after such event and the denominator of which shall be
the number of Common Shares that were outstanding immediately prior to such
event.
<PAGE>
Section 6. Consolidation, Merger, Etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the Common Shares are converted into, exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case Units of
Series B Preferred Shares shall at the same time be similarly converted into,
exchanged for or changed into an amount per Unit (subject to the provisions for
adjustment hereinafter set forth) equal to the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each Common Share is converted, exchanged or
converted. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding Common Shares payable
in Common Shares, (ii) subdivide outstanding Common Shares, or (iii) combine
outstanding Common Shares into a small number of shares, then in each such case
the amount set forth in the immediately preceding sentence with respect to the
exchange or conversion of Units of Series B Preferred Shares shall be adjusted
by multiplying such amount by a fraction the numerator of which shall be the
number of common Shares that are outstanding immediately after such event and
the denominator of which shall be the number of Common Shares that were
outstanding immediately prior to such event.
Section 7. No Redemption. The Units of Series B Preferred Shares shall
not be redeemable from any holder.
Section 8. Rank. The Units of Series B Preferred Shares shall rank,
with respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, junior to all other
series of Preferred Stock unless the terms of any such series shall provide
otherwise and senior to the Common Shares.
Section 9. Amendment. If any proposed amendment to the Certificate of
Incorporation would alter, change, or repeal any of the preferences, powers or
special rights given to the Series B Preferred Shares so as to affect the Series
B Preferred Shares adversely, then the holders of the Series B Preferred Shares
shall be entitled to vote separately as a class upon such amendment, and the
affirmative vote of a majority of the outstanding shares of the Series B
Preferred Shares, voting separately as a class, shall be necessary for the
adoption thereof, in addition to such other vote as may be required by the
Business Corporation Law of the State of New York."
Section 10. Fractional Shares. The Series B Preferred Shares may be
issued in Units, which Units shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series B Preferred Shares.
Section 11. Certain Definitions. As used herein with respect to the
Series B Preferred Shares, the following terms shall have the following
meanings:
(A) The term "Common Shares" shall mean the class of stock designated
as the common shares, par value $.01 per share, of the Corporation at the date
hereof or any other class of stock resulting from successive changes or
reclassification of such common stock.
(B) The term "Junior Stock", as used in Section 5 hereof, shall mean
the Common Shares and any other class or series of capital stock of the
Corporation over which the Series B Preferred Shares has preference or priority
in the distribution of assets on any liquidation, dissolution or winding up of
the Corporation.
<PAGE>
(C) The term "Parity Stock", as used in Section 5 hereof, shall mean
any class of series of capital stock ranking pari passu with the Series B
Preferred Shares in the distribution of assets or any liquidation, dissolution
or winding up of the Corporation.
FOURTH: The Amendment was authorized pursuant to the authority
conferred upon the Board of Directors of the Corporation by the Restated
Certificate of Incorporation of the Corporation, as the same has been amended,
pursuant to a resolution adopted by the shareholders of the Corporation at a
meeting of the shareholders.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this 30th day
of December, 1997.
Name: Robert C. Strandberg
Title: President and CEO
Name: Martin S. Weingarten
Title: Secretary
Exhibit 10.6
Severance and Consulting Agreement
SEVERANCE AND CONSULTING AGREEMENT
THIS SEVERANCE AND CONSULTING AGREEMENT ("Agreement"), dated as of July 15, 1997
sets forth the terms of the agreement between Jay M. Eastman ("Employee"),
residing at 70 VanVoorhis Road, Pittsford, NY 14534, and PSC Inc. ("Company"),
located at 675 Basket Road, Webster, New York 14580, relating to the cessation
of Employee's employment with Company and the engagement of Employee as a
consultant. WHEREAS, Employee has been associated with the Company for many
years and has contributed to its successful growth. WHEREAS, the parties wish to
enter into this Agreement for the purpose of addressing all issues relating to
Employee's termination of employment with the Company. NOW, THEREFORE, in
consideration of the mutual covenants hereinafter described, and the Severance
Payment and other good and valuable consideration to which Employee is not
otherwise entitled, Company and Employee agree as follows:
1. Cessation of Employment. The parties agree that Employee's employment and
all positions and offices with the Company, except that as a member of the
Company's Board of Directors, will terminate on October 15, 1997
("Employment Termination Date").
2. Severance Payment and Other Consideration. The Company will pay or provide
to Employee the following amounts and benefits in consideration of the
agreements contained in Sections 3, 4, 5, 6 and 7 of this Agreement.
(a) The Company shall pay Employee severance payments ("Severance Payments")
for a period of six (6) months from the Employment Termination Date (the
"Severance Payment Period"), less applicable deductions for Federal and New
York State income tax withholdings, FICA, and Medicare Tax. Severance
payments shall be made on the normal payroll dates for the Company. The
Company will include the above sum in the Form W-2 Wage and Tax Statements
which it will issue to Employee for the 1997 and 1998 calendar years. The
aggregate amount of Employee's Severance Payments shall be equal to
Employee's current semi-annual salary ($62,500).
(b) Except as specifically provided in this Agreement, all employee benefits
shall be discontinued as of the Employment Termination Date and, except as
specifically provided in this Agreement, Employee shall not be entitled to
any other compensation bonuses or perquisites from the Company. Nothing
contained in this Agreement shall affect Employee's entitlement to benefits
under the Company's 401(k) plan (the "Plan") based upon Employee's accrued
service with the Company. For purposes of the Plan, Severance Payments will
not be included in determining Employee's benefits under the Plan.
<PAGE>
(c) Employee heretofore has been granted stock options as set forth on the
attached Exhibit A (the "Options"), which by their terms will expire three
months after the Employment Termination Date. Some of the Options have not
fully vested. In consideration of Employee's agreement to provide
consulting services as described in Section 3, to release the Company as
described in Section 4, not to disclose confidential information as
described in Section 5 and not to compete as described in Section 6, the
Board of Directors of the Company will cause all unvested Options to
immediately vest, and shall extend the expiration date on the Options to
allow Employee to exercise any or all such Options at their set option
prices anytime on or before the last day of the Non-Competition Period (as
hereinafter defined), except, however, that no Option may be exercised
after the expiration of ten (10) years from the Date of Grant of such
Option. However, as the result of extending the period in which Employee
may exercise the options, Employee acknowledges that the Company has
advised him that the incentive stock options will become non-qualified
stock options. There is no income recognition on the exercise of incentive
stock options but, on the exercise of a non-qualified stock option,
Employee would have to recognize as taxable income in the year of exercise
an amount equal to the difference between the fair market value of Company
stock on the date of exercise and the exercise price Employee pays.
3. Consulting Services. From the Employment Termination date through the last
day of the Non-Competition Period (as hereinafter defined) (the "Consulting
Period") the Company engages Employee as an independent contractor, and not
as an employee, to render consulting services to the Company, on an
"as-needed" basis, in such matters as the Company's litigation/arbitration
with Symbol Technologies, Inc., patent applications, and in such other
related matters as may be requested from time to time by the Chief
Executive Officer of the Company, and Employee accepts such engagement.
Employee shall not have any authority to bind or act on behalf of the
Company during the Consulting Period. During the Consulting Period, the
Company shall pay Employee at Employee's current hourly rate ($60.10) for
each hour of service actually worked except that Employee will not be paid
for time spent testifying in court or at an arbitration hearing. During the
Consulting Period, Employee, shall not be entitled to any other benefits,
bonuses or perquisites from the Company. The Company shall reimburse
Employee for all reasonable expenses incurred by him in the course of
performing his duties as a consultant to the Company under this Agreement
which are consistent with the Company's policies in effect from time to
time with respect to travel, entertainment and other business expenses,
subject to the Company's requirements with respect to reporting and
documentation of such expenses. Within ten (10) days after the end of each
month, Employee shall submit to the Company an invoice, with supporting
documentation, requesting payment for consulting services and reimbursement
of business-related expenses for the prior month. Employee shall file all
tax returns and reports required to be filed by him on the basis that he is
an independent contractor, rather than an employee, as defined in Treasury
Regulation ss.31.3121(d)-1(c)(2), and Employee shall indemnify the Company
for the amount of any employment taxes paid by the Company as the result of
Employee not withholding employment taxes from any amount paid to him
hereunder.
<PAGE>
4. Release. (a) Employee agrees that the terms set forth in his Agreement are
in full satisfaction of all obligations the Company has to Employee known
and unknown. Employee does hereby irrevocably and unconditionally release
the Company, its affiliates, officers, directors, employees, agents,
representatives, successors and assigns from any and all claims demands and
liabilities whatsoever, including but not limited to any claims in contract
or tort and any claims in connection with Employee's employment with the
Company, the termination of that employment, or pursuant to any federal,
state or local employment laws, regulations, executive orders or other
requirements, as well as the common law, including the Age Discrimination
in Employment Act. In exchange for the benefits being accorded to Employee
under this Agreement, it is Employee's intent to provide to the Company the
broadest release of claims and liabilities that may be provided by law.
This Agreement shall not be construed as an admission by the Company that
it has acted wrongfully with respect to the Employee.
(b) The Company does hereby irrevocably and unconditionally release Employee,
his heirs, executors, administrators and assigns from any and all claims,
demands, or liabilities whatsoever which the Company had or may now have in
any way related to or arising out of his employment and its termination,
provided, however, that Company does not release any claim of any conduct
now unknown to the Company that may have been undertaken in bad faith.
5. Non-disclosure of Confidential and Proprietary Information and Return of
Company Property.
(a) Employee acknowledges that Employee's work as an employee of the Company
has exposed him to Confidential Information of the Company. "Confidential
Information" includes, but is not limited to, matters which are not readily
available to the public which are:
(i) Of a technical nature, such as, but not limited to, methods,
know-how, formulae, compositions, drawings, blueprints,
compounds, processes, discoveries, machines, inventions,
computer programs and similar items;
(ii)Of a business nature, such as, but not limited to, information
about sales or lists of customers, prices, costs, purchasing,
profits, markets, strengths and weaknesses of products,
business processes, business and marketing plans and
activities, and information about employees personnel records,
salary and benefits data, and personnel practices;
(iii) Pertaining to future developments, such as, but not limited
to, research and development, future marketing or
merchandising plans or ideas.
<PAGE>
(b) Employee represents and agrees that he has not, and for a period of five
years after the Employment Termination Date, or for so long as he is a
director of the Company, whichever period is longer, that he will not,
directly or indirectly, except to the extent required by law: (1) reveal,
divulge, make known, sell, exchange, give away, or otherwise dispose of, to
any person, firm, or corporation, any Confidential Information of the
Company or its business, whether the same shall or may have been designed,
developed, or originated by the Employee or otherwise; or (2) reveal,
divulge, or make known to any person, firm or corporation, the name of the
Company's customers. This obligation shall not apply to information which
(i) is acquired from a third party who, to the best of Employee's
knowledge, is not in default of any obligation to the Company in disclosing
such information, or (ii) is already in the public domain or known to
Company's competitors or the public generally or that becomes available to
the public generally or the Company's competitors other than as a result of
Employee's breach of this Agreement. All records (whether in hard copy or
digital form), books and computer discs relating in any manner whatsoever
to the Company shall be the exclusive property of the Company regardless of
who actually prepared the original record or book. Employee represents that
he did not copy or cause to have copied any such records or books except in
the ordinary course of business.
(c) Employee agrees to return within ten (10) days after Employment Termination
Date, any keys, computers, equipment, cellular phones, pagers, Company
credit cards and any other Company property in his possession not
previously returned, any confidential or proprietary data or information
concerning the business and activities of the Company, its manner of
operation, plans, processes, or methods of obtaining business and/or
customers or any other data or information, including personnel and salary
information and personnel practices, manuals, handbooks, documents,
records, monies, and securities belonging to the Company, and other
confidential and proprietary articles and material, which Employee acquired
or has used in the course of, or as incident to, his employment with the
Company. Employee agrees that any charges to the cellular phones or Company
credit cards which are not authorized Company business expenses may be
deducted by the Company from any amounts due to Employee hereunder.
Notwithstanding the foregoing, Company agrees that Employee may retain the
Macintosh laptop computer which he has been using and the Company further
agrees that all of Employee's notebooks, when returned, will be preserved
until such time as in the opinion of Company's outside patent counsel they
are no longer needed. When necessary to assist Employee in the performance
of his consulting duties described in Section 3, he will be afforded access
to the said notebooks with the said patent counsel.
<PAGE>
6. Noncompetition/Non-Solicitation. As further consideration for the benefits
provided in this Agreement and in light of the special and unique services
that have been and will be furnished to the Company by Employee, and the
Confidential Information that has been disclosed to Employee by the Company
during Employee's relationship with the Company, Employee agrees that for a
period of eighteen (18) months from the Employment Termination Date, or for
so long as he is a member of the Board of Directors of the Company,
whichever period is longer, (the "Non-Competition Period") Employee will
not, without the written consent of the Company, directly or indirectly,
whether as a principal, agent, officer, director, consultant, employee,
partner, stockholder, or owner of or in any capacity with any corporation,
partnership, business, firm, individual, company, or any entity located
anywhere in the world, engage in, or assist another to engage in, any work
or activity in any way competitive with the Business of the Company (as
hereinafter defined). However, nothing herein shall prevent Employee from
owning not more than five percent (5%) of the outstanding publicly traded
shares of common stock of a corporation, as to which corporation Employee
has no relationship other than stockholder. Company acknowledges that Lucid
Technologies Inc. ("Lucid") has not to date been competitive with the
Business of the Company as hereinafter defined. In addition, during the
Non-Competition Period, Employee will not, directly or indirectly, (a)
induce or attempt to induce any officer or employee of the Company to leave
the employ of the Company, or in any way interfere with the relationship
between the Company and any officer, employee, director or stockholder
thereof, or (b) hire directly or through another entity any person who was
an employee of the Company on the Employment Termination Date, or (c)
induce or attempt to induce any customer, dealer, supplier or licensee to
cease doing business with the Company, or in any way interfere with the
relationship between any such customer, dealer, supplier or licensee and
the Company.
Employee specifically agrees that because of Employee's special expertise
and the special and unique services that Employee has been and will be
furnishing the Company, and because the Confidential Information that has been
acquired by Employee or has been disclosed to Employee during the Employee's
employment, the above stated geographic areas and time period during which
Employee will not compete are reasonable in scope and duration and are necessary
to afford the Company just and adequate protection against the irreparable
damage which would result to the Company from any activities prohibited by this
section.
<PAGE>
For purposes of this section, the "Business of the Company" is the
development, manufacturing, and marketing of technologies, products and services
for the automatic identification and keyless data entry industry, and includes,
but is not limited to, products, services, applications, systems, and
technologies relating to bar coded data, magnetic strip encoded data, radio
frequency communications of bar coded or related data, optical character
recognition, machine vision as applied to the recognition of bar coded data, and
electronic interchange of bar coded or related data. The Company agrees that
Lucid's ballot reading technology is not to be deemed "optical character
recognition" within the meaning of the preceding sentence. The Business of the
Company shall also include any business in which the Company is actually engaged
or as to which it is doing research and development during the Employee's
employment with the Company.
7. Statements to Third Parties.
Employee agrees not to criticize, denigrate, or disparage Company, its officers,
directors, managers, supervisors, or employees, or otherwise engage in any
conduct which directly or indirectly impugns or reflects negatively on the
reputation or integrity of the Company, or any of such individuals, or tends to
expose the Company, or any of such individuals, to hatred, ridicule, or
contempt, and Employee represents that he has not done so. Notwithstanding the
foregoing and for so long as Employee is a director of the Company he may, in
communications with other directors, criticize the Company's personnel or
activities as may be appropriate in fulfilling his responsibilities.
8. Continued Cooperation. Employee agrees to cooperate with Company with
respect to matters that arose during or related to his employment,
including but not limited to, cooperation in connection with any litigation
or governmental investigation or regulatory or other proceeding which may
have arisen or which may arise following the execution of this Agreement.
As part of the cooperation agreed to herein, Employee shall provide
complete and truthful information to the Company and their attorneys with
respect to any matter arising during or related to Employee's employment.
Specifically, Employee shall make himself reasonably available to meet with
Company personnel and attorneys and shall provide to Company and their
attorneys any and all documentary or other physical evidence pertinent to
such matter. Employee agrees to execute and deliver to the Company any and
all agreements, instruments and other documents necessary or desirable to
accomplish or to carry out the provisions of this Severance and Consulting
Agreement, including without limitation, the assignment and transfer, to
perfect the title, and/or to obtain and promote the right to the Company's
exclusive enjoyment of any improvements, inventions, ideas, suggestions and
discoveries made or developed by Employee while in the employ of the
Company. Notwithstanding the foregoing, the Company acknowledges that it
has no claim to the patent applications described on Exhibit B to this
Agreement despite the fact that they were discoveries made or developed by
Employee while in the employ of the Company. Employee agrees when
reasonably requested by the Company, to testify in any legal proceedings on
behalf of the Company and to sign all lawful papers and execute and sign
any original, additional, provisional or reissue applications for letters
patent with respect to such improvements, inventions, ideas, suggestions
and discoveries which may be necessary or desirable to accomplish the
foregoing, and to do all lawful acts to aid the Company to obtain and
enforce protection of their improvements, inventions, ideas, suggestions
and discoveries in any and all countries. If requested to do so, Employee
will be provided reasonable out of pocket expenses incurred in providing
such testimony or assistance. Finally, Employee shall promptly notify the
Company, within three business days, of his receipt from any third party or
governmental entity of a request for testimony and/or documents, whether by
legal process or otherwise, relating to any matter arising during or
relating to Employee's employment. Employee agrees that his cooperation
hereunder is an integral part of this Severance Agreement.
