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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
OR
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-9919
PSC INC.
(Exact name of Registrant as Specified in Its Charter)
New York 16-0969362
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
675 Basket Road, Webster, New York 14580
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(716) 265-1600
--------------
(Registrant's telephone number, including area code)
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 12 months preceding (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 |_|
As of May 9, 2000, there were 12,214,366 shares of common stock outstanding.
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<PAGE>
PSC INC. AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION
Item 1 Financial Statements Page Number
-----------
Consolidated Balance Sheets as of
March 31, 2000 (Unaudited) and December 31, 1999......................3-4
Consolidated Statements of Operations and Retained Earnings for the
three months ended:
March 31, 2000 (Unaudited) and April 2, 1999 (Unaudited) ...............5
Consolidated Statements of Cash Flows for the three months ended:
March 31, 2000 (Unaudited) and April 2, 1999 (Unaudited) ...............6
Notes to Consolidated Financial Statements (Unaudited) ..............7-12
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations ......................13-15
PART II: OTHER INFORMATION
Item 1 Legal Proceedings .....................................................16
Item 2 Changes in Securities ................................................16
Item 3 Defaults upon Senior Securities .......................................16
Item 4 Submission of Matters to a Vote of Security Holders ..................16
Item 5 Other Information ...................................................16
Item 6 Exhibits and Reports on Form 8-K .....................................16
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
PSC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
Mar. 31, Dec. 31,
2000 1999
-------- --------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,077 $ 1,402
Accounts receivable, net of allowance for doubtful
accounts of $971 and $685, respectively 43,121 38,396
Inventories 27,515 23,343
Prepaid expenses and other 2,937 3,514
-------- --------
TOTAL CURRENT ASSETS 77,650 66,655
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of $25,184 and $23,614,
respectively 28,271 25,994
DEFERRED TAX ASSETS 21,954 20,762
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $30,235 and $27,476, respectively 98,351 53,330
-------- --------
TOTAL ASSETS $226,226 $166,741
======== ========
See accompanying notes to the Consolidated Financial Statements.
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<PAGE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
(Continued)
Mar. 31, Dec. 31,
2000 1999
-------- --------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 12,627 $ 16,281
Accounts payable 23,214 20,685
Accrued expenses 9,031 7,086
Accrued payroll and related employee benefits 4,559 5,758
--------- ---------
TOTAL CURRENT LIABILITIES 49,431 49,810
LONG-TERM DEBT, less current maturities 118,983 57,585
ACCRUED PROVISION FOR DISPUTED ROYALTIES 7,129 6,400
OTHER LONG-TERM LIABILITIES 1,806 1,613
SHAREHOLDERS' EQUITY:
Series A convertible preferred shares, par value $.01;
110 shares authorized, issued and outstanding
($11,000 aggregate liquidation value) 1 1
Series B preferred shares, par value $.01; 175
authorized, no shares issued and outstanding -- --
Undesignated preferred shares, par value $.01;
9,715 authorized, no shares issued and outstanding -- --
Common shares, par value $.01; 40,000 authorized
12,207 and 12,080 shares issued and outstanding 122 121
Additional paid-in capital 73,269 71,843
Retained earnings/(Accumulated deficit) (21,215) (18,065)
Accumulated other comprehensive income/(loss) (1,943) (1,210)
Less treasury stock repurchased at cost, 180 shares (1,357) (1,357)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 48,877 51,333
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 226,226 $ 166,741
========= =========
See accompanying notes to the Consolidated Financial Statements.
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<PAGE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Ended
-----------------------
March 31, April 2,
2000 1999
---------- ---------
(Unaudited) (Unaudited)
NET SALES $ 61,439 $ 59,145
COST OF SALES 37,869 33,540
-------- --------
Gross profit 23,570 25,605
OPERATING EXPENSES:
Engineering, research and development 5,822 4,128
Selling, general and administrative 14,414 12,360
Severance and other costs 1,974 2,103
Amortization of intangibles resulting from
business acquisitions 2,581 1,699
-------- --------
Income/(loss) from operations (1,221) 5,315
INTEREST AND OTHER INCOME/(EXPENSE):
Interest expense (3,423) (2,174)
Interest income 146 91
Other income/(expense) 9 (15)
-------- --------
(3,268) (2,098)
-------- --------
Income/(loss) before income tax provision/(benefit) (4,489) 3,217
Income tax provision/(benefit) (1,339) 1,126
-------- --------
Net income/(loss) ($ 3,150) $ 2,091
======== ========
NET INCOME/(LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Basic ($0.26) $0.18
Diluted ($0.26) $0.15
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 12,022 11,895
Diluted 12,022 13,677
RETAINED EARNINGS/(ACCUMULATED DEFICIT):
Retained earnings/(Accumulated deficit),
beginning of period ($18,065) ($26,027)
Net income/(loss) (3,150) 2,091
--------- ---------
Retained earnings/(Accumulated deficit), end of period ($21,215) ($23,936)
========= =========
See accompanying notes to the Consolidated Financial Statements.
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<PAGE>
<TABLE>
<CAPTION>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Three Months Ended
----------------------------------
March 31, 2000 April 2, 1999
-------------- -------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income/(loss) ($ 3,150) $ 2,091
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation and amortization 4,351 3,340
Deferred tax assets (1,170) (157)
(Increase) decrease in assets:
Accounts receivable 1,718 1,291
Inventories (152) (3,792)
Prepaid expenses and other 631 (179)
Increase (decrease) in liabilities:
Accounts payable (25) 1,225
Accrued expenses (1,137) 2,286
Accrued provision for disputed royalties 729 --
Accrued payroll and related employee benefits (1,281) (67)
Accrued acquisition related restructuring costs -- (258)
--------- ---------
Net cash provided by operating activities 514 5,780
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (1,295) (1,005)
Net cash paid for business (53,486) --
Additions to intangible and other assets (464) (2,037)
--------- ---------
Net cash used in investing activities (55,245) (3,042)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt 112,000 2,000
Payments of long-term debt (54,854) (5,594)
Additions to other long-term liabilities, net 188 63
Exercise of options and issuance of common shares 777 555
Tax benefit from exercise or disposition of stock options 28 --
--------- ---------
Net cash provided by (used in) financing activities 58,139 (2,976)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (733) (852)
--------- ---------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 2,675 (1,090)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,402 6,180
--------- ---------
End of period $ 4,077 $ 5,090
========= =========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared by
the Company without audit. In the opinion of management, these financial
statements include all adjustments necessary to present fairly the
Company's financial position as of March 31, 2000, the results of
operations for the three months ended March 31, 2000 and April 2, 1999 and
its cash flows for the three months ended March 31, 2000 and April 2,
1999. The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the results to be expected for the full
year.
Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 1999 annual report on
Form 10-K.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Inventory costs include material, direct labor and
overhead and consist of the following:
March 31, 2000 December 31, 1999
-------------- -----------------
Raw materials $15,873 $14,358
Work-in-process 5,078 5,238
Finished goods 6,564 3,747
------- -------
$27,515 $23,343
======= =======
(2) LONG-TERM DEBT
Long-term debt consists of the following:
March 31, 2000 December 31, 1999
-------------- -----------------
Senior term loan $ 72,500 $42,000
Revolving line of credit 27,000 --
Subordinated term loan 29,622 29,607
Subordinated promissory note 1,875 2,188
Other 613 71
-------- -------
131,610 73,866
Less: current maturities 12,627 16,281
-------- -------
$118,983 $57,585
======== =======
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<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
The Company borrowed an additional $58.0 million under its amended senior
term loan and revolving credit facilities to finance the acquisition of
Percon Incorporated (Percon). See Note 3 "Acquisition". The amended
revolving credit facilities provide for borrowings up to $50.0 million, of
which, $27.0 million was utilized toward the acquisition.
(3) ACQUISITION
On January 19, 2000, the Company acquired all of the outstanding shares of
Percon, a manufacturer of wireless and batch portable data terminals,
decoders, input devices and data management software, for approximately
$57.0 million. The acquisition was accounted for under the purchase method
of accounting and accordingly, the results of Percon's operations are
included in the 2000 consolidated statements of operations since the date
of acquisition. The excess purchase price over the fair value of net
assets acquired was approximately $46.0 million and is being amortized on
a straight-line basis over 10 years.
The following unaudited pro forma condensed results of operations combine
the operations of the Company with those of Percon as if the acquisition
was consummated on January 1, 1999. The pro forma information is presented
after giving effect to certain adjustments for amortization of goodwill,
incremental interest expense on acquisition financing and the related
income tax effects. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the
results that would have been achieved during the periods indicated and are
not intended to be indicative of future results.
Pro Forma Three Months Ended
------------------------------------
March 31, 2000 April 2, 1999
---------------- ---------------
Net sales $62,198 $67,053
Income/(loss) from operations (3,526) 5,164
Net income/(loss) (4,855) 1,000
Net income/(loss) per common and
common equivalent share:
Basic $(0.40) $0.08
Diluted $(0.40) $0.07
Weighted average number of common and
common equivalent shares outstanding:
Basic 12,022 11,895
Diluted 12,022 13,677
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<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
In connection with the acquisition, liabilities assumed and net cash paid
were as follows:
Fair value of assets acquired $67,611
Liabilities assumed 6,623
-------
Cash paid for business 60,988
Less: cash acquired 7,502
-------
Net cash paid for business $53,486
=======
(4) SEVERANCE AND OTHER COSTS
During the first quarter of 2000, the Company recorded a pretax charge of
$2.0 million for employee severance and benefit costs for the elimination
of approximately 35 positions resulting from integration activities
associated with the Percon acquisition and reorganization actions in
connection with the Company's sales force. As of March 31, 2000, the
amount of the severance accruals was approximately $1.6 million, which
relates to current contractual obligations. These costs reduced 2000
income/(loss) before income tax provision/(benefit), net income/(loss),
basic EPS and diluted EPS by $2.0 million, $1.3 million, $0.11 and $0.11,
respectively.
(5) SHAREHOLDERS' EQUITY
Comprehensive income, which includes net income/(loss), foreign currency
translation adjustments and unrealized gain/(loss) on securities, was
($3,884) and $926 for the three months ended March 31, 2000 and April 2,
1999, respectively.
During the three month period ended March 31, 2000, employees purchased
approximately 73 shares at $6.27 per share under the provisions of the
Company's Employee Stock Purchase Plan.