<PAGE>
9. Arbitration of Claims. Any controversy or claim arising out of relating to
this Agreement, or the breach thereof, shall be settled by final and
binding arbitration initiated by either party in accordance with the Rules
of the American Arbitration Association, and judgment upon the award
rendered by the arbitration may be entered in any court with jurisdiction.
Either party may apply to any court with jurisdiction to seek injunctive
relief to maintain the status quo until the matter is resolved by the
arbitrator. The arbitration shall be conducted in Rochester, New York by an
arbitrator selected from a panel of arbitrators of the American Arbitration
Association. All fees and expenses of the arbitration shall be borne by the
parties equally, and each party shall bear the expense of their own
counsel, experts, witnesses and the preparation and presentation of proof
in any arbitration. In view of the nature of Employee's employment, the
Confidential Information which Employee received during the course of his
employment, and his position with the Company, Employee agrees that Company
would be irreparably harmed by any violation or threatened violation of
this Agreement, or any of the terms thereof, and therefore, in addition to
any other remedies which may be available to it, Company shall be entitled
to any injunction, without the necessity of posting bond, prohibiting
Employee from committing any violation or threatened violation of this
Agreement in a proceeding in either the Supreme Court of the State of New
York sitting in Monroe County or in the U.S. District Court for the Western
District of New York and Employee hereby consents to the jurisdiction of
said tribunals.
10. Notices, Consents, Requests or Other Communications. All notices, consents,
requests or other communications to the Company under this Agreement shall
be in writing and delivered by first class mail, postage prepaid, to the
Company at the above address to the attention of the Vice President of
Human Resources or at such other address of or to the attention of such
other officer or individual at the Company as may be designated in writing
by the Company from time to time. All notices to Employee under this
Agreement shall be in writing and delivered by first class mail, postage
prepaid, to Employee at the address set forth above or such other address
as may be designated in writing by Employee from time to time.
<PAGE>
11. Construction, Severability and Applicable Law.
(a) All understandings and agreements previously made by and
between the parties are merged in this Agreement, which fully and
completely expresses the agreement of the parties. This Agreement
may not be changed or terminated and none of its provisions may be
modified or waived, except in writing signed by both parties to
this Agreement.
(b) If any covenant or provision or part thereof contained in this
Agreement is determined to be void or unenforceable in whole or in
part, it shall not be deemed to affect or impair the validity of
any other covenant or part thereof or provision of this Agreement.
To the extent any provision is held invalid or unenforceable for
being too broad or extensive, it is the intention of the parties
that the court enforce such provision to the limits of proper
scope or breadth. Each of the provisions contained herein is
hereby declared to be a separate and distinct covenant severable
one from the other, and Company shall be entitled to enforce each
such covenant to the fullest extent permitted by law, in equity or
otherwise, notwithstanding that any other or others of such
covenants may not be enforceable, and in all other respects, this
Agreement shall remain in fully force and effect.
(c) This Agreement shall be governed and construed in accordance
with the laws of New York State.
<PAGE>
12. Review and Revocation Periods. Employee acknowledges and agrees that he has
been advised to seek the advice of legal counsel before executing this
Agreement, that he fully understands the terms of this Agreement, that he
has entered into this Agreement knowingly, voluntarily, and without threat
or duress, that he has received this Agreement on October 24, 1997, and has
had twenty-one (21) days to consider its terms prior to signing it, and
that he may revoke this Agreement in writing within seven (7) days from the
date that he signs it.
13. Miscellaneous. The following provisions shall apply to this Agreement:
(a) The section headings contained in this Agreement have been
prepared for convenience of reference only and shall not control,
affect the meaning, or be taken as an interpretation of any
provision of this Agreement.
(b) Several copies of this Agreement may be executed by the
parties, each of which shall be deemed an original for all
purposes, and all of which together shall constitute but one and
the same instrument.
(c) If in one or more instances either party fails to insist that
the other party perform any of the terms of this Agreement, this
failure shall not be construed as a waiver by such party of any
past, present, or future right granted under this Agreement, and
the obligations of both parties under this Agreement shall
continue in fully force and effect.
<PAGE>
13. Binding Effect. This Agreement shall be binding upon and will inure to the
benefit of the parties, their heirs, distributees, legal representatives,
transferees, successors, and assigns.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement.
PSC Inc.
Robert C. Strandberg Jay M. Eastman
President and CEO
<PAGE>
EXHIBIT A
Jay M. Eastman
Option Schedule
Date of Grant No. of Shares Vesting Dates Exercise Price Expiration Date*
- ------------- ------------- ------------- -------------- ----------------
2/27/89 25,000 2/27/89 $1.00 4/15/99
9/1/92 10,000 9/1/95 $11.00 4/15/99
4/28/93 20,000 10/28/96 $6.25 4/15/99
1/7/94 16,000 1/7/97 $5.75 4/15/99
5/3/95 46,453 7/13/95 $8.88 4/15/99
1/12/96 4,375 1/12/97 $7.875 4/15/99
1/12/96 4,375 1/12/98 $7.875 4/15/99
1/12/96 4,375 1/12/99 $7.875 4/15/99
-------
TOTAL 130,578
*BUT NO LATER THAN TEN (10) YEARS FROM DATE OF GRANT
Exhibit 10.12
1997 Management Incentive Plan
PSC INC.
MANAGEMENT INCENTIVE PLAN
Section 1. Purpose
The purpose of the PSC Inc. Management Incentive Plan is to promote the
interests of PSC Inc. and its shareholders by providing certain of its key
executives with an annual incentive whereby a significant portion of such
executive's compensation is tied to the achievement of preestablished and
objective performance goals. The Plan is designed to attract, motivate and
retain such key executives on a competitive basis in which total cash
compensation levels are closely linked with the attainment of the Corporation's
financial and strategic objectives.
Section 2. Definitions
The following definitions are applicable to the Plan:
2.1 "Board" means the Board of Directors of the Corporation.
2.2 "Code" means the Internal Revenue Code of 1986, as amended from
time to time and the regulations promulgated thereunder, or any successor
statute.
2.3 "Committee" means the Compensation Committee of the Board or such
other committee as may be designed by the Board to administer the Plan, and
shall consist only of members of the Board who are not employees of the
Corporation or any affiliate thereof and who qualify as "outside directors"
under Section 162(m) of the Code.
2.4 "Corporation" means PSC Inc., a corporation established under the
laws of the State of New York, and its subsidiaries and affiliates.
2.5 "Covered Employee" means a Participant who as of the close of the
Plan Year is the Chief Executive Officer of the Corporation or among the four
highest compensated officers of the Corporation for the Plan Year (other than
the chief executive officer) or who is otherwise deemed a "covered employee"
under Section 162(m) of the Code.
2.6 "Eligible Employee" means any executive officer or manager of the
Corporation and its subsidiaries.
2.7 "Incentive Award" means an award granted pursuant to Section 5
of this Plan.
2.8 "Participant" means any Eligible Employee of the Corporation and
its subsidiaries who has been selected by the Committee to participate in the
Plan during a Plan Year.
2.9 "Plan" means the PSC Inc. Management Incentive Plan, as may be
amended and restated from time to time.
2.10 "Plan Year" means the Corporation's fiscal year, or such other
period as designated by the Committee.
<PAGE>
Section 3. Administration of the Plan
The Plan shall be administered by the Committee. The Committee shall
have full authority to interpret the terms of the Plan, to adopt, amend and
rescind rules and guidelines for the administration of the Plan and for its own
acts and proceedings, to select Participants, to grant annual Incentive Awards
thereto and to decide all questions and settle all controversies and disputes
which may arise in connection with the Plan. The Committee shall report any
action taken by it to the meeting of the Board next following such action. The
decision of the Committee on any matter as to which the Committee is given
authority shall be final and binding on all persons concerned. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan.
Section 4. Eligibility and Participation
Within the first 90 days of each Plan Year, the Committee shall select
the Participants in the Plan for such year from among the Eligible Employees of
the Corporation and its subsidiaries. Directors who are full-time executive
officers of the Corporation shall be eligible to participate in the Plan.
Additional Participants may be approved by the Committee during the
Plan Year only in the event of unusual circumstances, such as a new hire or a
promotion.
Each Participant will be notified in writing at the time of his or her
selection as a Participant, of the amount and terms of his or her target annual
Incentive Award as determined in Section 5 below.
Section 5. Annual Incentive Awards
5.1 Individual Awards. Each Participant in the Plan shall be eligible
to receive such annual Incentive Award, if any, for each Plan Year as may be
payable pursuant to the performance criteria described in Section 5.2 below.
Except as provided in Section 7 below, the Committee shall, on an annual basis,
establish a "target annual Incentive Award" for each Participant equal to a
percentage of such Participant's base salary for such Plan Year, and the maximum
amount of a target annual Incentive Award that may be awarded to a Participant
for a Plan Year shall be 60% thereof. An individual who becomes a Participant
after the beginning of a Plan Year shall be entitled to an annual Incentive
Award prorated to reflect such Participant's number of months participating
during the Plan Year.
<PAGE>
<PAGE>
5.2 Performance Criteria and Goals. Participants shall have their
annual Incentive Awards, if any, determined on the basis of the degree of
achievement of performance goals which shall be established by the Committee in
writing within the first 90 days of each Plan Year and which goals shall be
stated in terms of the attainment of specified levels of or percentage changes
(as compared to a prior measurement period) in any one or more of the following
measurements: the Corporation's revenue, sales growth, earnings per share of
Common Stock, net income, return on equity, return on capital employed, return
on assets, total stockholder return or cash flow, or any combination thereof.
The Committee shall, for each Plan Year, establish the performance goal or goals
from among the foregoing to apply to each Participant and a formula or matrix
prescribing the extent to which such Participant's annual Incentive Award shall
be earned based upon the degree of achievement of such performance goal or
goals. The Committee may determine that the annual Incentive Award payable to
any Participant shall be based upon the attainment of performance goals
comparable to those specified above but in whole or in part applied to the
results of a subsidiary, division or sector of the Corporation for which such
Participant has substantial responsibility.
5.3 Change in Target Annual Incentive Award. A Participant's target
annual Incentive Award or performance goals may be changed by the Committee
during the Plan Year to reflect a change in responsibilities; provided that any
such change shall be made in a manner consistent with Section 162(m) of the
Code.
5.4 Ability to Reduce or Increase Awards. The Committee may, in its
sole and absolute discretion, decrease the amount of, or eliminate, an annual
Incentive Award otherwise payable to a Participant even though earned in
accordance with the performance goals established pursuant to this Section 5, if
the Committee deems such action warranted based on other circumstances relating
to the performance of the Corporation or the Participant. Except with respect to
annual Incentive Awards payable to Covered Employees, and notwithstanding the
failure to satisfy the applicable performance goals, the Committee shall also
have the sole discretion to increase the amount of any Participant's annual
Incentive Award to reflect individual performance and/or unanticipated factors.
In no event, however, shall the Committee have the discretion to increase the
amount of an annual Incentive Award to a Covered Employee.
5.5 Performance Goal Certification. With respect to each Participant,
no annual Incentive Award shall be payable hereunder except upon written
certification by the Committee that the performance goals have been satisfied to
a particular extent and that any other material terms and conditions precedent
to payment of an annual Incentive Award pursuant to the Plan have been
satisfied.
<PAGE>
5.6 Maximum Award Payable. The maximum annual Incentive Award
payable to any Participant for any Plan Year shall be $700,000.
Section 6. Payment of Annual Incentive Award
Subject to Section 5.5, payment of any amount to be paid to a
Participant based upon the degree of attainment of the applicable performance
goals shall be made as promptly as practicable after the end of the Plan Year.
Section 7. Termination of Employment; Change-in-Control
7.1 A Participant whose employment terminates during the Plan Year for
any reason (whether as the result of death, retirement, disability, leave of
absence or otherwise) and who is not an employee of the Corporation on the last
day of the Plan Year shall not be entitled to the payment of an Incentive Award
for that Plan Year, except as the Committee may otherwise determine in its sole
discretion. Notwithstanding the above, if as a result of a Change-in-Control a
Participant retires, is assigned to a different position, is placed on a leave
of absence of if the Participant's employment is terminated before the end of
the Plan Year (except for cause), he or she shall receive a full Incentive Award
for that Plan Year.
7.2 For purposes of the Plan, "Change-in-Control" means
(a) any "person" as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") (other than
the Corporation) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 30% or more of the combined voting power of the
Corporation's then outstanding securities;
(b) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board, and any new director
whose election by the Board was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election was previously so approved cease for any reason
to constitute at least a majority thereof;
(c) the shareholders of the Corporation approve a merger or
consolidation of the Corporation with any other company, other than (1) a merger
or consolidation which would result in the voting securities of the Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Corporation or such surviving entity outstanding immediately
after such merger or consolidation or (2) a merger or consolidation effected to
implement a recapitalization of the Corporation (or similar transaction) in
which no "person" (as hereinabove defined) acquires more than 50% of the
combined voting power of the Corporation's then outstanding securities;
(d) the shareholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the Corporation's
assets.
Section 8. Participant's Interests
A Participant's interest in any annual Incentive Award hereunder shall
at all times be reflected on the Corporation's books as a general unsecured and
unfunded obligation of the Corporation subject to the terms and conditions of
the Plan. The Plan shall not give any person any right or security interest in
the income or in any asset of the Corporation. Neither the Corporation, the
Board, nor the Committee shall be responsible for the adequacy of the general
assets of the Corporation to discharge the payment of its obligations hereunder
nor shall the Corporation be required to reserve or set aside funds therefor.
Section 9. Non-Alienation of Benefits; Beneficiary Designation
All rights and benefits under the Plan are personal to the Participant
and neither the Plan nor any right or interest of a Participant or any other
person arising under the Plan is subject to voluntary or involuntary alienation,
sale, transfer, or assignment without the Corporation's consent. Subject to the
foregoing, the Corporation shall establish such procedures as it deems necessary
for a Participant to designate one or more beneficiaries to whom any annual
Incentive Award payment the Committee determines to make would be payable in the
event of the Participant's death.
Section 10. Withholding for Taxes
Notwithstanding any other provisions of this Plan, the Corporation may
withhold from any annual Incentive Award payment made by it under the Plan such
amount or amounts as may be required for purposes of complying with any federal,
state and local tax or withholding requirements.
<PAGE>
Section 11. Rights of Employees
Nothing in the Plan shall interfere with or limit in any way the right
of the Corporation or any of its subsidiaries or affiliates to terminate a
Participant's employment at any time, or confer upon any Participant any right
to continued employment with the Corporation or any of its subsidiaries or
affiliates.
Section 12. Adjustment of Awards
The Committee shall be authorized to make adjustments in the method of
calculating attainment of performance goals in recognition of unusual or
nonrecurring events affecting the Corporation or its financial statements or
changes in applicable laws, regulations or accounting principles; provided,
however, that no such adjustment shall impair the rights of any Participant
without his or her consent and that any such adjustment shall be made in a
manner consistent with Section 162(m) of the Code. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or any
annual Incentive Award in the manner and to the extent it shall deem desirable
to carry it into effect.
Section 13. Amendment or Termination
The Committee may, in its sole and absolute discretion, amend, suspend
or terminate the Plan at any time, with or without advance notice to
Participants. No such amendment, suspension or termination shall alter a
Participant's right to receive the payment of an annual Incentive Award for a
Plan Year already ended.
The Committee may, from time to time, amend the Plan in any manner if
the Committee determines that such amendment may be made without shareholder
approval and without jeopardizing qualification of the annual Incentive Awards
as performance-based compensation under Section 162(m) of the Code.
Section 14. Effective Date
The Plan shall become effective as of January 1, 1997.
Section 15. Applicable Law
The Plan and all rights thereunder shall be governed by and construed
in accordance with the laws of the State of New York.
PSC INC. 401(k) PLAN
THIRD RESTATEMENT
EFFECTIVE JULY 1, 1997
Prepared By: BOYLAN, BROWN, CODE, FOWLER, VIGDOR & WILSON, LLP
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Article 1. - PRELIMINARY MATTERS 1
1.1 Establishment of Plan
1.2 Purpose of Plan
1.3 Mistake of Fact
1.4 Mistake of Law
1.5 Return of Employer Contribution
- -------------------------------------------------------------------------------
Article 2. - DEFINITIONS 3
2.1 Accrued Benefit
2.2 Actual Contribution Percentage
2.3 Actual Deferral Percentage
2.4 Anniversary Date
2.5 Annual Additions
2.6 Annuity Starting Date
2.7 Beneficiary
2.8 Board
2.9 Calendar Year
2.10 Compensation
2.11 Determination Date
2.12 Effective Date
2.13 Eligibility Computation Period
2.14 Employee
2.15 Employer
2.16 ERISA
2.17 Fiscal Year
2.18 Five Percent Owner
2.19 Former Key Employee
2.20 Fund
2.21 Highly Compensated Participant
2.22 Hour of Service
2.23 Internal Revenue Code
2.24 Key Employee
2.25 Key Officer
2.26 Key Owner
2.27 Labor Agreement
2.28 Leased Employee
2.29 Limitation Year
2.30 Minimum Allocation
2.31 Non-Key Employee
2.32 Normal Retirement Date
2.33 One Percent Owner
2.34 Participant
2.35 Participating Employer
2.36 Permissive Aggregation Group
2.37 Plan
2.38 Plan Year
2.39 Qualified Matching Contribution
2.40 Qualified Non-Elective Contribution
2.41 Required Aggregation Group
2.42 Retirement Committee
2.43 Salary Reduction Agreement
2.44 Spouse
2.45 Super Top Heavy
2.46 Top Heavy
2.47 Top Heavy Ratio
2.48 Trust Agreement
<PAGE>
2.49 Trustee
2.50 Valuation Date
2.51 Valuation Period
2.52 Vesting Computation Period
2.53 Year of Service
- -------------------------------------------------------------------------------
Article 3. - PARTICIPATION 18
3.1 Eligibility Requirements
3.2 Entry Date
3.3 Exclusion for Collective Bargaining Employees
3.4 Other Exclusions
3.5 Special Participation Provisions
3.6 Continued Participation
- -------------------------------------------------------------------------------
Article 4. - CONTRIBUTIONS 20
4.1 Employee Contributions
4.2 Employer Contributions
4.3 Time of Contribution
4.4 Deferral Percentage Test
4.5 Contribution Percentage Test
4.6 Dollar Limit on Elective Deferrals
4.7 Rollover Contributions
4.8 Irrevocability of Contributions
4.9 Contribution Records
4.10 Administrative Expenses
- -------------------------------------------------------------------------------
Article 5. - CREDITS TO PARTICIPANTS 25
5.1 Maintenance of Accounts
5.2 Allocation of Employer Contributions
5.3 Annual Additions
5.4 Allocation of Excess Contributions
5.5 Valuation of Accounts
5.6 Limitation
- -------------------------------------------------------------------------------
Article 6. - VESTING OF BENEFITS 27
6.1 Employee Contributions
6.2 Employer Contributions
- -------------------------------------------------------------------------------
Article 7. - DISTRIBUTION OF BENEFITS 28
7.1 Application
7.2 Normal and Late Retirement
7.3 Death Benefit
7.4 Other Termination of Employment
7.5 After-Tax and Rollover Contributions
7.6 In-Service Distributions
7.7 Hardship Withdrawals
7.8 Consent to Distribution
7.9 Facility of Payment
7.10 Limitation
- -------------------------------------------------------------------------------
Article 8. - REQUIRED DISTRIBUTIONS 32
8.1 Delay of Distributions By Employer
8.2 Delay of Distributions By Participants
8.3 Minimum Distributions
8.4 Distributions Upon Death
- -------------------------------------------------------------------------------
<PAGE>
Article 9. - FORM OF DISTRIBUTION 34
9.1 Optional Forms of Distribution
9.2 Designation of Beneficiaries
9.3 Notice of Requirements
9.4 Eligible Rollover Distribution
- -------------------------------------------------------------------------------
Article 10. - TOP HEAVY REQUIREMENTS 36
10.1 Minimum Allocations
- -------------------------------------------------------------------------------
Article 11. - ADMINISTRATION OF THE PLAN 37
11.1 Appointment of Retirement Committee
11.2 Named Fiduciaries
11.3 Responsibilities of Retirement Committee
11.4 Delegation of Responsibilities
11.5 Third Party Contracts
11.6 Meetings
11.7 Expenses
11.8 Reports
11.9 Plan Administrator
11.10 Indemnification
- -------------------------------------------------------------------------------
Article 12. - AMENDMENT AND TERMINATION OF THE PLAN 40
12.1 Amendment
12.2 Termination
12.3 Satisfaction of Liabilities
- -------------------------------------------------------------------------------
Article 13. - ESTABLISHMENT OF THE TRUST 42
13.1 Trust Agreement
13.2 Duties of the Trustee
13.3 Direction of Investment by Participants
13.4 Loans to Participants
- -------------------------------------------------------------------------------
Article 14. - GENERAL PROVISIONS 44
14.1 Employment Status
14.2 Nonalienation of Benefits
14.3 Impossibility of Performance
14.4 Construction
14.5 Termination of Trust
14.6 Governing Law
14.7 Mergers and Transfers
14.8 Participating Employers
14.9 Claims Procedure
14.10 Appeal Procedure
14.11 Counterparts
<PAGE>
1. PRELIMINARY MATTERS
1.1. Establishment of Plan
The Plan evidenced by this instrument shall be known as the PSC Inc. 401(k)
Plan. The Plan was adopted by the Employer effective July 1, 1985 and has been
amended as follows:
AMENDMENT EFFECTIVE DATE
Amendment 1 (amended and restated) January 1, 1989
Amendment 2 (amended and restated) October 1, 1995
Amendment 3 (this amendment and restatement) July 1, 1997
1.2. Purpose of Plan
The Plan is established for the purpose of providing retirement benefits for
eligible Employees of the Employer. Except as provided in this Plan and as
permitted by law, under no circumstances shall any part of the corpus or income
of the Fund be used for or diverted to purposes other than the exclusive benefit
of the Employees of the Employer and their Beneficiaries.
1.3. Mistake of Fact
If all or part of a contribution is made by the Employer as a result of a good
faith mistake of fact, an amount equal to the excess of the amount contributed
over the amount which would have been contributed had the mistake not occurred
may be returned to the Employer within one year after it was paid to the
Trustees.
1.4. Mistake of Law
If a contribution is conditioned upon its deductibility by the Employer under
Section 404 of the Internal Revenue Code and if the Employer makes the
contribution as a result of a good faith mistake in determining its
deductibility, upon disallowance of the deduction by the Internal Revenue
Service, the contribution may be returned to the Employer to the extent a
deduction was not allowed, within one year after the disallowance becomes final.
1.5. Return of Employer Contribution
In determining the amount to be returned to the Employer in the event of a
mistaken contribution the following rules shall apply.
(1) Earnings attributable to the excess contribution shall not be returned to
the Employer.
(2) Losses attributable to the excess contribution shall reduce the amount to be
returned to the Employer.
(3) If the withdrawal of the amount attributable to the mistaken contribution
would cause the balance of the individual account of any Participant to be
reduced to less than the balance which would have been in the account had the
mistaken amount not been contributed, then the amount returned to the Employer
shall be limited to the extent necessary to avoid the reduction.
<PAGE>
DEFINITIONS
1.6. Accrued Benefit
"Accrued Benefit" means the value of a Participant's Accounts determined in
accordance with Article 5.
1.7. Actual Contribution Percentage
"Actual Contribution Percentage" means the average of the ratios, calculated
separately for each Participant in the group, of the matching contributions made
to this Plan on behalf of each Participant (including any forfeitures of
matching contributions and forfeitures of contributions in excess of the
contribution percentage limits specified in Section 4.5 of the Plan) to the
Compensation of the Participant.
(1) At the discretion of the Employer, the calculation of Actual Contribution
Percentages also may include the amount of any elective or Qualified
Non-Elective Contributions made to the Plan on behalf of each Participant. The
amount of any elective contributions, matching contributions, or non-elective
contributions used to satisfy the Deferral Percentage Test of Section 4.4 of the
Plan shall not be used in the calculation of Actual Contribution Percentages. In
addition, the calculation of Actual Contribution Percentages shall not include
the amount of any matching contributions that are forfeited because (i) they
exceed the contribution limits stated in Section 4.5 of the Plan, or (ii) they
relate to contributions in excess of the deferral limit stated in Section 4.4 of
the Plan or the dollar limit stated in Section 4.6 of the Plan.
(2) The Actual Contribution Percentage for any Highly Compensated Participant
for the Plan Year who is eligible to participate in two or more qualified plans
maintained by the Employer shall be determined as if all matching contributions
were made to a single plan. If a Highly Compensated Participant participates in
two or more qualified plans that have different Plan Years, all plans ending
with or within the same Calendar Year shall be treated as a single plan.
<PAGE>
(3) In the event that the Plan satisfies the requirements of Sections 401(k),
401(a)(4), or 410(b) of the Internal Revenue Code only if aggregated with one or
more other plans, or if one or more other plans satisfy those requirements only
if aggregated with this Plan, then the Actual Contribution Percentage of all
Participants shall be determined as if all of these plans were a single plan.
For Plan Years beginning after December 31, 1989, plans may be aggregated in
order to satisfy Section 401(m) of the Internal Revenue Code only if they have
the same Plan Year. (4) The Employer shall maintain records sufficient to
demonstrate satisfaction of the Actual Contribution Percentage test and the
amount of any matching or non-elective contributions used in the test.
1.8. Actual Deferral Percentage
"Actual Deferral Percentage" means the average of the ratios, calculated
separately for each Participant in the group, of the elective contribution made
to this Plan on behalf of each Participant to the Compensation of that
Participant. For purposes of this calculation, an Employee who would be a
Participant but for the failure to make elective contributions to the Plan shall
be treated as a Participant who makes no elective contribution to the Plan. (1)
At the discretion of the Employer, the calculation of Actual Deferral
Percentages also may include the amount of any Qualified Matching Contributions
or Qualified Non-Elective Contributions made to the Plan on behalf of each
Participant. The amount of any excess elective contributions distributed to
Participants on or before April 15 of the following Calendar Year shall not be
used in the calculation of Actual Deferral Percentages. (2) The Actual Deferral
Percentage for any Highly Compensated Participant for the Plan Year who is
eligible to participate in two or more Section 401(k) plans maintained by the
Employer shall be determined as if all elective contributions (and, if
applicable, any matching contributions or non-elective contributions described
in Section (1) above) were made to a single plan. If a Highly Compensated
Participant participates in two or more 401(k) plans that have different Plan
Years, all plans ending with or within the same Calendar Year shall be treated
as a single plan. (3) In the event that the Plan satisfies the requirements of
Sections 401(k), 401(a)(4), or 410(b) of the Internal Revenue Code only if
aggregated with one or more other plans, or if one or more other plans satisfy
those requirements only if aggregated with this Plan, then the Actual Deferral
Percentage of all Participants shall be determined as if all of these plans were
a single plan. For Plan Years beginning after December 31, 1989, plans may be
aggregated in order to satisfy Section 401(k) of the Internal Revenue Code only
if they have the same Plan Year. (4) The Employer shall maintain records
sufficient to demonstrate satisfaction of the Actual Deferral Percentage test
and the amount of any matching or non-elective contributions used in the test.
1.9. Anniversary Date
"Anniversary Date" means the last day falling within any Plan Year. When the
context requires that a computation be made on an Anniversary Date which is not
a business day, the computation shall be made as of the last business day
preceding the Anniversary Date.
<PAGE>
1.9.1 Annual Additions
"Annual Additions" means amounts credited to the accounts of Participants under
the Plan, any other defined contribution plan maintained by the Employer, and
certain welfare funds maintained by the Employer as follows: (i) Employer
contributions; (ii) Participant contributions; (iii) allocations of forfeitures;
(iv) contributions in excess of the deferral percentage limits or contribution
percentage limits specified in Sections 4.4 and 4.5 of the Plan; (v) amounts
allocated, after March 31, 1984, to an individual medical account, as defined in
Section 415(l)(2) of the Internal Revenue Code, which is part of a pension or
annuity plan maintained by the Employer; and (vi) amounts derived from
contributions paid or accrued prior to December 31, 1985, in taxable years
ending after that date, which are attributable to post-retirement medical
benefits allocated to the separate account of a Key Employee under a welfare
benefit fund, as defined in Section 419(e) of the Internal Revenue Code,
maintained by the Employer. Rollover contributions shall not be treated as
Annual Additions. Elective contributions in excess of the limits specified in
Section 4.6 shall be treated as Annual Additions unless the excess amounts are
distributed to the Participants no later than April 15 of the Calendar Year
following the end of the taxable year in which the excess contribution occurred.
For purposes of this definition, Employer includes any organization required to
be aggregated with the Employer under Section 414(b), (c), or (m) of the
Internal Revenue Code.
1.10. Annuity Starting Date
"Annuity Starting Date" means the first day of the first period for which an
amount is payable as an annuity, or any other form.
1.11. Beneficiary
"Beneficiary" means a person who is so designated by a Participant to receive
any death benefits payable under this Plan.
1.12. Board
"Board" means the Board of Directors of the Employer.
<PAGE>
1.13. Calendar Year
"Calendar Year" means the calendar year ending with or within the Plan Year.
1.14. Compensation
"Compensation" is determined in different ways for different purposes under the
Plan.
(1) For purposes of determining contributions and allocations under Articles 4
and 5, Compensation means regular wages, overtime, premium pay, and commissions,
and excludes bonuses, profit-sharing payouts, car allowances, and other special
benefits paid to Participants during the Plan Year. Compensation also shall
include elective contributions made by the Employer on behalf of Participants
that are not includable in gross income under Section 125 and Section 402(e)(3)
of the Internal Revenue Code. Compensation shall be measured on a Plan Year
basis for all Participants regardless of their entry date.
(2) For purposes of calculating annual additions under Section 5.4 of the Plan,
Compensation means a Participant's wages, salary, earned income, fees for
professional services, and any other amounts received for personal services
actually rendered in the course of employment with the Employer (including, but
not limited to, commissions, premiums, tips, bonuses, fringe benefits includable
in the gross income of the Participant, and the value of any non-qualified stock
option includable in gross income of the Participant for the year of the grant).
For purposes of this definition, Compensation shall exclude the following:
(i) Contributions to a plan of deferred compensation which are not
includable in the Employee's gross income for the taxable year
in which contributed, contributions under a simplified employee
pensions plan to the extent such contributions are deductible by
the Employer, or any distributions from a plan of deferred
compensation;
(ii) Amounts realized from the exercise of a non-qualified stock
option, or amounts realized when restricted stock (or property)
held by the Employee either becomes freely transferable or is no
longer subject to a substantial risk of forfeiture;
(iii) Amounts realized from the sale, exchange, or other disposition
of stock acquired under a qualified stock option; and
(iv) Other fringe benefits excludable from gross income of the
Participant, or contributions made by the Employer, under a
salary reduction agreement or otherwise, towards the purchase of
an annuity described in Section 403(b) of the Internal Revenue
Code (whether or not the amounts are actually excludable from
the gross income of the employee).
<PAGE>
For purposes of applying the restrictions of this subsection, Compensation for a
Limitation Year is the Compensation actually paid or included in gross income
during the Limitation Year. (3) For purposes of the definition of Highly
Compensated Participant, Compensation means the amount determined under
subsection (2) above, but adjusted to include the amount of any contributions
made by the Employer on behalf of Participants that are not includable in gross
income under Section 125 or Section 402(e)(3) of the Internal Revenue Code. (4)
For purposes of the definition of Actual Deferral Percentage and Actual
Contribution Percentage, Compensation means the amount determined under
subsection (3) above calculated from the date the Participant enters the Plan.
(5) For purposes of the definitions of Key Officer, Key Owner, and One Percent
Owner, Compensation has the same meaning as set forth in subsection (3) above.
For purposes of determining the minimum Top Heavy benefit under Section 10.1 of
the Plan, Compensation has the same meaning as set forth in subsection (2)
above. Alternatively, the Employer may elect to use the income stated on the
Participant's Form W-2 for the Calendar Year that ends with or within the Plan
Year to determine the minimum top heavy benefit. (6) For all purposes under the
Plan, the Compensation taken into account for each Participant during any Plan
Year beginning prior to January 1, 1994 shall not exceed $200,000.00 (subject to
annual cost-of-living adjustments under Section 401(a)(17) of the Internal
Revenue Code), and the Compensation taken into account for each Participant
during any Plan Year beginning on or after January 1, 1994 shall not exceed
$150,000 (subject to adjustments in $10,000 increments).
1.15. Determination Date
"Determination Date" means the last day of the Plan Year with respect to the
first Plan Year of the Plan, and the last day of the preceding Plan Year with
respect to any Plan Year after the first.
1.16. Effective Date
"Effective Date" with respect to the Employer means July 1, 1985, and, with
respect to any Participating Employer that adopts the Plan, the date set forth
in Appendix A opposite the Participating Employer's name.