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<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
Changes in the status of options under the Company's stock option plans are
summarized as follows:
<TABLE>
<CAPTION>
January 1, 2000 Weighted January 1, 1999 Weighted
to Average to Average
March 31, 2000 Price December 31, 1999 Price
--------------- -------- ----------------- --------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of period 3,221 $7.84 3,027 $7.98
Options granted 175 6.70 432 7.28
Options exercised (52) 5.76 (82) 7.24
Options forfeited/canceled (101) 7.18 (156) 9.24
------ ------
Options outstanding at
end of period 3,243 $7.84 3,221 $7.84
====== ======
Number of options at end
of period:
Exercisable 2,010 $8.20 2,058 $8.13
Available for grant 567 693
</TABLE>
During the three month period ended March 31, 2000, 52 forfeited options
were cancelled due to the expiration of the 1987 Stock Option Plan in
December 1997. These options are not available for future grants.
(6) NET INCOME/(LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Basic EPS was computed by dividing reported earnings available to common
shareholders by weighted average shares outstanding during the year.
Diluted EPS for the three months ended April 2, 1999 was determined on the
following assumptions: (1) Preferred Shares and related warrants issued in
connection with the private placement of equity were converted upon
issuance on January 1, 1999 and (2) warrants issued in connection with the
acquisition of Spectra were converted on January 1, 1999.
The following options and warrants were not included in the computation of
diluted EPS since the exercise prices were greater than the average market
price of Common Shares. Options to purchase 3,868 and 1,171 common shares
at an average price of $6.88 and $9.65 per share were outstanding for the
three months ended March 31, 2000 and April 2, 1999, respectively.
Warrants to purchase 1,155 common shares at an average price of $5.68 per
share were outstanding for the three months ended March 31, 2000.
-10-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------
March 31, 2000 April 2, 1999
--------------------------------------- --------------------------------------
Per Per
Income Shares Share Income Shares Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to common
shareholders ($3,150) 12,022 ($0.26) $2,091 11,895 $0.18
======= =====
Effect of dilutive securities:
Options -- -- -- 324
Warrants -- -- -- 83
Preferred Shares -- -- -- 1,375
-------- ------- ------ ------
Diluted EPS:
Income available to common
shareholders and assumed
conversions ($3,150) 12,022 ($0.26) $2,091 13,677 $0.15
======== ======= ======= ====== ====== =====
</TABLE>
(7) DERIVATIVES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. As amended by Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133", SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 and cannot be applied retroactively. The
Company has not yet quantified the impacts of adopting SFAS No. 133 on the
financial statements and has not determined the timing of or method of
adopting SFAS No. 133.
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. Cash flows from interest rate swap agreements and foreign
currency forward exchange contracts are classified in the same category as
the item being hedged.
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<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
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 relates primarily to its
international subsidiaries. Sales to certain countries are denominated in
their local currency. The Company enters into foreign currency forward
exchange contracts to minimize the effect of foreign currency fluctuations
relating to these 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.
-12-
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
- -------
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
of the Company's December 31, 1999 annual report on Form 10-K.
Overview
- --------
On December 21, 1999, the Company acquired substantially all of the assets of
GAP Technologies, Inc. and GEO Labs, Inc. (GAP) for approximately $4.8 million.
GAP is a technology and research group that designs and manufactures miniature
laser scan engines and pen-based scanners. The Company recently introduced an
innovative consumer home shopping appliance, incorporating the miniature scan
engine technology developed by GAP. The home shopping system enables consumers
to create a shopping list by scanning product bar codes and then transmitting
the list online to the retailer.
On January 19, 2000, the Company acquired all of the outstanding shares of
Percon Incorporated (Percon), a manufacturer of wireless and batch portable data
terminals (PDTs), decoders, input devices and data management software, for
approximately $57.0 million. The acquisition of Percon significantly increased
the scope of the Company's product line, enhancing the Company's ability to
provide systems type solutions and to expand the Company into the PDT and
software/services categories of the AIDC market, which are growing rapidly.
Results of Operations: Three Months ended March 31, 2000 and April 2, 1999
- ---------------------------------------------------------------------------
Net Sales. Net sales during the three months ended March 31, 2000 increased $2.3
million or 4% compared with the same period in 1999. The increase in net sales
is attributed primarily to increased sales in U-Scan(R) Express Self-Checkout
Systems and inclusion of Percon product sales offset by a decline in sales of
retail fixed position products.
Gross Profit. Gross profit during the three months ended March 31, 2000
decreased $2.0 million or 8% compared with the same period in 1999. As a
percentage of sales, gross profit decreased from 43.3% to 38.4%. The decrease in
gross profit percentage is primarily due to a change in the Company's product
mix and the impact of unfavorable foreign currency exchange rates.
Engineering, Research and Development. Engineering, Research and Development
(ER&D) expenses increased $1.7 million or 41%, as compared to the same period in
1999. As a percentage of sales, ER&D was 9.5% in the first quarter of 2000
versus 7.0% of net sales in the first quarter of 1999. The increase in ER&D is
primarily attributable to additional investments in developing new products and
enhancing existing products, and the inclusion of GAP Technologies and Percon,
which were acquired in December 1999 and January 2000, respectively.
Selling, General and Administrative. Selling, General and Administrative (SG&A)
expenses increased $2.1 million or 16.6%, as compared to the first quarter of
1999. As a percentage of sales, SG&A was 23.5% in 2000 versus 20.9% in 1999. The
dollar and percentage increases are primarily due to the inclusion of Percon and
higher royalty expense recorded in connection with the February 8, 2000 decision
related to the Company's licensing agreements with Symbol Technologies, Inc. See
"Legal Proceedings."
-13-
<PAGE>
Severance and Other Costs. During the first quarter of 2000, the Company
recorded a pretax charge of $2.0 million for employee severance and benefit
costs for the elimination of approximately 35 positions resulting from
integration activities associated with the acquisition of Percon and
reorganization actions in connection with the Company's sales force. As of March
31, 2000, the amount of the severance accruals was approximately $1.6 million,
which relates to current contractual obligations. These costs reduced 2000
income/(loss) before income tax provision/(benefit), net income/(loss), basic
EPS and diluted EPS by $2.0 million, $1.3 million, $0.11 and $0.11,
respectively.
Interest Expense. Interest expense increased $1.2 million versus the comparable
period in 1999. The increase is primarily due to additional borrowings of $58.0
million in January 2000 to finance the acquisition of Percon, and bank fees
incurred in connection with amendments and waivers obtained for the senior and
subordinated credit agreements.
Income Tax Provision/(Benefit). The Company's effective tax rate was 30% in 2000
versus 35% in 1999 due to the exclusion of goodwill amortization recorded in
connection with the Percon acquisition.
Liquidity and Capital Resources:
- -------------------------------
Current assets increased $11.0 million from December 31, 1999 primarily due the
inclusion of Percon. Current liabilities decreased $0.4 from December 31, 1999
primarily due to the decrease in current portion of long-term debt and accrued
payroll and commissions offset by the inclusion of Percon's accrued expenses. As
a result, working capital increased $11.4 million from December 31, 1999.
Property, plant and equipment expenditures totaled $1.3 million for the three
months ended March 31, 2000 compared with $1.0 million for the three months
ended April 2, 1999. The 2000 expenditures primarily related to new product
tooling, manufacturing equipment, and computer software and hardware.
The long-term debt to capital percentage was 71.1% at March 31, 2000 versus
52.9% at December 31, 1999 primarily due to $58.0 million of additional debt
borrowed to finance the acquisition of Percon. At March 31, 2000, liquidity
immediately available to the Company consisted of cash and cash equivalents of
$4.1 million. The Company has revolving credit facilities totaling $50.0
million, of which, $27.0 million was outstanding as of March 31, 2000. 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 12 months.
Year 2000
- ---------
The Year 2000 problem is the result of many existing computer programs written
in two digits, rather than four, to define the applicable year. Accordingly,
date-sensitive software or hardware may not be able to distinguish between the
year 1900 and year 2000, and programs that perform arithmetic operations,
comparisons or sorting of date fields may begin yielding incorrect results. This
potentially could cause a system failure or miscalculations that could disrupt
operations, including, among other things, an inability to process transactions,
send invoices, or engage in normal business activities.
To mitigate the effects of the Company's or significant suppliers' potential
failure to remediate the Year 2000 issue in a timely manner, the Company will
execute its contingency plan and make arrangements for alternate suppliers and
utilize manual intervention to ensure the continuation of operations where
necessary. If it becomes necessary for the Company to take these corrective
actions, the Company does not believe that this would result in significant
delays in business operations or have a material adverse effect on the Company's
results of operations, financial position or cash flows.
-14-
<PAGE>
The Company incurred approximately $0.6 million of incremental out-of-pocket
costs for its Year 2000 program to remediate existing computer software and
hardware. These costs do not include internal management time, which the Company
does not separately track, nor the deferral of other projects, the effects of
which were not material to the Company's results of operations or financial
condition. As of this time, the Company has not been made aware of any Year 2000
issues nor has the Year 2000 issue had a material adverse impact on results of
operations, financial position or cash flows.
Euro Conversion
- ---------------
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing legacy currencies and
the euro. The legacy currencies will remain in effect until July 1, 2002, at
which time, the legacy currencies will no longer be legal tender for any
transactions. The Company believes that the euro conversion will not have a
material adverse impact to results of operations, financial position or cash
flows.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
- --------------------------------------------------------------------------------
Securities Litigation Reform Act of 1995
- ----------------------------------------
Certain statements contained in this Management's Discussion and Analysis may be
forward-looking in nature, or "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Management cautions that these
statements are estimates of future performance and are highly dependent upon a
variety of important factors, which could cause actual results to differ
materially from the estimate. These factors include the market acceptance of
products, competitive product offerings, the disposition of legal issues, the
ability of the Company to identify and address successfully the Year 2000 issues
in a timely manner and at costs that are reasonably in line with projections,
and the ability of the Company's vendors to identify and address successfully
their own Year 2000 issues in a timely manner. Profits also will be affected by
the Company's ability to control manufacturing and operating costs. Reference
should be made to filings with the Securities and Exchange Commission for
further discussion of factors that could affect the Company's future results.