1.17. Eligibility Computation Period
"Eligibility Computation Period" means the twelve month period beginning on the
date the Employee first performs an Hour of Service for the Employer and
succeeding consecutive twelve-month periods commencing with the first
anniversary of the Employee's commencement date.
<PAGE>
1.18. Employee
"Employee" means any person (but not including a person acting only as a
director) who performs an Hour of Service for the Employer, and who receives
Compensation for his Service other than a pension, retirement allowance,
retainer, or fee under contract. The term "Employee" shall not include Leased
Employees, nor shall it include individuals who provide services to the Employer
but receive compensation for their services from other sources.
1.19. Employer
"Employer" means PSC Inc.
1.20. ERISA
"ERISA" means the Employee Retirement Income Security Act of 1974, as it has
been and may be amended, and corresponding provisions of future laws.
1.21. Fiscal Year
"Fiscal Year" means the fiscal year of the Employer.
1.22. Five Percent Owner
"Five Percent Owner" means any person who during the Plan Year or any of the
preceding four Plan Years owned or constructively owned more than five percent
of the outstanding stock, capital, or profit interest of the Employer, or stock
possessing more than five percent of the total combined voting power of all
stock of the Employer.
1.23. Former Key Employee
"Former Key Employee" means an Employee who is not a Key Employee for the Plan
Year or any of the four preceding Plan Years but who was a Key Employee at any
time preceding this period. The Beneficiary of a Former Key Employee shall be
considered a Former Key Employee.
1.25. Fund
"Fund" means all moneys and property paid or delivered to, and accepted by, the
Trustees pursuant to the Trust Agreement and the Plan, and all investments made
therewith and proceeds thereof and all earnings and profits thereon, less the
payments made by the Trustees as authorized in the Trust Agreement.
1.26. Highly Compensated Participant
"Highly Compensated Participant" means, for Plan Years beginning on or after
January 1, 1997, any Participant who: (1) Owned or constructively owned more
than a five percent interest in the Employer at any time during the current or
preceding Plan Year, or (2) Received Compensation from the Employer in excess of
$80,000 (or any other amount prescribed by Treasury Regulations) during the
preceding Plan Year. The Retirement Committee may, in its discretion, elect to
limit the number of Participants that must be recognized as Highly Compensated
under this Subsection (2) to those Participants in the top twenty percent of
Employees ranked by Compensation in the prior Plan Year, provided that the group
of Employees constituting the top twenty percent by pay shall be determined
without regard to those Employees who:
(i) Have not completed six months of Service;
(ii) Normally work less than 17 1/2 hours per week;
(iii) Normally work during not more than six months in any Plan Year
(iv) Have not attained age 21;
(v) Are included in a unit of Employees covered by a collective
bargaining agreement between the Employer and a union (if at
least ninety percent of all Employees are covered under
collective bargaining agreements and the Plan excludes
collective bargaining employees); or
(vi) Are non-resident aliens with no earned income from sources within
the United States.
For Plan Years prior to January 1, 1997, the status of Highly Compensated
Participants shall be determined under the provisions of the Plan in effect
during the applicable Plan Year.
<PAGE>
1.26. Hour of Service
"Hour of Service" means:
(1) Each hour for which an Employee is directly or indirectly paid, or is
entitled to be paid, by the Employer for the performance of duties for the
Employer.
(2) Each hour for which an Employee is paid or is entitled to be paid by the
Employer on account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including Disability), layoff, jury
duty, military duty, or leave of absence. Notwithstanding the preceding
sentence:
(i) No more than 501 Hours of Service shall be credited under this
paragraph (2) to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or
not such period occurs in a single computation period). For
purposes of this subsection, the number of Hours of Service
credited and the computation periods to which they will be
credited will be determined in accordance with Department of
Labor Regulations 2530.200b-2(b) and (c).
(ii) An hour for which an Employee is directly or indirectly paid, or
is entitled to payment, on account of a period during which no
duties are performed shall not be credited to the Employee if
such payment is made or due under a plan maintained solely for
the purpose of complying with applicable workers' compensation,
unemployment compensation or disability insurance laws.
(iii) Hours of Service shall not be credited for a payment which
solely reimburses an Employee for medical or medically related
expenses incurred by the Employee. These hours shall be credited
to the Employee for the computation period or periods in which
the period during which no duties were performed occurs.
(3) Each hour for which back pay, irrespective of mitigation of damages, has
been either awarded or agreed to by the Employer. The same Hours of Service
shall not be credited both under paragraphs (1) or (2) of this subsection and
under this paragraph. These hours will be credited for the computation period or
periods to which the award or agreement pertains rather than the computation
period in which the award, agreement, or payment is made.
(4) Each hour for which an Employee is absent due to pregnancy of the Employee,
birth or adoption of the Employee's child, or care of the Employee's child
immediately following birth or adoption. No more than eight Hours of Service per
day up to 501 Hours of Service during the relevant computation period shall be
credited under this paragraph (4) to an Employee on account of any single
continuous period during which the Employee performs no duties (whether or not
such period occurs in a single computation period). Hours of Service shall be
credited under this paragraph to the Plan Year in which the absence begins only
if credit is needed to prevent the Participant from incurring a Break in Service
for that year; in any other case, the Hours of Service shall be credited to the
following Plan Year.
Hours of Service will be credited for employment with other members of the
Employer's (i) affiliated service group under Internal Revenue Code Section
414(m); (ii) controlled group of corporations under Internal Revenue Code
Section 414(b); (iii) group of trades or businesses under common control under
Internal Revenue Code Section 414(c); or (iv) any other entity required to be
aggregated with the Employer pursuant to Internal Revenue Code Section 414(o)
and the regulations thereunder.
1.27. Internal Revenue Code
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended and
corresponding provisions of future laws, as amended.
1.27.1 Key Employee
"Key Employee" means a Key Officer, Key Owner, Five Percent Owner, One Percent
Owner, or Beneficiary of a Key Employee, as defined in this Plan and as further
described in Section 416(i)(1) of the Internal Revenue Code and corresponding
Treasury Regulations.
<PAGE>
1.28. Key Officer
"Key Officer" means an officer whose Compensation from the Employer and all
aggregated organizations during the Plan Year or any of the four preceding Plan
Years exceeded fifty percent of the dollar limitation in effect under Internal
Revenue Code Section 415(b)(1)(A) for any such Plan Year, provided that for
purposes of this definition, no more than fifty Employees, or, if less, the
greater of (i) three, or (ii) ten percent of the Employees of the Employer (or
any organization required to be aggregated with the Employer under Sections
414(b) (c) or (m) of the Internal Revenue Code) shall be considered officers.
For purposes of this definition, "officer" means an administrative executive who
was employed by the Employer (or by any organization required to be aggregated
with the Employer under Sections 414(b), (c), or (m) of the Internal Revenue
Code) regularly and continuously for any period of time during the Plan Year or
the four preceding Plan Years. The term includes individuals who are designated
officers of a corporation under state law unless their offices are merely
titular or are held solely for convenience. For purposes of this definition,
Compensation shall have the meaning described in Section 2.12(5) of the Plan.
1.29. Key Owner
"Key Owner" means an Employee who during the Plan Year or any of the preceding
four Plan Years owned (or constructively owned under Section 318 of the Internal
Revenue Code) one of the ten largest interests in the Employer and all
organizations required to be aggregated with the Employer under Sections 414(b),
(c), or (m) of the Internal Revenue Code, and whose Compensation from the
Employer and all aggregated organizations exceeded $30,000 or such other amount
prescribed under Section 415(c)(1)(A) of the Internal Revenue Code. If two
Employees have the same interest in the Employer, the Employee having the
greater Compensation shall be treated as having a larger interest. For purposes
of this definition, Compensation shall have the meaning described in Section
2.12(5) of the Plan.
1.30. Labor Agreement
"Labor Agreement" means a collective bargaining agreement between the Employer
and a collective bargaining agent representing a class of employees covered
under this Plan.
1.30.1 Leased Employee
"Leased Employee" means an individual who is not employed by the Employer but
who provides service to the Employer (or any related persons determined under
Internal Revenue Code Section 414(n)(6)):
(i) Pursuant to an agreement between the Employer and a leasing
organization, (ii) On a substantially full-time basis for a period of
at least one year, and (iii) Under the primary direction or control of
the Employer.
For purposes of this definition, an individual will be deemed to perform
services on a substantially full-time basis for one year if, during any
consecutive twelve-month period, (i) the individual performs at least 1500 Hours
of Service for the Employer, or (ii) the Hours of Service performed by the
individual equal or exceed seventy-five percent of the average number of hours
customarily performed by Employees in that position.
1.31. Limitation Year
"Limitation Year" means the Plan Year.
1.32. Minimum Allocation
"Minimum Allocation" means the lesser of (i) three percent of a Participant's
Compensation, or (ii) the largest percentage of Compensation (as limited by
Section 2.12 of the Plan) allocated under the Plan to any Key Employee on
account of the Plan Year, including the amount of any elective contributions
made by Key Employees. The amount of any elective contributions made by Non-Key
Employees and matching contributions made by the Employer shall not count in
determining their Minimum Allocations, but the amount of any non-elective
contributions made by the Employer on behalf of Non-Key Employees shall be
counted in this determination.
1.33. Non-Key Employee
"Non-Key Employee" is an Employee who does not meet the definition of Key
Employee.
1.34. Normal Retirement Date
"Normal Retirement Date" means the attainment of age 59 1/2.
1.35. One Percent Owner
"One Percent Owner" means a person who during the Plan Year or any of the four
preceding Plan Years owned or constructively owned more than one percent of the
outstanding stock, capital, or profit interest of the Employer, or stock
possessing more than one percent of the total combined voting power of all stock
of the Employer, and who had annual Compensation in excess of $150,000 from the
Employer and any organization required to be aggregated with the Employer under
Sections 414(b), (c), and (m) of the Internal Revenue Code. For purposes of this
definition, Compensation shall have the meaning described in Section 2.12(5) of
the Plan.
<PAGE>
1.36. Participant
"Participant" means any person included in the Plan as provided in this
instrument.
1.37. Participating Employer
"Participating Employer" means any corporation who, along with the Employer, is
a member of an affiliated group of corporations as defined in Section 1504 of
the Code and a member of a commonly controlled group of corporations as defined
in Section 414(b) of the Code, and who, with the consent of the Employer, adopts
this Plan for the benefit of its employees. A list of all Participating
Employers and the Effective Date of their participation is set forth in Schedule
A to the Plan.
1.38. Permissive Aggregation Group
"Permissive Aggregation Group" means the Required Aggregation Group plus one or
more plans of the Employer which are not members of the Required Aggregation
Group but which satisfy the minimum participation standards of Sections 410 and
401(a)(1) (4) of the Internal Revenue Code when considered together with the
Required Aggregation Group.
1.39. Plan
"Plan" means PSC Inc. 401(k) Plan as set forth in this document or as amended
from time to time.
1.40. Plan Year
"Plan Year" means any 12 consecutive calendar months commencing on January 1.
1.41. Qualified Matching Contributions
"Qualified Matching Contributions" means matching contributions described in
Section 4.2 of the Plan which are (i) fully and immediately vested; (ii) subject
to the distribution limitations of Section 401(k) of the Internal Revenue Code;
(iii) not contingent on the performance of Service after the Plan Year; and (iv)
paid to the Trust within twelve months following the end of the Plan Year.
1.42. Qualified Non-Elective Contributions
"Qualified Non-Elective Contributions" means non-elective Employer contributions
described in Section 4.2 of the Plan which are (i) fully and immediately vested;
(ii) not available to Participants until distributed from the Plan; (iii)
subject to the distribution limitations of Section 401(k) of the Internal
Revenue Code; (iv) not contingent on the performance of Service after the Plan
Year; and (v) paid to the Trust within twelve months following the end of the
Plan Year.
1.43. Required Aggregation Group
"Required Aggregation Group" means a group of plans maintained by the Employer
or any organization aggregated with the Employer under Sections 414(b), (c), or
(m) of the Internal Revenue Code that includes each plan (i) in which a Key
Employee participates or participated at any time during the determination
period, and (ii) which enables any plan in which a Key Employee participates to
meet the minimum participation standards of Sections 401(a)(1) or 410 of the
Internal Revenue Code. Plans terminated within the five-year period ending on
the Determination Date must be included in determining the Required Aggregation
Group.
1.44. Retirement Committee
"Retirement Committee" means the committee appointed by the Board pursuant to
Article 11 of the Plan to control and manage its operation.
1.45. Salary Reduction Agreement
"Salary Reduction Agreement" means an agreement entered into between the
Employer and a Participant under which the Participant agrees to forego a salary
increase or to reduce his Compensation to enable the Employer to contribute on
his behalf to the Plan.
1.46. Spouse
"Spouse" means a wife or husband who has been continually and lawfully married
to a Participant on the Annuity Starting Date, or, if the Participant did not
begin receiving distributions prior to death, who has been continually and
lawfully married to the Participant on the date of the Participant's death.
Notwithstanding the foregoing provision, a former Spouse will be treated as the
Spouse and a current Spouse will not be treated as the Spouse to the extent
provided under a qualified domestic relations order as described in Section
414(p) of the Internal Revenue Code.
<PAGE>
1.47. Super Top Heavy
The Plan will be considered "Super Top Heavy" for a Plan Year if the Top Heavy
Ratio for the Plan (or if applicable, for the Required Aggregation Group) is
more than ninety percent. Notwithstanding the preceding sentence, the Plan will
not be considered Super Top Heavy if, after aggregation of the Plan with one or
more plans of the Permissive Aggregation Group, the Top Heavy Ratio does not
exceed ninety percent.
1.48. Top Heavy
The Plan will be considered "Top Heavy" for a Plan Year if the Top Heavy Ratio
for the Plan (or, if applicable, for the Required Aggregation Group) is more
than sixty percent. Notwithstanding the preceding sentence, the Plan will not be
considered Top Heavy if, after aggregation of the Plan with one or more plans of
the Permissive Aggregation Group, the Top Heavy Ratio does not exceed sixty
percent.
1.49. Top Heavy Ratio
(1) For Employers maintaining one or more defined contribution plans (including
any simplified employee pension plan) who have not maintained any defined
benefit plan which during the five-year period ending on the Determination Date
has or has had accrued benefits, Top Heavy Ratio, for this plan alone or for the
Required or Permissive Aggregation Group as appropriate, means a fraction, the
numerator of which is the sum of the Accrued Benefits of all Key Employees as of
the Determination Date (including any part of any Accrued Benefit distributed in
the five-year period ending on the Determination Date), and the denominator of
which is the sum of all Accrued Benefits (including any part of any Accrued
Benefit distributed in the five-year period ending on the Determination Date),
both computed in accordance with Section 416 of the Internal Revenue Code and
corresponding regulations. Both the numerator and denominator of the Top Heavy
Ratio are increased to reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into account on that date
under Section 416 of the Internal Revenue Code and the corresponding
regulations. (2) For Employers maintaining one or more defined contribution
plans (including any simplified employee pension plan) who maintain or have
maintained one or more defined benefit plans which during the five-year period
ending on the Determination Date has or has had any Accrued Benefits, the Top
Heavy Ratio for any Required or Permissive Aggregation Group as appropriate
means a fraction, the numerator of which is the sum of Accrued Benefits under
the aggregated defined contribution plan or plans for all Key Employees,
determined in accordance with (a) above, and the present value of Accrued
Benefits under the aggregated defined benefit plan or plans for all Key
Employees as of the Determination Date, and the denominator of which is the sum
of the Accrued Benefits under the aggregated defined contribution plan or plans
for all participants, determined in accordance with (a) above, and the present
value of Accrued Benefits under the defined benefit plan or plans for all
participants as of the Determination Date, all determined in accordance with
Section 416 of the Internal Revenue Code and the corresponding regulations. The
Accrued Benefits under a defined Determination Date. Present value shall be
based only on the interest and mortality rates specified in the defined benefit
plan. (3) For purposes of Subsections (1) and (2) above, the value of Accrued
Benefits and the present value of Accrued Benefits shall be determined as of the
most recent Valuation Date ending on or before the Determination Date, except as
provided in Section 416 of the Internal Revenue Code and corresponding
regulations for the first two Plan Years of a defined benefit plan. In addition,
the following rules shall apply in calculating the Top Heavy Ratio.
(i) Distributions made after the Valuation Date but before the
Determination Date shall not be counted if the value of the
distribution is reflected in the Participant's Accrued Benefit
as of the Valuation Date.
(ii) The Accrued Benefits of any Former Key Employees and any
Participants who have not performed services for the Employer
during the five-year period ending on the Determination Date
shall be disregarded.
(iii) Rollovers initiated by the Participant and received from plans
of employers not required to be aggregated with the Employer
under Sections 414(b), (c), or (m) of the Internal Revenue Code
shall not be counted; all other rollovers and transfers shall be
included in the calculation.
(iv) Deductible employee contributions shall not be counted.
(v) When aggregating plans, the value of Accrued Benefit and the
present value of Accrued Benefits shall be calculated with
reference to the Determination Dates that fall within the same
Calendar Year.
(vi) The Accrued Benefit of a Participant other than a Key Employee
shall be determined under the method, if any, that uniformly
applies for accrual purposes under all defined benefit plans
maintained by the Employer, or, if there is no uniform method,
as if the benefit accrued not more rapidly than the slowest
accrual rate permitted under the fractional rule of Section
411(b)(1)(C) of the Internal Revenue Code.
<PAGE>
1.50. Trust Agreement
"Trust Agreement" means the document evidencing agreement between the Employer
and the Trustee for the administration of the Fund and any and all amendments to
that agreement. If the Employer maintains more than one employee pension benefit
plan within the definition of ERISA, the assets of this Plan may be held
together under one Trust Agreement with the assets of any other plan of the
Employer which meets the requirements of Sections 401(a) and 501(a) of the
Internal Revenue Code.
1.51. Trustee
"Trustee" means the trustee or trustees of the Fund.
1.52. Valuation Date
"Valuation Date" means the date on which the Fund was valued or revalued
pursuant to the Plan. Valuation Dates shall occur at least annually on each
Anniversary Date and at any other time determined in the discretion of the
Retirement Committee.
1.53. Valuation Period
"Valuation Period" means any period ending on a Valuation Date and beginning on
the first day after the preceding Valuation Date.
1.54. Vesting Computation Period
"Vesting Computation Period" means the Plan Year.
1.55. Year of Service
"Service" shall be measured in years. An Employee shall be credited with a Year
of Service for each Vesting Computation Period during which he is credited with
1,000 Hours of Service.
2. PARTICIPATION
2.1. Eligibility Requirements
Effective July 1, 1997, Employees shall be eligible to become Participants in
the Plan after attainment of age 21 and completion of at least 1,000 Hours of
Service during an Eligibility Computation Period.
2.2. Entry Date
Effective July 1, 1997, Employees shall become Participants in the Plan on the
first day of the month following the date they meet eligibility requirements of
Section 3.1. Each Participant must sign a Salary Reduction Agreement to make
elective deferral contributions to the Plan. Once made, the Participant's
Agreement shall remain in effect until modified or terminated. Participants may
modify, suspend or terminate their elections on a monthly basis, and on any
additional dates determined in the Retirement Committee's sole discretion.
2.3. Exclusion for Collective Bargaining Employees
No Employee shall be eligible to participate in the Plan while he is a member of
a unit of employees covered by a collective bargaining agreement between the
Employer (or the Employer and one or more other employers) and a union,
association, or other employee representative group if:
(i) The employee representative group has established an employee
pension benefit plan to which the Employer contributes on behalf
of the individual, or
(ii) The Employer does not contribute to such a plan and there is
other evidence that retirement benefits were proposed to be
funded by the Employer on behalf of the individual and were the
subject of good faith bargaining between the employee
representative group and the Employer or other employers.
This Section shall not be construed to limit participation by an individual who
is not an "employee" within the meaning of the National Labor Relations Act
solely because the individual maintains membership in a union.
2.4. Other Exclusions
In the event that an Employee who is excluded from the category of Employees
eligible to participate in the Plan satisfies the minimum age and service
requirements and later becomes an eligible Employee, he shall be entitled to
immediate participation in the Plan.
2.5. Special Participation Provisions
Any participant in the PSC Scanning, Inc. Savings Plus 401(k) Plan on July 1,
1997 will automatically be eligible to participate in this Plan as of that date.
Any employee of PSC Scanning, Inc. who is not a participant in the PSC Scanning
Plan on that date will be eligible to enter this Plan after meeting the age and
service requirements outlined in Section 3.1 above. Hours of Service completed
with PSC Scanning, Inc. prior to July 1, 1997, will be counted toward the 1,000
Hour of Service requirement.
2.6. Continued Participation
An Employee shall continue as a Participant in the Plan so long as he remains an
eligible Employee. A Participant who becomes ineligible to continue as a
Participant in the Plan shall be entitled to immediate participation in the Plan
if he again becomes an eligible Employee. A Participant who terminates
employment and is subsequently rehired by the Employer also shall be entitled to
immediate participation in the Plan.
<PAGE>
3. CONTRIBUTIONS
3.1. Employee Contributions
Each year the Employer shall contribute to the Plan on behalf of each
Participant the amount of the reduced or foregone salary set forth in the Salary
Reduction Agreement with that Participant. Each Participant may elect to defer
between one and fifteen percent of his Compensation to the Plan. Elective
contributions must be made in whole percentages.
3.2. Employer Contributions
The Employer shall make a discretionary matching contribution to the Plan each
year in an amount determined by the Board. The Employer shall make no matching
contributions for elective contributions in excess of six percent of
Compensation. In addition, the Employer may make discretionary non-elective
contributions, Qualified Matching Contributions, and Qualified Non-Elective
Contributions to the Plan.
3.3. Time of Contribution
(1) Elective contributions shall be paid to the Plan on a current basis, and in
no event later than the fifteenth business day of the month following the month
in which these amounts otherwise would have been payable to the Participant in
cash. (2) Matching and non-elective Employer contributions, if any, shall be
made in cash not later than the time prescribed by law, including any extension
of time, for filing the Employer's United States income tax or information
return for the year with respect to which the contributions are made.
3.4. Deferral Percentage Test
(1) For any Plan Year the elective contributions made on behalf of each Highly
Compensated Participant must satisfy one of the following tests, provided that
the test described in subsection (ii) below shall not be used to meet both the
Deferral Percentage Test and the Contribution Percentage Test in the same Plan
Year.
(i) The Actual Deferral Percentage for Highly Compensated
Participants must not exceed 1.25 times the Actual Deferral
Percentage of the remaining Participants determined at the end
of the prior Plan Year; or
(ii) The Actual Deferral Percentage for Highly Compensated
Participants must not exceed 2.0 times the Actual Deferral
Percentage of the remaining Participants determined at the end
of the prior Plan Year, and the Actual Deferral Percentage of
the Highly Compensated Participants must not exceed the Actual
Deferral Percentage of all other Participants by more than two
percentage points.
(2) For any Plan Year in which the Actual Deferral Percentage for Highly
Compensated Participants exceeds the foregoing limits, the Retirement Committee
shall return the salary reduction contributions made on behalf of Highly
Compensated Participants in descending order of their deferral amounts until one
of the foregoing tests has been met.
(3) The return of excess contributions shall include the amounts of any income
allocable to the contributions through the date of distribution, calculated as
the sum of (i) income or loss allocable to the Participant's Elective
Contribution Account (and, if applicable, Matching Contribution Account and
Employer Contribution Account) for the Plan Year multiplied by a fraction, the
numerator of which is the Participant's excess contributions for the Plan Year,
and the denominator of which is the balance of the Participant's Accounts
attributable to elective contributions and any matching or non-elective
contributions used in the Deferral Percentage Test without regard to any income
or loss during the Plan Year, plus (ii) ten percent of the amount determined
under (i) above multiplied by the number of whole calendar months between the
end of the Plan Year and the date of distribution, counting the month of
distribution if distribution occurs after the fifteenth day of the month.
Alternatively, (i) the calculation of income allocable to excess contributions
may be based upon any reasonable method used to allocate income or loss to
Participants' accounts if this method is consistently applied to all
Participants and to all corrective distributions for the Plan Year, and (ii) the
period between the end of the Plan Year and the date of distribution may be
disregarded in determining income or loss.
(4) The return of excess contributions and income shall be completed, if
possible, within 2 1/2 months after the end of the Plan Year for which the
excess amount was contributed to the Plan in order to avoid the imposition of a
ten percent excise tax on the Employer. In no event shall the return of excess
contributions be completed more than 12 months after the end of the Plan Year.
(5) Excess Contributions shall be distributed from the Participant's Elective
Contribution Account and Matching Contribution Account (if applicable) in
proportion to the Participant's elective contributions and matching
contributions used in the Deferral Percentage test for the Plan Year. Excess
contributions shall be distributed from the Participant's Employer Contribution
Account only to the extent that the excess contributions exceed the balance in
the Participant's Elective Contribution Account and Matching Contribution
Account.
<PAGE>
3.5. Contribution Percentage Test
(1) For any Plan Year the matching contributions made on behalf of each Highly
Compensated Participant must satisfy one of the following tests, provided that
the test described in subsection (ii) below shall not be used to satisfy both
the Contribution Percentage Test and the Deferral Percentage Test in the same
Plan Year.
(i) The Actual Contribution Percentage for Highly Compensated
Participants must not exceed 1.25 times the Actual Contribution
Percentage of the remaining Participants determined at the end
of the prior Plan Year; or
(ii) The Actual Contribution Percentage for Highly Compensated
Participants must not exceed 2.0 times the Actual Contribution
Percentage of the remaining Participants determined at the end
of the prior Plan Year, and the Actual Contribution Percentage
of the Highly Compensated Participants must not exceed the
Actual Contribution Percentage of all other Participants by more
than two percentage points.
(2) For any Plan Year in which the Actual Contribution Percentage for Highly
Compensated Participants exceeds the foregoing limits, the Retirement Committee
shall forfeit the non-vested portion of any matching contributions and shall
return the vested portion of any matching contributions (including Qualified
Matching Contributions) made on behalf of Highly Compensated Participants in
descending order of their contribution amounts until one of the foregoing tests
has been met. (3) The return of contributions shall include the amounts of any
income allocable to the contributions through the date of distribution,
calculated as the sum of (i) income or loss allocable to the Participant's
Matching Contribution Account (and, if applicable, Elective Contribution Account
and Employer Contribution Account) for the Plan Year multiplied by a fraction,
the numerator of which is the Participant's excess contributions for the Plan
Year, and the denominator of which is the balance of the Participant's Accounts
attributable to matching contributions and any elective or non-elective
contributions used in the Deferral Percentage Test without regard to any income
or loss during the Plan Year, plus (ii) ten percent of the amount determined
under (i) above multiplied by the number of whole calendar months between the
end of the Plan Year and the date of distribution, counting the month of
distribution if distribution occurs after the fifteenth day of the month.
Alternatively, (i) the calculation of income allocable to excess contributions
may be based upon any reasonable method used to allocate income or loss to
Participants' accounts if this method is consistently applied to all
Participants and to all corrective distributions for the Plan Year, and (ii) the
period between the end of the Plan Year and the date of distribution may be
disregarded in determining income or loss. (4) The return of excess
contributions and income shall be completed, if possible, within 2 1/2 months
after the end of the Plan Year for which the excess amount was contributed to
the Plan in order to avoid the imposition of a ten percent excise tax on the
Employer. In no event shall the return of excess contributions be completed more
than 12 months after the end of the Plan Year. (5) After forfeiture of any
non-vested amounts, excess contributions shall be distributed from the
Participant's Matching Contribution Account, and, if applicable, Elective
Contribution Account, and Employer Contribution Account in proportion to the
respective contributions used in the contribution percentage test for the Plan
Year.
3.6. Dollar Limit on Elective Deferrals
(1) Elective contributions made on behalf of any Participant shall not exceed
$9,500 per Calendar Year or any other amount prescribed by regulations under
Section 402(g)(1) (5) of the Internal Revenue Code. Elective contributions in
excess of this amount shall be returned to the Participant no later than April
15 of the following Calendar Year, provided that the Participant files a written
notice with the Retirement Committee on or before March 1 of that year. If the
excess elective contributions arise solely from elective contributions made by
the Participant to this Plan or any other plan maintained by the Employer, the
Retirement Committee may return the excess elective contributions without
written notice from the Participant. (2) The notice described in Subsection (1)
shall be in the form prescribed by the Retirement Committee, shall specify the
amount of salary reduction contributions to be returned to the Participant, and
shall certify that return of these amounts is needed to comply with the limits
on deferral contributions imposed by the Internal Revenue Code. The return of
excess elective contributions shall include the amount of any income allocable
to the contributions through the date of distribution, calculated as the sum of
(i) income or loss allocable to the Participant's Elective Contribution Account
for the taxable year multiplied by a fraction, the numerator of which is the
Participant's excess elective contributions for the taxable year, and the
denominator of which is the balance of the Participant's Elective Contribution
Account without regard to any income or loss during the taxable year, plus (ii)
ten percent of the amount determined under (i) above multiplied by the number of
whole calendar months between the end of the Participant's taxable year and the
date of distribution, counting the month of distribution if distribution occurs
after the fifteenth day of the month. Alternatively, (i) the calculation of
income allocable to excess elective contributions may be based upon any
reasonable method used to allocate income or loss to Participants' accounts if
this method is consistently applied to all Participants and to all corrective
distributions for the Plan Year, and (ii) the period between the end of the Plan
Year and the date of distribution may be disregarded in determining income or
loss. (3) With respect to any taxable year, the Participant's elective
contributions shall mean the sum of Employer contributions made under a salary
reduction agreement to the following plans: (i) a qualified cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code; (ii) a simplified
employee pension plan described in Section 402(h)(1)(B) of the Internal Revenue
Code; (iii) an eligible deferred compensation plan under Section 457 of the
Internal Revenue Code; (iv) any plan described under Section 501(c)(18) of the
Internal Revenue Code; and (v) a plan for the purchase of an annuity described
in Section 403(b) of the Internal Revenue Code.
<PAGE>
3.6.1 Rollover Contributions
With the consent of the Retirement Committee, an Employee may contribute to the
Plan any amount received by him from another qualified plan provided that the
contribution must qualify as a rollover contribution under the Internal Revenue
Code. The Retirement Committee may make rules for the administration of this
Section and may require Participants to certify material facts before accepting
the rollover contribution. In addition to accepting rollover contributions, the
Retirement Committee may, in its sole discretion, accept a direct transfer of
assets from the trustee of another qualified plan.
3.7. Irrevocability of Contributions
All contributions by the Employer shall be irrevocable except as provided in
Article 1.
3.8. Contribution Records
The Employer's records shall be determinative on all matters relating to
contributions.
3.9. Administrative Expenses
(1) The administrative expenses of the Plan and Fund shall be paid either by the
Employer or from the Fund. The Employer shall notify the Trustee in writing if
the entity paying the administrative expenses is changed. In the event the
Employer is responsible for payment of expenses but does not make full payment,
they shall be paid from the Fund to the extent permitted by law. (2) All
transactional costs or charges imposed or incurred (if any) for Participant
directed assets shall be charged to the
Account of the directing Participant or Beneficiary. Transactional costs
and charges shall include, but shall not be limited to, charges for the
acquisition or sale or exchange of Participant directed assets, brokerage
commissions, service charges, and professional fees.
3.9.1.CREDITS TO PARTICIPANTS
3.10. Maintenance of Accounts
(1) The Retirement Committee shall keep individual accounts in the name of each
Participant showing his interest in the Fund. Each Participant shall have an
Elective Contribution Account showing the amount attributable to elective
contributions made on his behalf. If applicable, each Participant also shall
have a Matching Contribution Account showing the amount attributable to matching
contributions made on his behalf, and an Employer Contribution Account showing
the amount attributable to non-elective Employer contributions made on his
behalf. (2) Rollovers from other qualified plans accepted by the Retirement
Committee shall be segregated in a separate Rollover Account. Direct transfers
from other qualified plans accepted by the Retirement Committee shall be
segregated in a separate Transfer Account. After-tax contributions made prior to
July 1, 1997 shall be segregated in a separate After-Tax Account.
3.11. Allocation of Employer Contributions
(1) Any matching contributions made by the Employer for the Plan Year shall be
allocated Participants' Matching Contribution Accounts in accordance with the
terms and conditions under Section 4.2 of the Plan. The foregoing contributions
shall be allocated to Participants' Accounts regardless of their employment
status on the Anniversary Date or the Hours of Service completed during the Plan
Year. (2) Any non-elective contributions made by the Employer for the Plan Year
shall be allocated among the Employer Contribution Accounts of all Participants
who, as of the Anniversary Date, are employed by the Employer and have completed
1,000 Hours of Service during the Plan Year. The allocation shall be made in the
proportion that each Participant's Compensation bears to the total Compensation
of all Participants.
3.12. Annual Additions
Annual Additions shall not during any Limitation Year exceed the lesser of: (i)
the defined contribution dollar limitation; or (ii) twenty-five percent of the
Participant's Compensation for the Plan Year. For the purpose of this Section,
the defined contribution dollar limitation is $30,000 or, if greater,
twenty-five percent of the defined benefit dollar limitation set forth in
Section 415(b)(1) of the Internal Revenue Code as in effect for the Limitation
Year. If a short Limitation Year is created because of an amendment changing the
Limitation Year to a different consecutive twelve-month period, the maximum
permissible amount will not exceed the defined contribution dollar limitation
multiplied by a fraction, the numerator of which is the number of months in the
short Limitation Year, and the denominator of which is twelve.