-15-
<PAGE>
PART II: OTHER INFORMATION
Item 1: Legal Proceedings:
The description of the Company's legal proceedings set forth in Item 3
of the Company's Annual Report on Form 10-K for the fiscal period ended December
31, 1999 is incorporated herein by reference. With respect to the the Eastern
District Action commenced by Symbol Technologies, Inc. ("Symbol"), Symbol
withdrew its motion for permission to file an oversized brief and refiled its
motion for an injunction pendente lite in accordance with the Court's rules. The
Court has scheduled a hearing on Symbol's motion commencing June 26, 2000. The
Company will vigorously oppose Sumbol's motion.
Item 2:Changes in Securities: None
Item 3:Defaults upon Senior Securities: None
Item 4:Submission of Matters of Shareholders to a Vote of Security Holders: None
Item 5:Other Information: None
Item 6:Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Amendment Nine and Consent and Waiver dated as of March 31, 2000 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................................................18
10.2 Amendment No. 6, and Consent dated March 31, 2000 to Securities
Purchase Agreements and Warrants among PSC Inc., PSC Scanning Inc.,
and the Purchasers named in the Securities Purchase Agreements......34
10.3 Employment Agreement between the Company and George A. Plesko dated as
of December 21, 1999................................................55
10.4 Noncompetition and Confidentiality Agreement between the Company and
George A. Plesko dated as of December 21, 1999......................72
10.5 Employment Agreement between the Company and Andy J. Storment dated as
of January 19, 2000.................................................77
10.6 Noncompetition Agreement between the Company and Andy J. Storment
dated as of January 19, 2000........................................91
(b) Reports on Form 8-K: None
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
PSC Inc.
DATE: May 12, 2000 By:/s/ Robert C. Strandberg
-----------------------------------------
Robert C. Strandberg
President and Chief Executive Officer
DATE: May 12, 2000 By:/s/ William J. Woodard
-----------------------------------------
William J. Woodard
Vice President and
Chief Financial Officer
DATE: May 12, 2000 By:/s/ Michael J. Stachura
-----------------------------------------
Michael J. Stachura
Vice President of Finance
(Principal Accounting Officer)
-17-
Amendment Nine and Consent and Waiver
To
Credit Agreement
This Amendment Nine and Consent and Waiver (this "Amendment") is dated as
of March 31, 2000 and is made in respect of the Credit Agreement dated as of
July 12, 1996 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 the successor by merger to PSC
Acquisition, Inc., (the "Borrower"), PSC Inc. ("PSC"), the financial
institutions party to the Credit Agreement (the "Lender Parties"), Fleet
National Bank (formerly known as Fleet Bank) as the "Initial Issuing Bank", and
Fleet National Bank, as administrative agent (the "Administrative Agent") under
the Credit Agreement.
Statement of the Premises
-------------------------
The Borrower, PSC, the Lender Parties, the Initial Issuing Bank and the
Administrative Agent have previously entered into the Credit Agreement and
various amendments thereto from time to time. The Borrower has requested that
the Lender Parties consent to a certain sale and lease-back transaction, waive
compliance with certain covenants in the Credit Agreement as affected by the
accounting treatment accorded to a recent court decision, and amend certain
other covenants in the Credit Agreement to reflect the current circumstances of
the Borrower.
Statement of Consideration
--------------------------
Accordingly, in consideration of the premises, and under the authority of
Section 5-1103 of the New York General Obligations Law, the parties hereto
agree as follows.
Agreement
---------
1. Defined Terms. The terms "this Agreement", "hereunder" and similar references
in the Credit Agreement shall be deemed to refer to the Credit Agreement as
amended hereby. Capitalized terms used and not otherwise defined herein shall
have the meanings ascribed to such terms in the Credit Agreement.
2. Amendment. Effective as of March 31, 2000, the Credit Agreement is hereby
amended as follows:
2.1 Section 1.01 of the Credit Agreement is amended by deleting the
definitions of Adjusted EBITDA, Adjusted Total Debt Ratio and Percon
Charge.
2.2 Section 1.01 of the Credit Agreement is amended by adding the
definitions of "2000 Acquisition and Restructuring Charge", "2000 Sale
Leaseback Prepayment", "2000 Sale Leaseback Transaction", "Disputed
Royalty Case", "Disputed Royalty Decision", "Final Decision", "Fixed
Charge Coverage Ratio", "Interest Coverage Ratio", "Normalized
Quarterly Provisional Charges for Disputed Royalty", "Proven
Performance Date", "Quarterly Provisional Charges for Disputed
Royalty", "Senior Debt Ratio", "Total Reserve for Disputed Royalty"
and "Undisputed Royalties", as follows:
-18-
<PAGE>
"2000 Acquisition and Restructuring Charge" means the one-time expense
determined in accordance with GAAP charged to the Consolidated Income
Statement in the first fiscal quarter of 2000 relating to the
acquisition of Percon Incorporated and restructuring by PSC and its
Subsidiaries in an amount not exceeding $2,300,000.
"2000 Sale Leaseback Prepayment" means the prepayment of any Borrowing
pursuant to Section 2.06(b)(ii) of the Credit Agreement by reason of
the 2000 Sale Leaseback Transaction.
"2000 Sale Leaseback Transaction" means a sale leaseback transaction
whereby certain of the facilities of the Borrower located in Webster,
New York shall be sold and leased back to the Borrower under an
operating lease (not a Capitalized Lease) on terms approved by all
Lenders.
"Disputed Royalty Case" means the civil action in the United States
District Court, Western District of New York, numbered 96-CV-6152T,
entitled PSC Inc. v. Symbol Technologies, Inc.
"Disputed Royalty Decision" means the Decision and Order dated
February 8, 2000 issued by Hon. Michael A. Telesca in the Disputed
Royalty Case and any related order or judgment.
"Final Decision" means a final judgment or order entered into with
respect to the Disputed Royalty Decision for which: (i) PSC shall
agree to be bound; or (ii) no stay of enforcement shall be in effect
for a period of ten (10) consecutive days by reason of a pending
appeal otherwise.
"Fixed Charge Coverage Ratio" means a ratio, measured at the end of
each fiscal quarter of PSC, of
(i) Consolidated EBITDA for the most recently completed four fiscal
quarters of PSC, less Consolidated Capital Expenditures made
during such period, less the aggregate amount of federal, state,
local and foreign income taxes paid by PSC and its Subsidiaries
during such period, plus, for all calculations on Dates of
Determination which precede the Final Decision, the Quarterly
Provisional Charges for Disputed Royalty expensed during each
quarter in such four quarter period (but for all calculations on
Dates of Determination subsequent to the Final Decision, no
Quarterly Provisional Charges for Disputed Royalty shall be
added); to
(ii) the sum of (a) cash interest payable by PSC and its Subsidiaries
on all Debt during such period plus (b) cash rentals payable
under Capitalized Leases during such period plus (c) the
aggregate amount of scheduled principal repayments made or
required to be made in respect of Funded Debt by PSC and its
Subsidiaries during such period, excluding mandatory prepayments
of principal made pursuant to (1) the 1999 Sale Leaseback
Prepayment, (2) the 2000 Sale Leaseback Prepayment, and (3)
Section 2.06(b)(i), plus (d) after the Proven Performance Date,
the aggregate amount of all cash dividends paid by PSC and
Borrower on capital stock during such period and the purchase
price paid by PSC and its Subsidiaries during such period to
purchase capital stock of PSC as permitted by Section 5.02(g).
-19-
<PAGE>
"Interest Coverage Ratio" means a ratio measured at the end of each
fiscal quarter of PSC of:
(i) Consolidated EBITDA for the most recently completed four fiscal
quarters of PSC, plus, for all calculations on Dates of
Determination which precede the Final Decision, the Quarterly
Provisional Charges for Disputed Royalty expensed during each
quarter in such four quarter period (but for all calculations on
Dates of Determination subsequent to the Final Decision, no
Quarterly Provisional Charges for Disputed Royalty shall be
added); to
(ii) Interest Expense of PSC and its Subsidiaries for such period.
"Normalized Quarterly Provisional Charges for Disputed Royalty" means,
for each fiscal quarter, severally: (i) through December 31, 1999, the
amount listed on Schedule IV to reflect the accounting normalization
attributable to each fiscal quarter of the Quarterly Provisional
Charges for Disputed Royalty; and (ii) after December 31, 1999, an
amount equal to the Quarterly Provisional Charges for Disputed
Royalty.
"Proven Performance Date" means the first fiscal quarter end date:
(i) which is subsequent to the Final Decision; and
(ii) as of which Borrower shall have been in full compliance with all
terms of the Credit Agreement for a minimum of four consecutive
fiscal quarters, which compliance shall be supported by financial
statements delivered pursuant to Section 5.03(c) or (d).
"Quarterly Provisional Charges for Disputed Royalty" means, for each
fiscal quarter, severally, the amount determined in accordance with
GAAP of the non-cash expense appearing on the Consolidated Income
Statements from time to time as a charge to earnings reflecting the
amount which may be payable in respect of such quarter's earnings
pursuant to the Disputed Royalty Decision (exclusive of any Undisputed
Royalties).
"Senior Debt Ratio" means a ratio, measured at the end of each fiscal
quarter of PSC, of
(i) Senior Debt of PSC and its Subsidiaries outstanding on the Date
of Determination; to
-20-
<PAGE>
(ii) Consolidated EBITDA for the most recently completed four fiscal
quarters of PSC, plus the Quarterly Provisional Charges for
Disputed Royalty in respect of such period, less, for all
calculations on Dates of Determination, the Normalized Quarterly
Provisional Charges for Disputed Royalty expensed during each
quarter in such four quarter period;
provided, however, that for the purposes solely of calculating
the aggregate principal amount of Senior Debt outstanding, the
Working Capital Advances shall be deemed to be outstanding in an
aggregate principal amount equal to the average principal amount
outstanding on the last two fiscal quarter end dates, including
the Date of Determination.
"Total Reserve for Disputed Royalty" means, at any Date of
Determination, the amount determined in accordance with GAAP appearing
on the Consolidated Balance Sheet as of such Date of Determination
reflecting the amount which may be payable pursuant to the Disputed
Royalty Decision.
"Undisputed Royalties" means all liabilities determined in accordance
with GAAP payable by PSC or its Subsidiaries to Symbol Technologies,
Inc. or its affiliates pursuant to and under the contracts which are
the subject of the Disputed Royalty Case and which were not in dispute
in the Disputed Royalty Case (i.e., the flat rate or 3% of the Net
Sales Price of all Bar Code Readers sold under the "Spectra-Physics
license" as such term is used in the Disputed Royalty Decision).