<PAGE>
3.13. Allocation of Excess Contributions
If the contribution for any Participant exceeds the limits specified in Section
5.3 for any Plan Year by reason of the allocation of forfeitures, a reasonable
error in estimating the Participant's Compensation, or a reasonable error in
estimating the Participant's elective deferrals, the portion exceeding the
limits shall, at the discretion of the Retirement Committee, be reallocated in
accordance with one of the four methods specified in Treasury Regulations
Section 1.415-6(b)(6).
3.14. Valuation of Accounts
A Participant's Accounts shall be valued at fair market value on each Valuation
Date. With respect to Participant directed investments, the earnings, losses,
and expenses (including transactional expenses pursuant to Section 4.10) of the
Participant's directed investments shall be allocated to the Account of the
Participant or Beneficiary having authority to direct the investment of the
assets in the Account. The Valuation Date with respect to any distributions from
any Account shall be the date as of which the distribution is made.
3.15. Limitation
No allocation or credit to any Participant's Account shall operate to vest any
right, title or interest in the Trust Fund in a Participant except at the time
or times, and upon the terms and conditions, set forth in this Plan.
4. VESTING OF BENEFITS
4.1. Employee Contributions
Participants shall be fully vested in their Elective Contribution Accounts,
After-Tax Contribution Accounts, and Rollover Contribution Accounts at all
times.
4.2. Employer Contributions
(1) Participants who are credited with an Hour of Service on or after December
31, 1996 shall be fully vested in their Matching Contribution Accounts and
Employer Contribution Accounts at all times. Vesting for Participants who
terminated employment prior to January 1, 1997 shall be determined under the
vesting schedule in effect at that time. (2) Participants who, prior to July 1,
1997, were participants in the PSC Scanning, Inc. Savings Plus 401(k) Plan shall
be fully vested in their Matching Contribution Accounts and Employer
Contribution Account whether or not they are credited with an Hour of Service on
or after December 31, 1996.
5. DISTRIBUTION OF BENEFITS
5.1. Application
The value of a Participant's Accrued Benefit shall be paid to him or his
Beneficiaries only at the time, to the extent, and in the manner provided in
this Article and in Article 8 and Article 9.
5.2. Normal and Late Retirement
A Participant who separates from Service on or after his Normal Retirement Date
shall be eligible to receive a distribution from the Plan. The Participant's
Accrued Benefit as of the next quarterly Valuation Date following his
termination of employment shall be paid to him or commence to be paid to him as
soon as practical after that date.
5.3. Death Benefit
If a Participant dies prior to the Annuity Starting Date, his Spouse or other
Beneficiary shall be eligible to receive a distribution from the Plan. The
Participant's Accrued Benefit as of the next quarterly Valuation Date following
the date of death shall be paid or commence to be paid to his Spouse or other
Beneficiary as soon as practical after that date. If there is no Spouse or
designated Beneficiary, the benefits payable under this Article shall be
distributed to the executor or administrator of the Participant's estate. If no
executor or administrator is appointed within six months after his death,
distribution shall be made to one or more of his relatives by blood or marriage
as the Retirement Committee in its sole discretion shall direct.
5.4. Other Termination of Employment
A Participant who separates from Service for any reason other than retirement or
death shall be eligible to receive a distribution from the Plan. The
Participant's Accrued Benefit as of the next quarterly Valuation Date following
his termination of employment shall be paid to him or commence to be paid to him
as soon as practical after that date.
5.5. After-Tax and Rollover Contributions
A Participant may withdraw all or part of his After-Tax Account or Rollover
Account at any time. The Retirement Committee shall establish rules and
procedures with respect to these withdrawals, including the timing and the order
of Accounts from which Participants may request distributions.
<PAGE>
5.6. In-Service Distributions
A Participant who has attained age 59 1/2 may withdraw all or part of his (i)
Elective Contribution Account; (ii) Matching Contribution Account; and (iii)
Employer Contribution Account. The Retirement Committee shall establish rules
and procedures with respect to these withdrawals, including the timing and the
order of Accounts from which Participants may request distributions.
5.7. Hardship Withdrawals
A Participant who incurs a hardship shall be eligible to receive a distribution
from the Plan of up to 100 percent of his elective contributions and matching
contributions to the Plan (other than earnings accrued after December 31, 1988).
All hardship distributions shall comply with the following terms and conditions.
(1) A Participant who desires to receive a hardship distribution from the Plan
must provide evidence to the Retirement Committee of an event creating an
immediate and heavy financial need. These events may include, without
limitation:
(i) Amounts incurred or necessary for medical care, as defined in
Section 213(d) of the Internal Revenue Code, for the
Participant, the Participant's spouse, or any of his dependents;
(ii) Purchase of a principal residence for the Participant;
(iii) Payment of tuition and related educational fees for the next
twelve months of post-secondary education for the Participant,
his Spouse, or any dependents; and
(iv) Payments needed to prevent eviction of a Participant from his
principal residence or foreclosure of a mortgage on his
principal residence.
(2) In order to certify that the financial need cannot be met from other
resources reasonably available to the Participant, the Retirement Committee must
base hardship distributions in accordance with the following conditions:
(i) The distribution must not exceed the amount of immediate and
heavy financial need, which may include any amounts necessary to
pay any federal, state, or local income taxes or penalties
reasonably anticipated to result from the distribution;
(ii) The Participant must obtain all distributions, other than
hardship distributions, and all non-taxable loans currently
available under all plans maintained by the Employer;
(iii) The Participant must suspend elective contributions to the Plan
(and any other plans maintained by the Employer) for at least
twelve months after receipt of the distribution; and
(iv) For the Calendar Year immediately following the Calendar Year of
the distribution, the amount of the Participant's elective
contributions to the Plan must not exceed the dollar amount
determined under Section 4.6 of the Plan reduced by the amount
of the Participant's elective contributions during the Calendar
Year of the distribution.
5.8. Consent to Distribution
The following provisions shall control the consents required for distributions
from the Plan.
(1) If the value of a Participant's Accrued Benefit derived from Employer and
Employee contributions exceeds (or at the time of any prior distribution
exceeded) $3,500, and the Accrued Benefit is immediately distributable, the
Participant must consent to any distribution of the Accrued Benefit. The
Retirement Committee shall notify the Participant of the right to defer any
distribution until the Participant's Accrued Benefit is no longer immediately
distributable, and shall obtain the consent of the Participant to the
distribution in writing within the 90-day period ending on the Annuity Starting
Date. Notwithstanding the foregoing provisions, the consent of the Participant
shall not be required to the extent that a distribution is required to satisfy
Section 401(a)(9) or Section 415 of the Internal Revenue Code. (2) If the value
of a Participant's Accrued Benefit derived from Employer and Employee
contributions does not exceed (nor at any time of any prior distribution
exceeded) $3,500, and the Accrued Benefit is immediately distributable, the
Retirement Committee shall distribute the Accrued Benefit in one lump sum
payment without the Participant's consent at any time after the Participant
terminates employment. (3) For purposes of Subsections (1) and (2) above, an
Accrued Benefit is immediately distributable if any part of the Accrued Benefit
could be distributed to the Participant or surviving Spouse before the
Participant attains (or would have attained) age 62.
5.9. Facility of Payment
If the Retirement Committee receives evidence satisfactory to it that a person
entitled to payments under the Plan is incompetent by reason of physical or
mental Disability, the Retirement Committee shall have the power, subject to the
requirements for spousal consent set forth in this document, to cause the
payments becoming due under the Plan to such person to be made to another person
for his benefit without responsibility of the Retirement Committee or the
Trustees to see to the application of such funds. Payments made pursuant to the
power herein conferred upon the Retirement Committee shall operate as a complete
discharge of the Trustees and the Retirement Committee.
<PAGE>
5.10. Limitation
Benefits under this Plan shall be payable only out of the Fund. No person shall
have any rights under the Plan with respect to the Fund, or against the Trustee
or the Employer, except as specifically provided for in this instrument.
5.10.1 REQUIRED DISTRIBUTIONS
5.11. Delay of Distributions By Employer
Unless otherwise elected by the Participant, no distribution shall commence
later than sixty days after the end of the Plan Year in which occurs the latest
of the following events: (i) the attainment of age 65 by the Participant (or
Normal Retirement Date, if earlier); (ii) the tenth anniversary of the year in
which the Participant commenced participation pursuant to Article 3; or (iii)
termination of the Participant's Service with the Employer. The failure of a
Participant or Spouse to consent to a distribution shall be deemed to be an
election to defer commencement of payment of any benefit sufficient to satisfy
the requirements of this Section.
5.12. Delay of Distributions By Participants
Distributions to Participants shall be paid or commence to be paid by April 1 of
the Calendar Year following the Calendar Year in which the Participant attains
age 70 1/2 regardless of his continued employment. Distributions to Participants
in subsequent Calendar Years, including the Calendar Year containing the April 1
commencement date, must be made on or before December 31 of each year.
Notwithstanding the foregoing requirement, a Participant who attained age 70 1/2
prior to January 1, 1988 and who is not a Five Percent Owner may defer payment
of any distribution to April 1 of the Calendar Year following his separation
from Service. A Participant who is not a Five Percent Owner at age 70 1/2 but
who becomes a Five Percent Owner in a subsequent year shall commence receiving
distributions on April 1 of the Calendar Year following the Calendar Year in
which he becomes a Five Percent Owner.
5.13. Minimum Distributions
Distributions in any form other than a lump sum must be paid over a period no
longer than the life expectancies of the Participant and any designated
Beneficiary. The amount distributed each year must be equal to or greater than
the quotient obtained by dividing the Participant's vested Accrued Benefit by
the life expectancy of the Participant, or the joint and last survivor
expectancy of the Participant and the designated Beneficiary, as computed by use
of the return multiples in Section 1.72-9 of the Treasury Regulations. For
purposes of this calculation, the life expectancy of a Beneficiary other than
the Participant's Spouse shall be calculated only once, but the life expectancy
of the Participant and Spouse shall be recalculated annually. If the
Participant's Spouse is not the designated Beneficiary, the method of
distribution selected must assure that at least fifty percent of the Accrued
Benefit is paid within the life expectancy of the Participant.
5.14. Distributions Upon Death
Upon the death of a Participant, the following provisions shall control the
payment of benefits from the Plan. (1) If distributions to the Participant have
commenced prior to death, but the Participant dies before the distribution is
complete, any remaining balance must be distributed under a method no less rapid
than the method in effect at the time of death. (2) If distributions to the
Participant have not commenced prior to death and any portion of the
Participant's Accrued Benefit is payable to a designated Beneficiary other than
the Participant's Spouse, all benefits must be distributed by December 31 of the
fifth Calendar Year following the Participant's death unless the following
conditions are met: (i) payments are made for the life of the Beneficiary or
over a period not extending beyond the Beneficiary's life expectancy, and (ii)
payments commence on or before December 31 of the Calendar Year immediately
following the Calendar Year in which the Participant died. If the Beneficiary is
the Participant's Spouse, all benefits must be distributed by December 31 of the
fifth Calendar Year following the Participant's death unless (i) payments are
made for the life of the Spouse or over a period not extending beyond the
Spouse's life expectancy, and (ii) payments need not commence until the later of
(a) December 31 of the Calendar Year immediately following the Calendar Year in
which the Participant died, or (b) December 31 of the Calendar Year in which the
Participant would have attained age 70 1/2. If the Spouse dies before the
payments begin, the provisions of this Section 8.4 shall be applied as if the
Spouse had been the Participant. For purposes of this Subsection, life
expectancies shall be calculated by use of the return multiples of Section
<PAGE>
1.72-9 of the Treasury Regulations. The life expectancy of a Beneficiary other
than the Participant's Spouse may be calculated only once, and the life
expectancy of the Participant and Spouse may be recalculated no more frequently
than annually. (3) If the Participant has not made an election pursuant to this
Section by the time of his death, the Participant's designated Beneficiary must
elect the method of distribution by the earlier of (i) December 31 of the
Calendar Year in which the distribution would be required to begin, or (ii)
December 31 of the fifth Calendar Year following the Participant's death. If the
Participant has no designated Beneficiary, or if the Beneficiary does not elect
a method of distribution, distribution of the Participant's entire interest must
be completed by December 31 of the fifth Calendar Year following the
Participant's death. (4) For purposes of Subsection (2) above, if the Spouse
dies after the Participant but before payments to the Spouse begin, the
provisions of Subsection (2) shall apply as if the Spouse had been the
Participant, except that the Spouse's Beneficiary must begin receiving
distributions on or before December 31 of the Calendar Year immediately
following the Calendar Year in which the Spouse died. 6. FORM OF DISTRIBUTION
6.1. Optional Forms of Distribution
A Participant may elect to receive payment of his distribution in the form of:
(i) A lump sum; or
(ii) Periodic installments of at least one hundred dollars for a
period certain, not extending beyond the life expectancy of
the Participant, or, if he designates a Beneficiary to
continue receiving the installments after his death, the life
expectancy of the Participant and his Beneficiary.
6.2. Designation of Beneficiaries
Designation of Beneficiaries shall be in a written form prescribed by the
Retirement Committee, which shall include the name, address, sex, and date of
birth of the Beneficiary. No designation shall be effective unless it is filed
with the Retirement Committee prior to the death of the Participant. A
Participant may change Beneficiary designations at any time, and the consent of
the Beneficiary shall not be required in the event of any change. Designation of
a Beneficiary other than the Participant's Spouse shall not be effective unless
made in accordance with the following provisions. (1) A married Participant may,
with the consent of his Spouse, designate a Beneficiary other than his Spouse to
receive payment of the pre-retirement death benefit provided in Section 7.4. The
waiver shall be made in the form prescribed by the Retirement Committee, shall
contain the written consent of the Participant and Spouse together with an
acknowledgment of its effect, and shall be witnessed by a notary public. If the
Participant has no Spouse or the Spouse cannot be located, the Participant must
certify these facts in the waiver. (2) Any waiver made pursuant to this Section
may be revoked by filing a written revocation with the Retirement Committee at
least 15 days prior to the Participant's Annuity Starting Date. (3) Any consent
required by this Section shall be valid only with respect to the Spouse who
signs the consent. A participant who obtains the consent of his Spouse to a
waiver under this Section must obtain spousal consent to any subsequent
election.
6.3. Notice Requirements
The Retirement Committee shall provide each Participant with a written
explanation of the forms of distribution available under Section 9.1. Each
Participant shall receive the notice no more than 90 days and no less than 30
days before the Annuity Starting Date. Distributions may commence less than
thirty days after this notice has been given to the Participant, provided that
(i) the Retirement Committee clearly informs the Participant that the
Participant has the right to a period of at least 30 days after receiving the
notice to decide whether or not to elect a distribution (and, if applicable, a
particular option), and (ii) the Participant, after receiving the notice,
affirmatively elects a distribution.
6.4. Eligible Rollover Distribution
This Section applies to distributions made on or after January 1, 1993.
Notwithstanding any provision of the Plan to the contrary that would otherwise
limit a Distributee's election under this Section, a Distributee may elect, at
the time and in the manner prescribed by the Retirement Committee, to have any
portion of an Eligible Rollover Distribution paid in the form of a direct
rollover to an Eligible Retirement Plan specified by the Distributee. The
Retirement Committee may, in its sole and absolute discretion, prescribe uniform
and nondiscrimination standards for payouts of Direct Rollovers, including,
without limitation, a requirement that Direct Rollovers be made in amounts not
less than five hundred dollars. (1) Eligible Rollover Distribution: An Eligible
Rollover Distribution is any distribution of all or any portion of the balance
to the credit of the Distributee, except that an Eligible Rollover Distribution
does not include: (i) any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee and Distributee's designated beneficiary, or
for a specified period of ten years or more; (ii) any distribution to the extent
such distribution is required under Section 401(a)(9) of the Code; and (iii) the
portion of any distribution that is not includable in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect to
employer securities). (2) Eligible Retirement Plan: An Eligible Retirement Plan
is an individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the Distributee's Eligible
Rollover Distribution. In the case of an Eligible Rollover Distribution to the
surviving spouse, however, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity. (3) Distributee: A
Distributee includes an Employee or former Employee. In addition, the Employee's
or former Employee's surviving Spouse and the Employee's or former Employee's
Spouse or former Spouse who is the alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the Code, are Distributees with
regard to the interest of the Spouse or former Spouse. (4) Direct Rollover: A
Direct Rollover is a payment by the Plan to the Eligible Retirement Plan
specified by the Distributee.
<PAGE>
7. TOP HEAVY REQUIREMENTS
7.1. Minimum Allocations
Notwithstanding the allocation formula contained in Article 5, for any Plan Year
in which the Plan is Top Heavy the Employer contributions allocated to the
Employer Contribution Account of any Participant who is not a Key Employee must
not be less than the Minimum Allocation. In the event that Minimum Allocations
would not otherwise be provided to these Participants, the Employer
contributions shall be allocated first to the Employer Contribution Accounts of
these Participants in amounts sufficient to fund the Minimum Allocations, and
the balance shall be allocated to all other Participants under the allocation
formula set forth in Article 5. A Non-Key Employee who meets the participation
requirements of the Plan and who is employed on the last day of the Plan Year
shall receive his Minimum Allocation without regard to his level of Compensation
or to his failure to complete the Hours of Service needed to receive an
allocation of Employer Contributions for the Plan Year. Minimum Allocations also
shall be provided to any Key Employees who would not otherwise receive them. The
provisions of this Section 10.1 shall not apply to Participants covered under
any other qualified retirement plan maintained by the Employer if the Employer
has elected to provide minimum contributions or benefits under another plan.