2.3 Section 1.01 of the Credit Agreement is amended by changing the
definitions of "Applicable Margin", "Commitment Fee Percentage",
"Consolidated", "Debt", "EBITDA", "Excess Cash Flow", "Permitted
Liens", "Total Debt Ratio", and "Working Capital Commitment" to read
in their entirety, as follows:
-21-
<PAGE>
"Applicable Margin" means at any time and from time to time (a) from
March 31, 2000 and prior to August 1, 2000, 0.875% per year for Prime
Rate Advances and 2.500% per year for Eurodollar Rate Advances, and
(b) from and after August 1, 2000, a percentage per year determined by
reference to the Total Debt Ratio as set forth below:
<TABLE>
<CAPTION>
Term Loan Facility
and Working Term Loan Facility and
Capital Facility Working Capital Facility
Total Debt Ratio Prime Rate Advances Eurodollar Rate Advances
<S> <C> <C>
Level I:
--------
a ratio equal to or greater than 1.125% 2.750%
4.0:1
Level II:
---------
a ratio equal to or greater than 0.875% 2.500%
3.5:1 but less than 4.0:1
Level III:
----------
a ratio equal to or greater than 0.625% 2.250%
3.0:1 but less than 3.5:1
Level IV:
---------
a ratio equal to or greater than
2.5:1 but less than 3.0:1 0.375% 2.00%
Level V:
--------
a ratio equal to or greater than
2.0:1 but less than 2.5:1 0.125% 1.750%
Level VI:
---------
a ratio equal to or greater than 0.000% 1.500%
1.5:1 but less than 2.0:1
Level VII:
----------
a ratio of less than 1.5:1 0.000% 1.250%
</TABLE>
-22-
<PAGE>
The Applicable Margin for each Prime Rate Advance shall be determined
by reference to the ratio in effect from time to time and the
Applicable Margin for each Eurodollar Rate Advance shall be determined
by reference to the ratio in effect from time to time; provided,
however, that (A) no change in the Applicable Margin shall be
effective until three Business Days after the date on which the
Administrative Agent receives financial statements pursuant to Section
5.03(c) or (d) and a certificate of the chief financial officer of PSC
demonstrating such ratio and (B) if PSC has not submitted to the
Administrative Agent the information described in clause (A) of this
proviso as and when required under Section 5.03(c) or (d), as the case
may be, the Applicable Margin shall be at Level I for so long as such
information has not been received by the Administrative Agent.
"Commitment Fee Percentage" means at any time and from time to time
(a) from March 31, 2000 and prior to August 1, 2000, 0.500% per year
and (b) from and after August 1, 2000, a percentage per year
determined by reference to the Total Debt Ratio as set forth below:
Total Debt Ratio Commitment Fee Percentage
Level I:
--------
a ratio equal to or greater than 4.0:1 0.500%
Level II:
---------
a ratio equal to or greater than 3.5:1 but 0.500%
less than 4.0:1
Level III:
----------
a ratio equal to or greater than 3.0:1 but 0.500%
less than 3.5:1
Level IV:
---------
a ratio equal to or greater than 2.5:1 but
less than 3.0:1 0.375%
Level V:
--------
a ratio equal to or greater than 2.0:1 but
less than 2.5:1 0.375%
Level VI:
---------
a ratio equal to or greater than 1.5:1 but
less than 2.0:1 0.300%
Level VII:
----------
a ratio of less than 1.5:1 0.250%
; provided, however, that (A) no change in the Commitment Fee
Percentage shall be effective until three Business Days after the date
on which the Administrative Agent receives financial statements
pursuant to Section 5.03(c) or (d) and a certificate of the chief
financial officer of PSC demonstrating such ratio and (B) if PSC has
not submitted to the Administrative Agent the information described in
clause (A) of this proviso as and when required under Section 5.03(c)
or (d), as the case may be, the Commitment Fee Percentage shall be at
Level I for so long as such information has not been received by the
Administrative Agent.
-23-
<PAGE>
"Consolidated" means, when used in conjunction with any defined term
or any accounting term, such defined term or accounting term as
applied to PSC and its Subsidiaries on a consolidated basis in
accordance with GAAP.
"Debt" of any Person means, without duplication, (a) all indebtedness
of such Person for borrowed money, (b) all Obligations of such Person
for the deferred purchase price of property or services (other than
trade payables not overdue by more than 60 days incurred in the
ordinary course of such Person's business and trade payables that are
being contested in good faith), (c) all Obligations of such Person
evidenced by notes, bonds, debentures or other similar instruments,
(d) all Obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), excluding
operating leases, (e) all Obligations of such Person as lessee under
Capitalized Leases (without double counting such Obligations in the
computation of "Debt"), (f) all Obligations, contingent or otherwise,
of such Person under acceptance, letter of credit or similar
facilities, (g) all Obligations of such Person to purchase, redeem,
retire, defease or otherwise make any payment in respect of any
capital stock of or other ownership or profit interest in such Person
or any other Person or any warrants, rights or options to acquire such
capital stock, valued, in the case of Redeemable Preferred Stock, at
the greater of its voluntary or involuntary liquidation preference
plus accrued and unpaid dividends, (h) all Obligations of such Person
in respect of Hedge Agreements, (i) all Debt of others referred to in
clauses (a) through (h) above or clause (j) below guaranteed directly
or indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (i) to pay
or purchase such Debt or to advance or supply funds for the payment or
purchase of such Debt, (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Debt or to
assure the holder of such Debt against loss, (iii) to supply funds to
or in any other manner invest in the debtor (including any agreement
to pay for property or services irrespective of whether such property
is received or such services are rendered) or (iv) otherwise to assure
a creditor against loss, and (j) all Debt referred to in clauses (a)
through (i) above of another Person secured by (or for which the
holder of such Debt has an existing right, contingent or otherwise, to
be secured by) any Lien on property (including, without limitation,
accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Debt;
provided however that (A) for the purposes of Section 5.02(b) of the
Agreement, Debt shall not be deemed to include amounts payable to
George A. Plesko pursuant to and in accordance with the GEO/GAP Term
Sheet, and (B) for all purposes, Debt shall not be deemed to include
amounts which may be payable pursuant to the Disputed Royalty Decision
until it becomes a Final Decision (and then such amount shall not be
double counted as Debt).
-24-
<PAGE>
EBITDA" means, for any period, the sum, determined on a Consolidated
basis, of (a) net income (or net loss) plus: (i) the 2000 Acquisition
and Restructuring Charge (which is taken only in the first fiscal
quarter in 2000), less (ii) that portion of the 2000 Acquisition and
Restructuring Charge actually paid within such period, less (iii) any
gain arising from a reversal of the 2000 Acquisition and Restructuring
Charge, and, less (iv) on the fiscal quarter end date of December 31,
2000, the balance of the 2000 Acquisition and Restructuring Charge
which the Borrower has not paid in cash; (b) interest expense; (c)
income tax expense; (d) depreciation expense; and (e) amortization
expense in each case of PSC and its Subsidiaries, determined in
accordance with GAAP for such period; less, however, the Excluded
Leaseback Gain, if any, accruing during such period and plus the loss
on sale of assets, if any, incurred by the 2000 Sale Leaseback
Transaction; provided further that if the period for which EBITDA is
being computed includes any or all of the fiscal quarters ending on or
about March 31, 1999, June 30, 1999, September 30, 1999 and December
31, 1999, EBITDA shall be calculated by using the Pro Forma EBITDA for
each such fiscal quarter in such period.
"Excess Cash Flow" means for any period the sum of (i) EBITDA of PSC
and its Subsidiaries for such period plus (ii) the aggregate amount of
all non-cash charges deducted in arriving at EBITDA plus (iii) if
there was a net increase in Consolidated Current Liabilities of PSC
and its Subsidiaries during such period, the amount of such net
increase plus (iv) if there was a net decrease in Consolidated Current
Assets (excluding cash and Cash Equivalents) of PSC and its
Subsidiaries during such period the amount of such net decrease less
(v) the aggregate amount of scheduled principal repayments made or
required to be made in respect of Funded Debt by PSC and its
Subsidiaries during such period, excluding mandatory prepayments of
principal made pursuant to (1) the 1999 Sale Leaseback Prepayment, (2)
the 2000 Sale Leaseback Prepayment, and (3) Section 2.06(b)(i), less
(vi) Capital Expenditures of PSC and its Subsidiaries less (vii) the
aggregate amount of all federal, state, local and foreign income taxes
paid by PSC and its Subsidiaries during such period less (viii) the
aggregate amount of interest paid on any Funded Debt of PSC and its
Subsidiaries during such periods less (ix) the aggregate amount of all
non-cash credits included in arriving at such EBITDA less (x) if there
was a net decrease in Consolidated Current Liabilities of PSC and its
Subsidiaries during such period, the amount of such net decrease less
(xi) if there was a net increase in Consolidated Current Assets
(excluding cash and Cash Equivalents) of PSC and its Subsidiaries
during such period the amount of such increase; provided further,
however, that all computations of Consolidated Current Assets and
Consolidated Current Liabilities for the fiscal year ending December
31, 1999 shall be made using the Pro-Forma Balance Sheet annexed
hereto as Schedule V.
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced: (a) Liens for taxes, assessments and
governmental charges or levies not yet due and payable; (b) Liens
imposed by law, such as materialmen's, mechanics', carriers',
workmen's and repairmen's Liens and other similar Liens arising in the
ordinary course of business securing obligations that are not overdue
for a period of more than 30 days; (c) pledges or deposits to secure
obligations under workers' compensation laws or similar legislation or
to secure public or statutory obligations; (d) Permitted Encumbrances,
and (e) Liens created pursuant to the 1999 Sale Leaseback Transaction
and the 2000 Sale Leaseback Transaction.
-25-
<PAGE>
"Total Debt Ratio" means, on any Date of Determination, the ratio of
(A) the aggregate amount of Total Reserve for Disputed Royalty and all
Debt of PSC and its Subsidiaries on the last day of the most recently
completed fiscal quarter of PSC (without double counting in the event
that Debt shall include the amount payable in respect of the Final
Decision) to (B) Consolidated EBITDA for the most recently completed
four fiscal quarters of PSC, plus the Quarterly Provisional Charges
for Disputed Royalty expensed during each quarter in such four quarter
period, less the Normalized Quarterly Provisional Charges for Disputed
Royalty in respect of such four quarter period; provided, however,
that for purposes solely of calculating the aggregate amount of Debt
outstanding, the Working Capital Advances shall be deemed to be
outstanding in an aggregate principal amount equal to the average
principal amount outstanding on the last two fiscal quarter end dates,
including the Date of Determination.