8.ADMINISTRATION OF THE PLAN
8.1. Appointment of Retirement Committee
The Employer shall appoint a Retirement Committee consisting of one or more
persons as determined by the Employer. Each person appointed as a member of the
Retirement Committee shall signify his acceptance by filing a written
acknowledgment with the Employer. Any member of the Retirement Committee may
resign by delivering his written resignation to the Employer.
8.2. Named Fiduciaries
The Retirement Committee and its members are the named fiduciaries with full
authority and responsibility to control and manage the operation and
administration of the Plan.
8.3. Responsibilities of Retirement Committee
The Retirement Committee shall have the exclusive right to interpret the Plan
(but not to modify or amend the Plan) and to decide any and all questions
arising in the administration, interpretation, and application of the Plan. The
Retirement Committee shall establish whatever rules it finds necessary for the
operation and administration of the Plan and shall endeavor to apply these rules
in its decisions so as not to discriminate in favor of any person. The decisions
of the Retirement Committee or its action with respect to the Plan shall be
conclusive and binding upon the Employer and all persons having or claiming to
have any right or interest in or under the Plan.
8.4. Delegation of Responsibilities
The members of the Retirement Committee may elect from their number a chairman,
who need not be a Participant, and may appoint a secretary, who need not be a
Participant nor a member of the Retirement Committee. They may appoint from
their number such committees with such powers as they shall determine. They may
allocate fiduciary responsibility among themselves or delegate any of their
duties or responsibilities to other persons, including the Employer or any of
its officers or employees. Any such allocation or delegation of fiduciary
responsibilities shall be by an instrument in writing, setting forth
specifically the delegated duties, signed by or on behalf of the Retirement
Committee and the delegated fiduciary and shall be exercised in a reasonable
manner taking into account the discretionary or ministerial nature of the
responsibility allocated or delegated and the capabilities of such person or
persons to whom the responsibility is allocated or delegated.
8.5. Third Party Contracts
The Retirement Committee or any person or persons to whom the Retirement
Committee has delegated fiduciary responsibilities may employ, with the approval
of the Retirement Committee, one or more accountants, actuaries, legal counsel
or other persons as shall be deemed necessary for the effective control and
management of the operation and administration of the Plan. The members of the
Retirement Committee, the Employer and its officers and directors, and any
person to whom any duty or responsibility has been delegated by the Retirement
Committee shall be entitled to rely upon all tables, valuations, certificates,
opinions and reports furnished by any duly appointed accountant, actuary, legal
counsel or other person and shall be fully protected in respect of any action
taken or permitted by them in good faith in reliance upon any such tables,
valuations, certificates, reports or opinions.
<PAGE>
8.6. Meetings
The Retirement Committee shall hold meetings upon such notice, at such place or
places, and at such time or times as they may determine. A majority of the
members of the Retirement Committee shall constitute a quorum for the
transaction of business. All resolutions or other actions taken by the
Retirement Committee shall be by vote of a majority of those present at a
meeting of the Retirement Committee at which a quorum shall be present or, if
they act without a meeting, in writing by all the members of the Retirement
Committee. The Retirement Committee may designate one or more of its members to
sign and to send and receive communications and documents to and from the
Trustees or any person.
8.7. Expenses
No member of the Retirement Committee shall receive any compensation for his
services, but the Employer may reimburse any member for any necessary expenses
incurred.
8.8. Reports
The Retirement Committee shall maintain accounts showing the fiscal transactions
of the Plan, and shall keep in convenient form such data as may be necessary for
actuarial valuations, if required, of the assets and liabilities of the Plan.
The Retirement Committee shall have a report prepared annually showing in
reasonable detail the assets and liabilities of the Plan and giving a brief
account of the operation of the Plan for the past year. Such reports shall be
submitted to the Employer.
8.9. Plan Administrator
The Employer may appoint a person or persons to act as Plan Administrator within
the meaning of Section 3(16)(A) of ERISA. The Employer may remove the Plan
Administrator from office at any time. Any such appointment or removal shall be
in writing. If more than one Plan Administrator is appointed, the duties of Plan
Administrator may be allocated among them in the instruments of appointment; if
this is done, no Plan Administrator shall be responsible for performing duties
that have been allocated to another Plan Administrator. If no such appointment
is made, the Employer shall be the Plan Administrator. The Plan Administrator
shall file such documents as are required of him and shall have such additional
duties as are required by ERISA and applicable law, and as may be delegated to
him in the instrument of appointment or in an instrument of delegation executed
by the Retirement Committee pursuant to Section 11.4.
8.10. Indemnification
Each person who is or has been a member of the Retirement Committee or the Plan
Administrator shall be indemnified by the Employer against expenses (including
amounts paid in settlement with the approval of the Employer) reasonably
incurred by him in connection with any action, suit or proceeding to which he
may be a party or with which he shall be threatened by reason of his being, or
having been, a member of the Retirement Committee or Plan Administrator, except
in relation to matters as to which he shall be adjudged in such action, suit or
proceeding to be liable for a breach of fiduciary responsibility due to willful
misconduct in the performance of his duties. The foregoing right of
indemnification shall be in addition to any other rights to which any member of
the Retirement Committee or Plan Administrator may be entitled as a matter of
law.
9.AMENDMENT AND TERMINATION OF THE PLAN
9.1. Amendment
(1) The Employer, by action of the Board, may authorize the amendment of the
Plan at any time or from time to time by an instrument in writing, provided that
no amendment shall:
(i) Deprive any Participant or Beneficiary of any Accrued Benefit;
(ii) Reduce the vested percentage of the Accrued Benefit of any
Employee who is a Participant as of the later of the date such
amendment is adopted or the date it becomes effective;
(iii) Eliminate an optional form of benefit with respect to benefits
attributable to service before the amendment; or (iv) Provide for the
use of funds or assets held under the Plan other than for the exclusive
benefit of Participants and
their Beneficiaries.
(2) If any amendment modifies the vesting schedule of the Plan each Participant
who has at least three Years of Service on the latter of the date such amendment
is adopted or is effective may elect to have the existing vesting schedule apply
to him rather than the new vesting schedule, provided that such election is made
within 60 days after the later of the date the amendment is adopted, the date
the amendment becomes effective, or the date the Participant is issued notice of
the plan amendment by the Employer or the Retirement Committee. For Participants
who do not have at least one Hour of Service in any Plan Year beginning after
December 31, 1988, five Years of Service should be substituted for three Years
of Service in the preceding sentence.
9.2. Termination
The Plan is intended by the Employer to be a long-term program for the provision
of retirement benefits for its Employees. The Employer nevertheless reserves the
right to terminate the Plan at any time and for any reason. The termination
shall be authorized by the Board and effected by a written instrument. (1) Upon
termination or partial termination of the Plan by formal written notice or
actual operation or upon a complete discontinuance of contributions under the
Plan, the rights of all affected Participants to the amounts credited to the
Employees' Accounts shall become fully vested and nonforfeitable and
distribution shall commence forthwith in accordance with the Plan. The Trust
shall remain in existence until all funds held thereunder are distributed.
(2) Upon termination of the Plan without establishment or maintenance of another
defined contribution plan (other than an employee stock ownership plan as
defined in Section 4975(e) or a simplified employee plan as defined in Section
408(h) of the Internal Revenue Code), the Retirement Committee shall distribute
all benefits to Participants in the form of a lump sum.
9.3. Satisfaction of Liabilities
The Plan may be discontinued by the Employer at any time, subject to the
applicable restrictions of the Employee Retirement Income Security Act of 1974
or any similar law and upon the condition that it shall be impossible, at any
time prior to the satisfaction of all liabilities with respect to Participants
and Beneficiaries, for any part of the corpus of the Fund or income thereon to
be used for or diverted to purposes other than for the administrative expenses
of the Plan and Fund and the exclusive benefit of Participants and
Beneficiaries.
10.ESTABLISHMENT OF THE TRUST
10.1. Trust Agreement
(1) The Board shall establish a trust to hold the Fund. Within a reasonable time
after each Valuation Date, the Trustee shall deliver to the Committee a detailed
accounting of its administration of the Fund during the period since the
preceding Valuation Date, including an inventory of the assets of the Fund at
their fair market value as of the Valuation Date. The rights and other duties of
the Trustee shall be set forth in a Trust Agreement to be adopted by the Trustee
and the Board. More than one Trustee may serve concurrently, and there may be
more than one Trust Agreement and more than one Fund, in which case the words
"Trustee," "Trust Agreement," and "Fund" in this instrument shall be deemed to
refer to all Trustees, Trust Agreements, and Funds collectively. (2) The
adoption and amendment of the Trust Agreement, the review of the Trustee's
performance, and the appointment and removal of the Trustee shall be the
responsibility of the Board and not that of the Committee or any other person,
and the Board shall be a "named fiduciary" within the meaning of Section
402(a)(2) of ERISA with respect to these activities. (3) If permitted by the
Trust Agreement, the Board may appoint an investment manager other than a
Trustee to manage the investment of all or part of the Fund. Such investment
manager shall acknowledge in writing that it is a fiduciary with respect to the
Plan and shall be and continue to be (a) registered in good standing as an
investment advisor under the Investment Advisors Act of 1940, (b) a bank, as
defined in that Act, or (c) an insurance company qualified to perform investment
management services under the laws of more than one state of the United States.
The terms of such appointment shall permit the Board to remove the investment
manager at any time and without cause.
10.2. Duties of the Trustee
It shall be the duty of the Trustee (i) to hold, invest and reinvest the Fund,
(ii) to pay moneys from the Fund to persons entitled thereto pursuant to the
written orders of the Retirement Committee, and (iii) to perform any other acts
or duties required of it by the terms of the Trust Agreement.
10.3. Direction of Investment by Participants
Each Participant shall be permitted to exercise control over the assets in his
Elective Contribution Account, After-Tax Contribution Account, Matching
Contribution Account, Rollover Account, Transfer Account, and Employer
Contribution Account. The Employer shall provide a variety of investment
alternatives to Participants in accordance with its funding policy, and shall
select one or more dates during the Plan Year when Participants can direct the
investment of their Accounts or change a prior investment election. The Employer
may, in its discretion, delegate responsibility for administration of
Participant-directed investments to the Trustee or an affiliate of the Trustee.
10.4. Loans to Participants
Any Participant may file a written application with the Retirement Committee
requesting a loan from the Fund. The Retirement Committee shall investigate the
application and approve or disapprove the loan in its sole discretion. All loans
shall comply with the rules and requirements outlined in the Summary of the
Participant Loan Program attached to this document, which the Retirement
Committee may amend from time to time in its sole discretion.
<PAGE>
10.4.1 GENERAL PROVISIONS
10.5. Employment Status
The adoption and maintenance of the Plan shall not be deemed to constitute a
contract between the Employer and any Employee or to be a consideration for, or
an inducement to or condition of, the employment of any person. Nothing herein
contained shall be deemed to: (i) give to any Employee the right to be retained
in the employ of the Employer, (ii) interfere with the right of the Employer to
discharge any Employee at any time, (iii) give to the Employer the right to
require any Employee to remain in its employ, or (iv) interfere with any
Employee's right to terminate his employment with the Employer at any time.
10.6. Nonalienation of Benefits
Except to the extent that this provision may be contrary to law, the rights of
Participants and Beneficiaries under the Plan shall not be subject to
assignment, attachment, garnishment, or alienation in any form, provided that
nothing in this Article shall preclude the payment of benefits pursuant to a
Qualified Domestic Relations Order as defined in Section 414(p) of the Internal
Revenue Code, or any domestic relations order entered before January 1, 1985. If
a Qualified Domestic Relations Order provides for distribution to an alternate
payee (within the meaning of Section 414(e) of the Internal Revenue Code) of the
total benefit payable to the alternate payee from the Plan in a single sum, then
the distribution shall be made pursuant to the order whether or not the
Participant would otherwise be entitled to receive a distribution from the Plan
at the time of the distribution to the alternate payee.
10.7. Impossibility of Performance
In the event that it becomes impossible for the Employer to perform any act
under the Plan, that act shall be performed which in the judgment of the
Employer will most nearly carry out the intent and purposes of the Plan.
10.8. Construction
In the event that there should be any question as to the meaning of any
provision of the Plan, the interpretation that governs shall, to the extent
allowable by law, be the one which complies with the Employee Retirement Income
Security Act of 1974 and which maintains the status of the Plan as a qualified
employee pension benefit plan under Section 401(a) of the Internal Revenue Code.
10.9. Termination of Trust
If the continued existence of the Trust beyond a certain period would cause it
to fail by operation of law, it shall continue for the maximum period permitted
and shall then terminate with distribution of assets as provided in the Plan.
10.10. Governing Law
All legal questions pertaining to the Plan shall be determined in accordance
with the laws of the State of New York except when those laws are preempted by
the laws of the United States.
10.11. Mergers and Transfers
In the case of any merger or consolidation with or transfer of assets or
liabilities of this Plan to any other plan, each Participant in the Plan shall
be entitled to receive a benefit which he would have been entitled to receive
had this plan been terminated immediately after the merger, consolidation, or
transfer at least equal to the benefit he would have been eligible to receive
prior to the merger, consolidation, or transfer.
10.12. Participating Employers
(1) With the consent of the Employer, any corporation which, with the Employer,
is a member of an affiliated group of corporations as defined in Section 1504 of
the Code and a member of a commonly controlled group of corporations as defined
in Section 414(b) of the Code, may adopt this Plan for the benefit of its
employees and participate herein by resolution of its board of directors. Any
corporation that adopts this Plan shall be known as a "Participating Employer."
A list of all Participating Employers and the Effective Date for each
Participating Employer is set forth in Appendix A, which is attached to this
Plan. Unless the context indicates to the contrary, the term "Employer" as used
throughout the other Articles of this Plan and the term "Participating Employer"
as used in Subsections (3), (4), (5) and (6) of this Section shall mean the
Employer and each Participating Employer.
(2) The Trustee, Retirement Committee members, and other Plan fiduciaries,
agents, and employees appointed or hired by the Employer shall act in
their respective capacities with respect to the Plan and Trust as
adopted by any Participating Employer. Each Participating Employer
shall be deemed to have granted the Employer the power of appoint,
hire, retain, direct, deal with, remove or discharge any fiduciary,
agent or employee of the Plan, and, when the Employer deems it
advisable, to amend or terminate the Plan. The Retirement Committee
shall have authority to make any and all policies and rules binding
upon the Employer, all Participating Employers and all Participants,
to effectuate the purposes of this Article.
<PAGE>
(3) The Trustee shall commingle, hold and invest in a single Fund
contributions made by all Participating Employers, together with the
income and profits thereon. Any expenses of the trust not borne by the
Fund shall be paid by the Participating Employers.
(4) If an Employee is transferred between Participating Employers (or an
Employee's service with one Participating Employer is terminated and
he later commences service with another Participating Employer) all
service with the transferor (or the previous Participating Employer)
shall be considered service with the transferee (or subsequent
Participating Employer) for all purposes under this Plan and shall be
taken into account in accordance with the provisions of this Plan. No
direct transfer by an Employee from one Participating Employer to
another shall be considered a termination of employment or by itself
result in a Break in Service. (5) All contributions made pursuant to
Section 4.2, as agreed to among the Employer and Participating
Employers, shall be allocated among the Accounts of all Participants
of all Participating Employers, in accordance with the provisions of
the Plan. Any forfeiture from the Account of any Participants shall be
allocated among the Accounts of all Participants of all Participating
Employers, in accordance with the provisions of the Plan. (6) Any
Participating Employer may discontinue its participation in the Plan
at any time by properly executing a document evidencing its intent to
do so and delivering the same to the Trustee and Retirement Committee
with notification and evidence satisfactory to the Trustee and
Retirement Committee of the establishment of any new plan and trust
and appointment of, and acceptance by, a successor trustee. As soon as
practicable after the receipt of such documents and evidence, the
Trustee shall transfer and deliver all assets and liabilities of the
Fund allocable to the Participants (or their beneficiaries) currently
or most recently employed by such Participating Employer to the
successor trustee. If no separate plan and trust is established by the
Participating Employer, or no person or entity is appointed to or
accepts the position of successor trustee, then the discontinuance
shall be considered a partial termination of the Plan with respect to
the Participating Employer, and each Participant affected thereby
shall immediately become fully vested in his Matching Contribution
Account and Employer Contribution Account. In this event, the Trustee
shall retain all assets and liabilities allocable to the Accounts of
the affected Participants (or their beneficiaries). In no event shall
the assets of the Fund (including profits and income thereon)
allocable to the Participants (or their beneficiaries) of the
Participating Employer be used or diverted for purposes other than the
exclusive benefit of these persons.