2.4 The last sentence of Subsection (c) of Section 2.01 of the Credit
Agreement is amended to read in its entirety, as follows:
Within the limits of each Working Capital Lender's Unused Working
Capital Commitment in effect from time to time, the Borrower may
borrow under this Section 2.01(c), prepay pursuant to Section 2.06(a)
and reborrow under this Section 2.01(c), up to an aggregate principal
amount outstanding not exceeding at any time the sum of $50,000,000
less the Total Reserve for Disputed Royalty so long as the Disputed
Royalty Decision remains substantially effective and until the Final
Decision.
2.5 The first sentence of Subparagraph (i) of Subsection (b) of Section
2.06 of the Credit Agreement is amended by adding the following
proviso at the end thereof: "; provided, however, that no such
prepayment shall be made for the Fiscal Year ending December 31, 1999.
2.6 Subsection (c) of Section 5.02 of the Credit Agreement is amended to
read in its entirety, as follows:
(c) Lease Obligations. Create, incur, assume or suffer to exist, or
permit any of their respective Subsidiaries to create, incur,
assume or suffer to exist, any obligations as lessee (i) for the
rental or hire of real or personal property in connection with
any sale leaseback transaction excluding the 1999 Sale Leaseback
Transaction and the 2000 Sale Leaseback Transaction, or (ii) for
the rental or hire of real or personal property of any kind under
leases or agreements to lease, including Capitalized Leases and
operating leases pursuant to the 1999 Sale Leaseback Transaction
and the 2000 Sale Leaseback Transaction having an original term
of one year or more that would cause the direct and contingent
liabilities of PSC and its Subsidiaries, on a Consolidated basis,
in respect of all such obligations (as described in this clause
(ii)) to exceed an aggregate amount of $5,000,000 payable in any
period of 12 consecutive months.
-26-
<PAGE>
2.7 Subsection (g) of Section 5.02 of the Credit Agreement is amended to
read in its entirety, as follows:
(g) Dividends, Etc. Declare or pay any dividends, purchase, redeem,
retire, defease or otherwise acquire for value any of its capital
stock or any warrants, rights or options to acquire such capital
stock, now or hereafter outstanding, return any capital to its
stockholders as such, make any distribution of assets, capital
stock, warrants, rights, options, obligations or securities to
its stockholders as such or issue or sell any capital stock or
any warrants, rights or options to acquire such capital stock, or
permit any of its Subsidiaries to do any of the foregoing or
permit any of its Subsidiaries to purchase, redeem, retire,
defease or otherwise acquire for value any capital stock of the
Borrower or any warrants, rights or options to acquire such
capital stock or to issue or sell any capital stock or any
warrants, rights or options to acquire such capital stock, except
that after the Proven Performance Date the following actions may
be taken if, after giving effect to each such action, PSC and the
Borrower shall be in full compliance with all terms, conditions
and covenants of this Agreement: (i) PSC may declare and pay
dividends and distributions payable only in common stock of PSC,
(ii) a Foreign Subsidiary may declare and pay dividends and
distributions to PSC, provided that the Secured Parties shall
have a perfected first priority security interest in the property
comprising such dividends or distribution and (iii) PSC may
acquire shares of its common stock for an aggregate purchase
price during the period from the date hereof through the
Termination Date not to exceed $12,000,000, provided that, at the
time of such acquisition and immediately after giving effect
thereto, (x) the excess of Consolidated total assets over
Consolidated total liabilities shall not be less than $44,000,000
and (y) no Default shall have occurred and be continuing.
2.8 Subsection (a) of Section 5.04 of the Credit Agreement is amended to
read in its entirety, as follows:
(a) Fixed Charge Coverage Ratio. Maintain at the end of each fiscal
quarter of PSC a Fixed Charge Coverage Ratio of not less than (i)
1.15 to 1.00 for each fiscal quarter ending in 2000, and (ii)
1.25 to 1.00 thereafter.
2.9 Subsection (b) of Section 5.04 of the Credit Agreement is amended to
read in its entirety, as follows:
(b) Total Debt Ratio. Maintain at the end of each fiscal quarter of
PSC a Total Debt Ratio of not more than the following ratios set
forth below for the corresponding Dates of Determination:
Dates of Determination Ratio
3/31/00 3.75 to 1.00
6/30/00 4.25 to 1.00
9/30/00 4.00 to 1.00
12/31/00 3.75 to 1.00
3/31/01 and thereafter 3.25 to 1.00
-27-
<PAGE>
2.10 Subsection (c) of Section 5.04 of the Credit Agreement is amended to
read in its entirety, as follows:
(c) Senior Debt Ratio. Maintain at the end of each fiscal quarter of
PSC a Senior Debt Ratio of not more than the following ratios set
forth below for the corresponding Dates of Determination:
Dates of Determination Ratio
3/31/00 2.75 to 1.00
6/30/00 3.10 to 1.00
9/30/00 2.90 to 1.00
12/31/00 2.50 to 1.00
3/31/01 and thereafter 2.00 to 1.00
2.11 Subsection (d) of Section 5.04 of the Credit Agreement is amended to
read in its entirety, as follows:
(d) Interest Coverage Ratio. Maintain as of the end of each fiscal
quarter of PSC an Interest Coverage Ratio of ratio of not less
than the following ratios set forth below for the corresponding
Dates of Determination:
Dates of Determination Ratio
3/31/00 3.50 to 1.00
6/30/00 3.50 to 1.00
9/30/00 3.25 to 1.00
12/31/00 3.25 to 1.00
3/31/01 and thereafter 3.50 to 1.00
2.12 Subsection (e) of Section 5.04 of the Credit Agreement is amended to
read in its entirety, as follows:
(e) Net Worth. Maintain at all times an excess of Consolidated total
assets over Consolidated total liabilities, in each case, of the
Borrower and its Subsidiaries of not less than the sum of: (A)
$47,000,000, plus (B) 75% of Consolidated net income for each
fiscal quarter of PSC and its Subsidiaries, on a cumulative
basis, with no deduction for losses of any quarter, for the
period after December 31, 1999 to and including each quarter end
date.
2.13 Schedule III and Schedule IV to the Agreement shall be in the forms of
Schedule III and Schedule IV attached hereto.
3. Future Consent And Waiver To 2000 Sale Leaseback. If all of the Lender
Parties shall (in the future, when the term sheet for the 2000 Sale Leaseback
shall have been presented to the Lender Parties for approval) consent (in
writing) to the 2000 Sale Leaseback, then: (i) no additional fee shall be
charged by the Lenders solely for such consent, (ii) the Lenders shall have
waived the right to deem the 2000 Sale Leaseback to be a violation of
Subsections (a), (b), (c) and (d) of Section 5.02 or a Default or Event of
Default under the Credit Agreement by reason of noncompliance with such
Sections, and (iii) the Agent shall release any Lien created under the Loan
Documents on the assets subject to the 2000 Sale Leaseback; provided and on the
condition that all of the Net Cash Proceeds to be received by the Borrower from
the 2000 Sale Leaseback shall be paid directly to the Agent and applied as a
prepayment of the Term Loan Facility pursuant to Section 2.06(b)(ii). In the
event and to the extent that such prepayment would result in a prepayment of a
Eurodollar Rate Advance on a date other than the last day of the corresponding
Interest Period, the Agent shall hold such prepayment in an account until such
last day and shall effect the prepayment on such last day. No approval by the
Lender Parties of the 2000 Sale Leaseback shall be implied by this Amendment.
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<PAGE>
4. Other Waivers. The undersigned Lender Parties hereby waive noncompliance with
Subsection (d) of Section 5.03 as of March 30, 2000 (the 90th day after the end
the Fiscal Year ending on December 31, 1999); provided (i) that PSC and the
Borrower shall fully comply with Subsection (d) of Section 5.03 on or before the
tenth day following the day on which this Amendment shall have become effective
in accordance with Section 5 below, and (ii) that the information contained in
the financial statements to be delivered pursuant to Subsection (d) of Section
5.03 for the fiscal year end of December 31, 1999 shall not vary from the
financial information delivered to the Lenders under the PSC's letter of March
15, 2000. The undersigned Lender Parties also hereby waive noncompliance with
Subsection (a) of Section 5.04 of the Credit Agreement as of December 31, 1999.
5. Conditions Precedent to Effectiveness. This Amendment shall not become
effective unless and until: (a) the holders of the Subordinated Debt shall have
made such consents and amendments in respect of all Subordinated Debt Documents
as shall be necessary (collectively, the "Current SubDebt Amendment") to (i)
preserve, after giving effect to this Amendment, the relative differences
between the financial levels required pursuant to the financial covenants in the
Credit Agreement and the corresponding financial covenants in the Subordinated
Debt Documents which were in effect prior to Amendment Eight to the Credit
Agreement dated as of January 19, 2000 (and in furtherance of the agreement by
PSC, the Borrower and the holders of the Subordinated Notes pursuant to Section
3 of the letter agreement dated January 18, 2000 among PSC, the Borrower and
such holders); (ii) cause the financial covenants in the Subordinated Debt
Documents to be calculated in a manner identical to the financial covenants in
the Credit Agreement (as amended by this Amendment); (iii) consent to this
Amendment; and (iv) confirm that the Obligations of the Loan Parties under the
Loan Documents constitute "Superior Indebtedness" as defined in the Subordinated
Debt Documents; (b) the Required Lenders shall have granted their written
consent to the Current SubDebt Amendment; (c) the Borrowers shall have furnished
to the Administrative Agent all such confirmations, supporting documents and
opinions of counsel as the Administrative Agent may specify; (d) the Borrower
shall have paid to the Agent for the account of each of the Lender Parties,
pro-rata according to the amount of the total Commitments of each Lender Party,
a fee equal to the sum of one-half of one percent (0.50%) of the amount of total
Commitments of all Lender Parties; and (e) all post closing items to be
completed by the Borrower in respect of Amendment Eight to the Credit Agreement
dated as of January 19, 2000 shall have been completed.
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<PAGE>
6. Effect on the Credit Agreement. Except as specifically amended above, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed. The Borrower and PSC each acknowledge and agree that the Credit
Agreement (as amended by this Amendment) and each other Loan Document to which
each is a party is in full force and effect, that its Obligations thereunder and
under this Amendment are its legal, valid and binding obligations enforceable
against it in accordance with the terms thereof and hereof, and it has no
defense, whether legal or equitable, setoff or counterclaim to the payment and
performance of such Obligations.
7. Expenses. The Borrower shall pay promptly when billed all reasonable
out-of-pocket expenses of each of the Lender Parties and the Agent (including,
but not limited to, reasonable fees, charges and disbursements of counsel to
each of the Lender Parties and the Agent) incident to the preparation,
negotiation, execution, administration and enforcement of the this Amendment and
all documents and transactions required in connection with this Amendment.
8. Execution in Counterparts and Effectiveness. This Amendment 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 Amendment, 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
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment. This Amendment will become effective (subject to
the terms of Section 5 above) when the Administrative Agent shall have received
counterparts of this Amendment which, when taken together, bear the signatures
of the Borrower, PSC, the Administrative Agent and all of the Lenders.
9. Applicable Law. Pursuant to Section 5-1401 of the New York General
Obligations Law, the laws of the State of New York shall govern the validity,
construction, enforcement and interpretation of this Amendment in whole.
10.Headings. The headings of this Amendment are for the purposes of reference
only and shall not limit or otherwise affect the meanings hereof.
-30-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of this
Amendment to be executed and delivered by their respective representatives
thereunto duly authorized, as of the date first above written.
PSC Inc. PSC Scanning, Inc.
By: By:
Title: Vice President, Chief Financial Title: Vice President
Officer & Treasurer
Fleet National Bank, As Initial Fleet National Bank, As
Issuing Bank Administrative Agent
By: By:
Title: Title:
Fleet National Bank The Chase Manhattan Bank
By: By:
Title: Title:
Manufacturers & Traders Key Bank National
Trust Company Association
By: By:
Title: Title:
Citizens Bank of Massachusetts HSBC Bank USA
By: By:
Title: Title:
-31-
<PAGE>
Schedule III
------------
ProForma EBITDA
PSC Inc./Percon, Inc. Consolidated
(000's)
Q1 1999 Q2 1999 Q3 1999 Q4 1999
------- ------- ------- -------
Net Income/(Loss) 2,704 4,245 4,754 (546)
Interest Expense 2,101 1,878 1,770 1,709
Income Tax Expense 1,499 2,742 2,554 (160)
Depreciation Expense 1,719 1,731 1,877 1,881
Amortization Expense 1,887 1,858 1,868 1,682
------- ------- ------- -------
EBITDA 9,910 12,454 12,823 4,566
================================================================================
Schedule IV
-----------
Normalized Quarterly Provisional Charges for Disputed Royalty
Q1 1999 Q2 1999 Q3 1999 Q4 1999
------- ------- ------- -------
1,378 1,121 1,514 1,753
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<PAGE>
Schedule V
----------
PSC Inc. and Percon Incorporated
Consolidated ProForma Balance Sheet
As of December 31, 1999
(000's)
Current Assets:
Cash and Cash Equivalents $ 9,746
Accounts Receivable, Net 44,400
Inventories, Net 26,999
Prepaid Expenses and Other 3,795
---------
Total Current Assets 84,940
Property, Plant and Equipment 55,244
Accumulated Depreciation (26,468)
---------
28,776
Deferred Tax Assets 20,952
Intangible and Other Assets 124,126
Accumulated Amortization (27,476)
---------
96,650
---------
Total Assets $ 231,318
=========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 16,384
Accounts Payable 22,826
Accrued Expenses 10,200
Accrued Payroll and Commissions 6,428
---------
Total Current Liabilities 55,838
Long-Term Debt, less current maturities 116,112
Accrued Provision for Disputed Royalties 6,400
Other Long-Term Liabilities 1,635
Shareholders' Equity:
Preferred Stock 1
Common Shares/ Additional PIC 71,964
Retained Earnings (18,065)
Accumulated Other Comprehensive Income (1,210)
Less: Treasury Shares (1,357)
---------
Total Shareholders' Equity 51,333
---------
Total Liabilities and Shareholders' Equity $ 231,318
=========
-33-
PSC INC.
PSC SCANNING, INC.
675 Basket Road
Webster, New York 14580
As of March 31, 2000
JOHN HANCOCK LIFE INSURANCE COMPANY (formerly
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 LIFE INSURANCE COMPANY
c/o ReliaStar Investment Research, Inc.
100 Washington Avenue South
Suite 800
Minneapolis, Minnesota 55401
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: Amendment No. 6 and Consent and Waiver Under Securities Purchase
Agreements
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:
-34-
<PAGE>
1. Definitions; Background.
(a) Reference is hereby made to those certain Securities Purchase
Agreements dated July 12, 1996, as amended, modified and supplemented by
(i) Amendment No. 1 to Securities Purchase Agreements dated October 10,
1996, (ii) Amendment No. 2 and Waivers Under Securities Purchase Agreements
dated as of July 4, 1997, (iii) Amendment No. 3 to Securities Purchase
Agreements and Warrants dated August 18, 1997, (iv) Consent and Waiver
Under Securities Purchase Agreements and Warrants dated December 29, 1997,
(v) Amendment No. 4, Consent and Waiver Under Securities Purchase
Agreements dated March 1, 1999, (vi) Amendment No. 5 and Consent Under
Securities Purchase Agreements dated December 20, 1999 and (vii) Consent
Under Securities Purchase Agreements dated January 19, 2000 (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.
(b) The Companies have requested that,among other things, the holders
of the Securities issued pursuant to the Securities Purchase Agreements (i)
amend the financial covenants contained in the Securities Purchase
Agreements and (ii) consent to the proposed sale leaseback transaction of
certain facilities of the Operating Company located in Webster, New York
and, upon and subject to the terms and conditions hereof, such holders by
their execution hereof agree to the same.
2. Amendments to the Securities Purchase Agreements.
(a) Section 10.1 of the Securities Purchase Agreements (Certain
Definitions) is hereby amended to revise the definition of "Superior
Indebtedness" appearing therein by (i) deleting the figure "$84,000,000"
appearing therein and inserting the figure "$78,750,000" in place thereof
and (ii) deleting the figure "$21,000,000" appearing therein and inserting
the figure "$52,500,000" in place thereof.
(b) Section 14.6(a) of the Securities Purchase Agreements (Limitation
on Restricted Payments; Payments on Seller Notes) is hereby amended to read
in its entirety as follows:
"(a) Neither Company will, and neither Company will permit any of
their respective Subsidiaries to, directly or indirectly, make or
commit to make any Restricted Payment; provided that the Holding
Company may acquire shares of Common Stock for an aggregate purchase
price not to exceed $12,000,000 if, both at the time of each such
purchase and immediately after giving effect
-35-
<PAGE>
thereto, (i) Consolidated Net Worth shall be not less than $44,000,000
and (ii) no Default or Event of Default shall have occurred and be
continuing."
(c) Section 14.7 of the Securities Purchase Agreements (Certain
Financial Covenants) is hereby amended to read in its entirety as follows:
"14.7. Certain Financial Covenants. The Companies will, and will cause
their respective Subsidiaries to:
(a) Fixed Charge Coverage Ratio. Maintain at the end of each
fiscal quarter of the Holding Company specified below in this section
14.7(a) a Fixed Charge Coverage Ratio of not less than the ratio set
forth below for such period:
Four Fiscal Quarters Ending Ratio
--------------------------- -----
3/31/00 1.05 to 1.00
6/30/00 1.05 to 1.00
9/30/00 1.05 to 1.00
12/31/00 1.05 to 1.00
3/31/01 and the last day of
each fiscal quarter thereafter 1.15 to 1.00
(b) Adjusted Consolidated Indebtedness Ratio. Maintain at the end
of each fiscal quarter of the Holding Company specified below in this
section 14.7(b) an Adjusted Consolidated Indebtedness Ratio for such
date of not more than the ratio set forth below for such period:
Four Fiscal Quarters Ending Ratio
--------------------------- -----
3/31/00 4.25 to 1.00
6/30/00 4.75 to 1.00
9/30/00 4.50 to 1.00
12/31/00 4.25 to 1.00
3/31/01 and the last day of
each fiscal quarter thereafter 3.75 to 1.00
(c) Senior Debt to Adjusted EBITDA Ratio. Maintain at the end of
each fiscal quarter of the Holding Company specified below in this
section 14.7(c) a ratio of (i) Consolidated Senior Debt outstanding on
the last day of such fiscal quarter (provided that the portion of
Consolidated Senior Debt constituting Working Capital Advances
-36-
<PAGE>
(as defined in the Bank Credit Agreement) shall be deemed, for the
purpose of this calculation, to be an amount equal to the average
principal amount thereof outstanding on such day and on the last day
of the then most recently-completed fiscal quarter) to (ii)
Consolidated Adjusted EBITDA for the most recently completed four
fiscal quarters of the Holding Company, plus (x) the Quarterly
Provisional Charges for Disputed Royalty expensed during each fiscal
quarter in such four fiscal quarter period, less (y) the Normalized
Quarterly Provisional Charges for Disputed Royalty in respect of such
four fiscal quarter period, of not more than the ratio set forth below
for such period:
Four Fiscal Quarters Ending Ratio
--------------------------- -----
3/31/00 3.25 to 1.00
6/30/00 3.60 to 1.00
9/30/00 3.40 to 1.00
12/31/00 3.00 to 1.00
3/31/01 and the last day of
each fiscal quarter thereafter 2.50 to 1.00
(d) Net Worth. Maintain at all times an excess of Consolidated
Total Assets over Consolidated Total Liabilities of not less than the
sum of (i) $47,000,000, plus (ii) 50% of positive Consolidated Net
Income (without adjustment for any loss) for the period after December
31, 1999 to and including each date of determination computed on a
cumulative basis for said entire period."
(d) Section 14.8 of the Securities Purchase Agreements (Limitation on
Investments) is hereby amended (i) by deleting the word "and" appearing at
the end of clause (f) therein, (ii) by deleting the "." appearing at the
end of clause (g) therein and inserting "; and" in place thereof and (iii)
by inserting the following new clause (h) immediately after clause (g)
therein:
"(h) the Percon Acquisition."