<PAGE>
10.13. Claims Procedure
Any person whose claim for benefits under this Plan is denied will be advised of
the denial and the specific reasons therefor in writing by the Retirement
Committee and afforded an opportunity to meet with the Retirement Committee for
a full and fair review of both the claim and the decision rendered. Any claim
for a benefit shall be made by submitting a written application to the
Retirement Committee at least 60 days before the intended retirement date. In
the case of a disability retirement or upon the death of a Participant, a claim
shall be made within 90 days following the separation from service. Upon receipt
of a claim, the Retirement Committee shall notify the claimant of the time
periods within which a decision will be made by the Retirement Committee and the
time within which he must appeal a decision of the Retirement Committee. Within
90 days after receipt of the claim, the Retirement Committee will reach a
decision and notify the claimant. Any person whose claim for benefits under the
Plan is denied will be advised in writing by the Retirement Committee of the
denial and the reasons therefore including references to specific Plan
provisions. If any additional information or material is required to perfect a
claim, the claimant will be so advised. The time for processing the claim may be
extended for an additional 90 days by the Retirement Committee providing written
notice of such extension to the claimant. If the claimant is not notified of the
decision of the Retirement Committee within 90 days (or 180 days if the
determination period is extended) the claim shall be deemed denied. In the event
that a claim is denied in whole or in part, the claimant shall be informed of
the procedures to be followed to appeal the decision.
10.14. Appeal Procedure
Any person whose claim for benefits has been denied may file a written appeal
with the Retirement Committee within 90 days after receipt by the claimant of
written notification of the denial or within 90 days after the claim is deemed
denied. The claimant or his authorized representative may review any pertinent
documents and submit any issues or comments to the Retirement Committee. The
claimant and/or his authorized representative shall be afforded an opportunity
to meet with the Retirement Committee for a full and fair review of the claim
and the Retirement Committee's decision. The decision of the Retirement
Committee on appeal will normally be made within 60 days of its receipt of a
written appeal. The time for rendering a decision may be extended for an
additional 60 days because of special circumstances, by the Retirement Committee
providing written notice of such extension to the claimant. The claimant shall
be notified in writing of the decision of the Retirement Committee and the
reasons therefore including references to specific Plan provisions. If the
claimant is not notified of the decisions within 60 days (120 days under special
circumstances) then the claim shall be deemed denied on appeal.
10.15.
Counterparts The Plan may be executed in any number of counterparts, each of
which shall be considered an original. IN WITNESS WHEREOF PSC Inc. has caused
this instrument to be executed this ____ day of ___________, 19___.
By: _____________________________
<PAGE>
SCHEDULE A
PARTICIPATING EMPLOYERS
Participating Employer Effective Date
PSC Scanning, Inc. July 1, 1997
PSC Automation, Inc. July 1, 1997
EXHIBIT 10.19
Consent and Waiver to Credit Agreement
As of December 8, 1997
Reference is made to the Credit Agreement dated as of July 12, 1996 and
as amended and in effect immediately prior to the date hereof (the "Credit
Agreement") by and among PSC SCANNING, INC., a Delaware corporation formerly
known as SpectraScan, Inc., which is successor by merger to PSC Acquisition,
Inc., (the "Borrower"), PSC INC. ("PSC"), the financial institutions party to
the Credit Agreement (the "Lender Parties"), FLEET BANK as the "Initial Issuing
Bank", and FLEET BANK, as administrative agent (the "Administrative Agent")
under the Credit Agreement.
Reference is also made to the Summary of Rights to Purchase Preferred
Stock annexed hereto as "Exhibit B" (the "Summary").
All definitions contained in the Credit Agreement and the Summary are
incorporated herein by reference and all such defined terms are used herein with
the same meanings.
The undersigned Lender Parties hereby: (1) consent to the declaration
of the dividend of the Rights described in the Summary and the actions which may
be taken by PSC pursuant to the Rights Agreement, and (2) waive the right to
deem such dividend or such action to be a violation of Section 5.02(g) of the
Credit Agreement or a Default or Event of Default under the Credit Agreement.
Except as specifically waived above, the Credit Agreement shall remain
in full force and effect.
This Consent and Waiver may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
shall be deemed to be an original, and all of which taken together shall
constitute one and the same Consent and Waiver, regardless of whether or not the
execution by all parties shall appear on any single counterpart. Delivery of an
executed counterpart of a signature page to this Consent and Waiver by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement. This Consent and Waiver will become effective when the
Administrative Agent shall have received counterparts of this Consent and Waiver
which, when taken together, bear the signatures of the Required Lenders.
<PAGE>
IN WITNESS WHEREOF, the Administrative Agent and the undersigned Lender
Parties have caused a counterpart of this Consent and Waiver to be executed and
delivered by their respective representatives thereunto duly authorized, as of
the date first above written.
FLEET BANK, as Administrative Agent FLEET BANK, as Initial Issuing Bank
By: By:
Title: Title:
FLEET BANK CORESTATES BANK, N.A.
By: By:
Title: Title:
MANUFACTURERS & TRADERS KEY BANK NATIONAL
TRUST COMPANY ASSOCIATION
By: By:
Title: Title:
PILGRIM AMERICA PRIME RATE
SUMITOMO BANK TRUST
By: By:
Title: Title:
EXHIBIT 10.23
PSC INC.
PSC SCANNING, INC.
675 Basket Road
Webster, New York 14580
December 29, 1997
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
200 Clarendon Street
Boston, Massachusetts 02117
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
LINCOLN NATIONAL INCOME FUND, INC.
c/o Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Ft. Wayne, Indiana 46802
SECURITY-CONNECTICUT CORPORATION
SECURITY-CONNECTICUT LIFE INSURANCE COMPANY
20 Security Drive
Avon, Connecticut 06001
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
c/o Alliance Capital Management L.P.
1345 Avenue of the Americas, 37th Floor
New York, New York 10105
Re: Consent and Waiver Under Securities Purchase Agreements and Warrants
Ladies and Gentlemen:
PSC INC., a New York corporation (the "Holding Company"), and PSC
SCANNING, INC., a Delaware corporation (formerly named SpectraScan, Inc.) and a
Wholly-Owned Subsidiary of the Holding Company (the "Operating Company") (the
Holding Company and the Operating Company are sometimes collectively referred to
herein as the "Companies" and each as a "Company"), jointly and severally agree
with you as follows:
1. Definitions. Reference is hereby made to those certain Securities
Purchase Agreements dated July 12, 1996, as amended by Amendment No. 1 to
Securities Purchase Agreements dated October 10, 1996, Amendment No. 2 and
Waivers Under Securities Purchase Agreements dated as of July 4, 1997 and
Amendment No. 3 to Securities Purchase Agreements and Warrants dated August 18,
1997 (as the same may be amended, modified or supplemented from time to time,
the "Securities Purchase Agreements"), among the Holding Company, the Operating
Company and each of you. Capitalized terms used herein without definition have
the meanings ascribed to them in the Securities Purchase Agreements.
<PAGE>
2. Consent to Rights Plan.
(a) Reference is hereby made to the Summary of Rights to
Purchase Preferred Stock, a true, correct and complete copy of which is
attached hereto as Exhibit A (the "Summary"), the Rights Agreement
referred to in the Summary, a true, correct and complete copy of which
is attached hereto as Exhibit B (the "Rights Agreement"), and the
Certificate of Amendment referred to in the Summary, a true, correct
and complete copy of which is attached hereto as Exhibit C (the
"Certificate of Amendment").
(b) Each of you hereby (i) consents to the declaration of the
dividend of the Rights (as defined in the Summary) in accordance with
the Summary and Rights Agreement and to the amendment of the Company's
Organizational Documents as provided in the Certificate of Amendment
and (ii) waives any breach of section 14.6 or 14.16 of the Securities
Purchase Agreements arising solely on account thereof; provided that
nothing herein shall be deemed to be (x) a consent to any other
transaction, including, without limitation, any other issuance of
securities by the Holding Company in connection with or related to the
Rights or otherwise, or (y) a waiver of any right of any holder of any
Warrant to any adjustment to the Exercise Price or the number of
Warrant Shares issuable upon exercise of the Warrants which may be
required under the terms of the Warrants on account of the issuance of
the Rights or the Units (each as defined in the Summary) or any other
related transaction or event.
(c) The Holding Company agrees that (i) the holders of the
Warrants will be entitled to such adjustments as are provided for under
the terms of the Warrants upon the issuance of the Rights and/or upon
the exercise of the Rights, (ii) all such adjustments will be
satisfactory to the Required Holders of the Warrants at the time
outstanding and (iii) the Warrants and the Warrant Shares shall not be
included in any determination of whether any Person or Persons
constitute an Acquiring Person (as defined in the Summary).
3. No Default, Representations and Warranties, etc.
(a) The Companies represent and warrant that, except as
otherwise modified by (i) the documents referred to in section 5(a)(i)
of Amendment No. 3 to Securities Purchase Agreements and Warrants dated
August 18, 1997, (ii) the projections referred to on Exhibit B attached
to Amendment No. 2 and Waivers under Securities Purchase Agreements
dated as of July 4, 1997, (iii) the information delivered to the
Purchasers on June 11, 1997, which is attached to Amendment No. 2 and
Waivers Under Securities Purchase Agreements dated as of July 4, 1997
as Exhibit C, and (iv) the following documents filed by the Holding
Company with the Commission under the Exchange Act: (A) Form 10-Q for
the quarters ended July 4, 1997 and October 3, 1997 and (B) Form 8-K
filed on September 24, 1997, the representations and warranties
contained in the Securities Purchase Agreements and the other Operative
Documents are in all material respects correct on and as of the date
hereof as if made on such date (except to the extent affected by the
consummation of transactions permitted by the Securities Purchase
Agreements). The Companies further represent and warrant that, after
giving effect to the provisions of this Letter Agreement, no Default or
Event of Default exists.
(b) The Companies each ratify and confirm the Securities
Purchase Agreements and each of the other Operative Documents to which
each is a party and agree that each such agreement, document and
instrument is in full force and effect, that its obligations thereunder
and under this Letter Agreement are its legal, valid and binding
obligations enforceable against it in accordance with the terms thereof
and hereof and that it has no defense, whether legal or equitable,
setoff or counterclaim to the payment and performance of such
obligations.
<PAGE>
(c) The Companies agree that (i) if any default shall be made
in the performance or observance of any covenant, agreement or
condition contained in this Letter Agreement or in any agreement,
document or instrument executed in connection herewith or pursuant
hereto or (ii) if any representation or warranty made by the Companies
herein or therein shall prove to have been false or incorrect on the
date as of which made, the same shall constitute an Event of Default
under the Securities Purchase Agreements and the other Operative
Documents and, in such event, you and each other holder of any of the
Notes shall have all rights and remedies provided by law and/or
provided or referred to in the Securities Purchase Agreements and the
other Operative Documents. The Companies further agree that this Letter
Agreement is an Operative Document and all references thereto in the
Securities Purchase Agreements and in any other of the other Operative
Documents shall include this Letter Agreement.
4. Payment of Transaction Costs. The Companies shall pay all reasonable
fees and disbursements incurred by you in connection herewith, including,
without limitation, the reasonable fees, expenses and disbursements of your
special counsel.
5. Governing Law. This Letter Agreement, including the validity hereof
and the rights and obligations of the parties hereunder, shall be construed in
accordance with and governed by the domestic substantive laws of the State of
New York without giving effect to any choice of law or conflicts of law
provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction.
6. Miscellaneous. The headings in this Letter Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof. This Letter Agreement embodies the entire agreement and understanding
among the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter hereof. In case any provision in this Letter
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This Letter Agreement may be executed in any number of
counterparts and by the parties hereto on separate counterparts but all such
counterparts shall together constitute but one and the same instrument.
[The remainder of this page is intentionally left blank.]
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart hereof, whereupon this Letter
Agreement shall become a binding agreement under seal among the parties hereto.
Please then return one of such counterparts to the Companies.
Very truly yours,
PSC INC.
By: _____________________________
(Title)
PSC SCANNING, INC.
By: _____________________________
(Title)
Each of the undersigned (a) acknowledges and assents to the terms and
provisions of the foregoing Letter Agreement and (b) ratifies and confirms each
of the Operative Documents to which it is a party and agrees that each such
Operative Document is in full force and effect, that its obligations thereunder
are its legal, valid and binding obligations enforceable against it in
accordance with the terms thereof and that it has no defense, whether legal or
equitable, setoff or counterclaim, to the payment and performance of such
obligations.
INSTAREAD CORPORATION
By: _____________________________
(Title)
PSC AUTOMATION, INC.
(formerly named Laserdata Corporation)
By: _____________________________
(Title)
<PAGE>
LASERDATA HOLDINGS, INC.
By: _____________________________
(Title)
PSC S.A., INC.
By: _____________________________
(Title)
PSC SCANNING SYSTEMS, INC.
By: _____________________________
(Title)
The foregoing is hereby accepted and agreed to:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: _____________________________
(Title)
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By: _______________________________
(Title)
<PAGE>
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By: Lincoln Investment Management, Inc.
Its Attorney-in-Fact
By: ___________________________
(Title)
LINCOLN NATIONAL INCOME FUND, INC.
By: _______________________________
(Title)
RELIASTAR FINANCIAL CORP., as successor
to Security-Connecticut Corporation
By: _______________________________
(Title)
SECURITY-CONNECTICUT LIFE
INSURANCE COMPANY
By: _______________________________
(Title)
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: _______________________________
(Title)
EXHIBIT 22.1
SUBSIDIARIES OF REGISTRANT
PSC GmbH (100% owned by the Company
and incorporated in Germany)
PSC Bar Code Limited (100% owned by the Company
and incorporated in the United Kingdom)
PSC Foreign Sales Corporation (100% owned by the Company
and incorporated in the U.S. Virgin Islands)
PSC Automation, Inc. (100% owned by the Company
and incorporated in Florida)
Instaread Corporation (100% owned by PSC Automation, Inc.
and incorporated in Florida)
PSC Scanning, Inc. (100% owned by the Company
and incorporated in Delaware)
PSC Asia Pacific Pty. Limited (100% owned by the Company
and incorporated in Australia)
PSC S.A.R.L. (100% owned by the Company
and incorporated in France)
PSC SRL (100% owned by the Company
and incorporated in Italy)
PSC Japan K.K. (100% owned by the Company
and incorporated in Japan)
PSC Belgium, Inc. (100% owned by the Company
and incorporated in Delaware)
PSC Scandanavia AB (100%
owned by PSC Bar Code Ltd.
and incorporated in Sweden)
Spectra Scan Pty. Ltd.
(100% owned by PSC Scanning, Inc.
and incorporated in Australia)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously
filed Registration Statements on Form S-8 File Nos. 33-30249, 33-38201,
33-45610, 33-45614, 33-80084, 33-60343, 33-60389 and on Form S-3 File
Nos. 33-31409, 33-44769, 33-89178, 333-13859 and 333-34715
/s/ Arthur Andersen LLP
Rochester, New York,
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FDS For 10-K
</LEGEND>
<CIK> 319379
<NAME> PSC Inc.
<MULTIPLIER> 1000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,271
<SECURITIES> 0
<RECEIVABLES> 35,094
<ALLOWANCES> 1,169
<INVENTORY> 17,723
<CURRENT-ASSETS> 56,657
<PP&E> 35,469
<DEPRECIATION> 13,024
<TOTAL-ASSETS> 172,798
<CURRENT-LIABILITIES> 44,545
<BONDS> 0
0
1
<COMMON> 114
<OTHER-SE> 29,215
<TOTAL-LIABILITY-AND-EQUITY> 172,798
<SALES> 207,840
<TOTAL-REVENUES> 207,840
<CGS> 122,995
<TOTAL-COSTS> 68,078
<OTHER-EXPENSES> (107)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,563
<INCOME-PRETAX> 4,751
<INCOME-TAX> 1,761
<INCOME-CONTINUING> 2,990
<DISCONTINUED> (101)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,889
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Revised FDS for 1995
</LEGEND>
<CIK> 319379
<NAME> PSC Inc.
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 5,538
<SECURITIES> 4,204
<RECEIVABLES> 15,897
<ALLOWANCES> 387
<INVENTORY> 10,440
<CURRENT-ASSETS> 36,702
<PP&E> 22,157
<DEPRECIATION> 4,112
<TOTAL-ASSETS> 71,237
<CURRENT-LIABILITIES> 16,305
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 53,227
<TOTAL-LIABILITY-AND-EQUITY> 71,237
<SALES> 87,516
<TOTAL-REVENUES> 87,516
<CGS> 50,634
<TOTAL-COSTS> 28,863
<OTHER-EXPENSES> (388)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 306
<INCOME-PRETAX> 8,695
<INCOME-TAX> 3,246
<INCOME-CONTINUING> 5,449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,449
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.54
</TABLE>