(e) Section 14.9 of the Securities Purchase Agreements (Limitation on
Liens) is hereby amended (i) by deleting the word "and" appearing at the
end of clause (e) therein, (ii) by deleting the "." appearing at the end of
clause (f) therein and inserting ";" in place thereof and (iii) by
inserting the following new clauses (g) and (h) immediately after clause
(f) therein:
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<PAGE>
"(g) Liens assumed in the Percon Acquisition, provided that the
aggregate outstanding amount secured by such Liens shall not exceed
$200,000 at any time; and
(h) Liens created pursuant to the 1999 Sale Leaseback Transaction
and the 2000 Sale Leaseback Transaction."
(f) Section 14.11(a) of the Securities Purchase Agreements
(Limitations on Rental Obligations) is hereby amended to read in its
entirety as follows:
"(a) create, incur, assume or suffer to exist any obligations as
lessee (i) for the rental or hire of real or personal property in
connection with any sale and leaseback transaction or (ii) for the
rental or hire of other real or personal property of any kind under
leases or agreements to lease including Capital Leases having an
original term of one year or more that would cause the Consolidated
Rental Obligations in respect of all such obligations to exceed
$5,000,000 payable in any period of 12 consecutive months; or"
(g) Section 15.1 of the Securities Purchase Agreements (Definitions of
Capitalized Terms) is hereby amended:
(i) to insert the following definitions in appropriate
alphabetical order:
""Amendment No. 6" shall mean that certain Amendment No. 6
and Consent and Waiver Under Securities Purchase Agreements dated
as of March 31, 2000."
""Disputed Royalty Case" shall mean the civil action in the
United States District Court, Western District of New York,
numbered 96-CV-6152T, entitled "PSC Inc. v. Symbol Technologies,
Inc.""
""Disputed Royalty Decision" shall mean the Decision and
Order dated February 8, 2000 issued by Hon. Michael A. Telesca in
the Disputed Royalty Case and any related order or judgment."
""Excluded Leaseback Gain" shall mean all gain (gross --
before tax) resulting from the 1999 Sale Leaseback Transaction or
a termination of the lease thereunder if (and only if) such gain
is more than $50,000 during any period comprised of four full
consecutive fiscal quarters taken together as one accounting
period."
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<PAGE>
""Final Decision" shall mean a final judgment or order
entered into with respect to the Disputed Royalty Decision for
which (a) the Companies shall agree to be bound or (b) no stay of
enforcement shall be in effect for a period of 10 consecutive
days by reason of a pending appeal or otherwise."
""Fixed Charge Coverage Ratio" shall mean, at any date, the
ratio of (a) (i) Consolidated Adjusted EBITDA for the most
recently completed four fiscal quarters of the Holding Company
less (ii) the sum of (A) Consolidated Capital Expenditures made
during such period plus (B) the aggregate amount of federal,
state, local and foreign income taxes paid by the Holding Company
and its Subsidiaries during such period plus (C) for any
calculation as of any date before the Final Decision, the
Quarterly Provisional Charges for Disputed Royalty expensed
during such period to (b) the sum of (i) cash interest payable by
the Holding Company and its Subsidiaries on Consolidated
Indebtedness during such period, plus (ii) cash rentals payable
under Capital Leases during such period, plus (iii) the aggregate
amount of scheduled principal payments made or required to be
made in respect of Funded Debt and Current Debt by the Holding
Company and its Subsidiaries during such period excluding (A) the
1999 Sale Leaseback Prepayment, (B) the 2000 Sale Leaseback
Prepayment, (C) mandatory "excess cash flow" prepayments under
Section 2.06(b)(i) of the Bank Credit Agreement and (D) payments
or prepayments of Funded Debt and/or Current Debt under the Bank
Credit Agreement with the Stock Sale Proceeds other than (and not
excluding) payments scheduled to be due and payable during such
period, if any (without the application of Section 2.06(b)(ii) of
the Bank Credit Agreement), plus (iv) after the Proven
Performance Date, the aggregate purchase price paid by the
Holding Company and its Subsidiaries during such period to
purchase Common Stock of the Holding Company."
""1999 Sale Leaseback Prepayment" shall mean the prepayment
of Funded Debt and/or Current Debt under the Bank Credit
Agreement pursuant to Section 2.06(b)(ii) thereof by reason of
the 1999 Sale Leaseback Transaction."
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<PAGE>
""1999 Sale Leaseback Transaction" shall mean the sale and
leaseback transaction of certain facilities of the Operating
Company located in Eugene, Oregon pursuant to the Carey Letter
Agreement (as defined (and consented to) in that certain
Amendment No. 4, Consent and Waiver Under Securities Purchase
Agreements dated March 1, 1999)."
""Normalized Quarterly Provisional Charges for Disputed
Royalty" shall mean, for each fiscal quarter, severally, (a)
through December 31, 1999, the amount listed on Schedule A to
Amendment No. 6 to reflect the accounting normalization
attributable to each fiscal quarter of the Quarterly Provisional
Charges for Disputed Royalty and (b) after December 31, 1999, an
amount equal to the Quarterly Provisional Charges for Disputed
Royalty."
""Percon Acquisition" shall have the meaning specified in
that certain Consent Under Securities Purchase Agreements dated
January 19, 2000."
""Proven Performance Date" shall mean the last day of the
first fiscal quarter (a) which is after the Final Decision and
(b) as of which the Companies shall have been in full compliance
with all terms of the Operative Documents for not less than four
consecutive fiscal quarters, which compliance shall be supported
by financial statements delivered pursuant to and in compliance
with section 7."
""Quarterly Provisional Charges for Disputed Royalty" shall
mean for each fiscal quarter, severally, the amount determined in
accordance with GAAP of the non-cash expense appearing on the
Holding Company's consolidated statement of income for such
quarter as a charge to earnings reflecting the amount which may
be payable in respect of such quarter's earnings pursuant to the
Disputed Royalty Decision (exclusive of any Undisputed
Royalties)."
""Total Reserves for Disputed Royalty" shall mean, at any
date, the amount determined in accordance with GAAP appearing on
the Holding Company's consolidated balance sheet as of such date
reflecting the amount which may be payable pursuant to the
Disputed Royalty Decision."
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<PAGE>
""2000 Acquisition and Restructuring Charge" shall mean the
one-time expense determined in accordance with GAAP charged to
the Holding Company's consolidated income statement in the first
fiscal quarter of 2000 relating to the Percon Acquisition and
restructuring incurred by the Holding Company and its
Subsidiaries in an amount not exceeding $2,300,000."
""2000 Sale Leaseback Prepayment" shall mean any prepayment
of Funded Debt and/or Current Debt under the Bank Credit
Agreement pursuant to Section 2.06(b)(ii) thereof by reason of
the 2000 Sale Leaseback Transaction."
""2000 Sale Leaseback Transaction" shall mean the proposed
sale and leaseback transaction of certain facilities of the
Operating Company located in Webster, New York; provided that the
Required Holders of the Notes shall have consented (in writing)
to the same."
""Undisputed Royalties" shall mean all liabilities
determined in accordance with GAAP of the Holding Company and its
Subsidiaries to Symbol Technologies, Inc. or its affiliates
pursuant to and under the contracts which are the subject of the
Disputed Royalty Case and which were not in dispute in the
Disputed Royalty Case (i.e., the flat rate or 3% of the Net Sales
Price of all Bar Code Readers sold under the "Spectra-Physics
license" as such term is used in the Disputed Royalty
Decision)."; and
(ii) to amend the definitions of "Adjusted Consolidated
Indebtedness Ratio"; "Adjusted EBITDA", "Current Debt" and "Funded
Debt" to read in their entireties as follows:
""Adjusted Consolidated Indebtedness Ratio" shall mean, at
any date, the ratio of (a) the sum of (i) the aggregate amount of
Total Reserves for Disputed Royalty and (ii) Consolidated
Indebtedness on the last day of the most recently completed
fiscal quarter of the Holding Company (without double counting in
the event that Consolidated Indebtedness shall include the amount
payable in respect of the Final Royalty Decision) to (b) (i)
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<PAGE>
Consolidated Adjusted EBITDA for the most recently completed four
fiscal quarters of the Holding Company, plus (ii) the Quarterly
Provisional Charges for Disputed Royalty expensed during each
fiscal quarter in such four fiscal quarter period, less (iii) the
Normalized Quarterly Provisional Charges for Disputed Royalty in
respect of such four fiscal quarter period, provided that, for
purposes solely of calculating Consolidated Indebtedness on any
day, the Working Capital Advances (as defined in the Bank Credit
Agreement) shall be deemed to be outstanding in an aggregate
principal amount equal to the average principal amount thereof
outstanding on the then two most recent fiscal quarter end
dates."
""Adjusted EBITDA" of any Person shall mean, for any period,
(a) the Net Income of such Person for such period, plus (i) the
2000 Acquisition and Restructuring Charge (which is taken only in
the first fiscal quarter in 2000), less (ii) that portion of the
2000 Acquisition and Restructuring Charge actually paid within
such period, less (iii) any gain arising from a reversal of the
2000 Acquisition and Restructuring Charge and less (iv) on the
fiscal quarter end date of December 31, 2000, the balance of the
2000 Acquisition and Restructuring Charge which the Holding
Company and/or any of its Subsidiaries has not paid in cash,
after restoring thereto amounts deducted for (b) Interest
Charges, (c) taxes in respect of income and profits, and (d)
amortization and depreciation, in each case determined in
accordance with GAAP, less, however, the Excluded Leaseback Gain,
if any, accruing during such period, and plus the loss on sale of
assets, if any, incurred as a result of the 2000 Sale Leaseback
Transaction; provided that if the period for which Adjusted
EBITDA is being computed includes any or all of the fiscal
quarters ending on or about March 31, 1999, June 30, 1999,
September 30, 1999 and December 31, 1999, Adjusted EBITDA shall
be calculated by using the Pro Forma Adjusted EBITDA as set forth
on Schedule B to Amendment No. 6 for each such fiscal quarter in
such period."
""Current Debt" of any Person shall mean, at any date,
without duplication, (a) all Indebtedness for borrowed money or
in respect of Capital Leases or the deferred purchase price of
property (including, without limitation, Indebtedness of the kind
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<PAGE>
referred to in clauses (b), (c), (d) and (e) of the definition of
Indebtedness, but excluding operating leases), whether or not
interest bearing, of such Person at such date which would, in
accordance with GAAP, be classified as short-term Indebtedness at
such date, but specifically excluding the current maturities of
such Person's Funded Debt, (b) all Guarantees by such Person at
such date of Current Debt of others and (c) the aggregate amount
which is due on or before the expiration of one year from such
date in respect of any Redeemable Shares of such Person; provided
that for purposes of section 14.5 of this Agreement, Current Debt
shall not include amounts payable to George A. Plesko pursuant to
and in accordance with the GEO/GAP Term Sheet; provided, further,
that for all purposes Current Debt shall not include amounts
which may be payable pursuant to the Disputed Royalty Decision
until it becomes a Final Decision (and then such amount shall not
be double counted as Current Debt)."
""Funded Debt" of any Person shall mean, at any date,
without duplication, (a) all Indebtedness for borrowed money or
in respect of Capital Leases or the deferred purchase price of
property (including, without limitation, Indebtedness of the kind
referred to in clauses (b), (c), (d) and (e) of the definition of
Indebtedness, but excluding operating leases), whether or not
interest-bearing, of such Person which would, in accordance with
GAAP, be classified as long-term Indebtedness at such date, but
in any event including all such Indebtedness, whether secured or
unsecured, of such Person which matures (or which, pursuant to
the terms of a revolving credit agreement or otherwise, is
directly or indirectly renewable or extendible at the option of
such Person for a period ending) more than one year after the
date of the creation thereof, notwithstanding the fact that
payments in respect thereof (whether installment, serial maturity
or sinking fund payments or otherwise) are required to be made by
such Person not more than one year after the date as of which the
amount of Funded Debt is being determined, other than any amount
thereof which is at the time included in Current Debt of such
Person, (b) all Guarantees by such Person at such date of Funded
Debt of others and (c) the aggregate amount which is due more
than one year from such date in respect of any Redeemable Shares
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of such Person; provided that for purposes of section 14.5 of
this Agreement, Funded Debt shall not include amounts payable to
George A. Plesko pursuant to and in accordance with the GEO/GAP
Term Sheet; provided, further, that for all purposes Funded Debt
shall not include amounts which may be payable pursuant to the
Disputed Royalty Decision until it becomes a Final Decision (and
then such amount shall not be double counted as Funded Debt)."
3. Amendment to the Notes to Increase Interest Rate. Each of the Notes is
hereby amended to provide that the rate of interest applicable thereto is
increased from 11.25% per annum to 12% per annum (and the default rate of
interest is increased from 13.25% per annum to 14% per annum). Upon the request
of any holder of Notes, the Operating Company shall deliver to such holder new
Notes in exchange for those held by such holder to reflect the foregoing.
Exhibit 1(a)(i) to the Securities Purchase Agreements is hereby amended to be in
the form of Exhibit 3 attached hereto.
4. Amendment to the Warrants to Reduce Exercise Price. Each of the Warrants
is hereby amended to provide that the Exercise Price thereof is reduced from
$8.00 (the amount to which it was previously reduced (pursuant to Amendment No.
3 to Securities Purchase Agreements and Warrants)) to $5.25 per share (such
Exercise Price being subject to further adjustment as provided in the Warrants).
The Holding Company hereby certifies that since July 12, 1996 no event has
occurred which, under the terms of the Warrants, requires an adjustment to the
Exercise Price or to the number or kind of securities issuable upon exercise
thereof. Upon the request of any holder of Warrants, the Holding Company shall
deliver to such holder new Warrants in exchange for those held by such holder to
reflect the foregoing. Exhibit 1(b) to the Securities Purchase Agreements is
hereby amended to be in the form of Exhibit 4 attached hereto.
5. Consents and Waivers.
(a) Each of you hereby acknowledges that section 14.16(c) of the
Securities Purchase Agreements permits the amendment of the Bank Credit
Agreement as provided for in that certain Amendment Nine and Consent and
Waiver to Credit Agreement dated as of March 31, 2000, among the Holding
Company, the Operating Company, the financial institutions party thereto,
Fleet National Bank (formerly known as Fleet Bank), as Initial Issuing
Bank, and Fleet National Bank, as administrative agent, substantially in
the form attached hereto as Exhibit 5(a).
(b) Nothing herein shall constitute a consent of any holder of any of
the Notes to the consummation of the "2000 Sale Leaseback Transaction".
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6. Conditions Precedent to Effectiveness. The provisions of this Letter
Agreement shall be effective as of the date first specified above at such time
as each of the following conditions shall have been fulfilled:
(a) the Companies shall have paid in immediately available funds:
(i) an amendment fee to the holders of the Notes in an aggregate
amount equal to $150,000, which amount shall be allocated and paid to
each such holder in proportion to the aggregate principal amount of
Notes held by such holder; and
(ii) without limiting the generality of section 8 hereof, the
fees and expenses of special counsel to the holders of the Notes
incurred in connection herewith; and
(b) the Companies shall have delivered an executed copy of Amendment
Nine and Consent and Waiver to Credit Agreement.
7. 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;
(iv) the documents referred to in Section 3(a)(iv) of Consent and
Waiver Under Securities Purchase Agreements and Warrants dated
December 29, 1997;
(v) the documents referred to in section 4(a)(v) of Amendment No.
4, Consent and Waiver under Securities Purchase Agreements;
(vi) the documents referred to in section 3(a)(vi) of Consent
Under Securities Purchase Agreements dated January 19, 2000; and
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(vii) the following documents filed by the Holding Company with
the Commission under the Exchange Act: (A) Form 8-K filed on December
22, 1999, (B) Form 8-K filed on February 2, 2000 and (C) Form 8-K/A
filed on April 3, 2000
(true, correct and complete copies of all of which items have been
furnished to you), 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.
(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.
(d) On December 31, 1997, each of Lazerdata Holdings, Inc., PSC S.A.,
Inc. and PSC Scanning Systems, Inc. was merged into the Holding Company.
8. 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.
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9. 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.
10. 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.]
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<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 Lazerdata Corporation)
By:
---------------------------------
(Title)
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GEO LABS, INC.
By:
---------------------------------
(Title)
GAP TECHNOLOGIES, INC.
By:
---------------------------------
(Title)
PERCON INCORPORATED
By:
---------------------------------
(Title)
[The remainder of this page is intentionally left blank.]
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The foregoing is hereby accepted and agreed to:
JOHN HANCOCK LIFE INSURANCE COMPANY
(formerly John Hancock Mutual
Life Insurance Company)
By:
-----------------------------
(Title)
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By:
-----------------------------
(Title)
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By: Lincoln Investment Management, Inc.
Its Attorney-in-Fact
By:
------------------------
(Title)
LINCOLN NATIONAL INCOME FUND, INC.
By:
-----------------------------
(Title)
SECURITY-CONNECTICUT LIFE
INSURANCE COMPANY
By:
-----------------------------
(Title)
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THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By:
-----------------------------
(Title)
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Schedule A
Normalized Quarterly Provisional Charges for Disputed Royalty
-------------------------------------------------------------
(000's)
Q1 1999 Q2 1999 Q3 1999 Q4 1999
-------------------------------------------------------------
$1,378 $1,121 $1,514 $1,753
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Schedule B
Pro Forma EBITDA
----------------
PSC Inc./Percon, Inc. Consolidated
(000's)
Q1 1999 Q2 1999 Q3 1999 Q4 1999
------- ------- ------- -------
Net Income/(Loss) $2,704 $ 4,245 $ 4,754 $ (546)
Interest Expense 2,101 1,878 1,770 1,709
Income Tax Expense 1,499 2,742 2,554 (160)
Depreciation Expense 1,719 1,731 1,877 1,881
Amortization Expense 1,887 1,858 1,868 1,682
------- ------- ------- -------
EBITDA $9,910 $12,454 $12,823 $4,566
====== ======= ======= =======
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Exhibit 5(a)
------------
Amendment Nine and Consent and Waiver to Credit Agreement
---------------------------------------------------------
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 21st day of
December, 1999, by and between PSC Inc., a New York corporation ("Company"), and
George A. Plesko (the "Executive").
WITNESSETH:
WHEREAS, Executive is being employed by Company as a Senior Vice President;
WHEREAS, Company anticipates that Executive's contribution as a key
employee of Company will be substantial and desires to assure itself of
Executive's employment with Company for the period stated in this Agreement;
WHEREAS, because Executive will acquire intimate knowledge of the business
of Company and will develop relationships with customers, suppliers,
distributors, vendors and others in connection with the business of Company,
Company recognizes the detrimental effect on Company and the decreased value of
Company which would result if Executive were to enter into competition with
Company during the term of this Agreement and for a reasonable period after
termination of Executive's employment with Company;
WHEREAS, because Executive will be exposed to confidential and proprietary
information of Company and, Company recognizes the detrimental effect on Company
and the decreased value of Company that will result if Executive were to
disclose or use in an unauthorized fashion any such information; and
WHEREAS, Executive is desirous of committing himself to serve Company on
the terms herein provided.
NOW, THEREFORE, in consideration of the covenants and agreements of the
parties herein contained and the mutual benefits to be derived from this
Agreement, the parties hereto agree as follows:
1. Employment and Duties.Company agrees to employ Executive, and Executive
hereby agrees to serve Company, as a Senior Vice President of Company. As such,
he shall be responsible for such operations of Company as shall be specified by
Company, shall perform his duties in a conscientious, reasonable and competent
manner and shall devote his best efforts and entire business time and attention
to the performance of his duties to Company. At all times Executive shall be
subject to the direction of and shall report to Company's President and Chief
Executive Officer or his designee.
2. Term. The term ("Term") of Executive's employment hereunder shall
commence on the date hereof, and shall continue uninterrupted for the period
ending three (3) years following the date hereof except to the extent that the
Term shall be earlier terminated under Section 8. Subject to agreement by and
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among Executive and Company, the Term may be extended for a period of two (2)
years. If either party desires to extend the Term, that party will notify the
other not less than sixty (60) days prior to the end of the initial three-year
Term. Following the initial three-year Term and the two (2) year extension (if
any) and for so long as he is employed by Company thereafter, Executive shall be
an at-will employee of Company. The provisions of Sections 4, 5, 6, 7, 9 and 10
shall survive the expiration of the Term.
3. Compensation. Executive shall receive the following compensation for all
services rendered to Company in any capacity:
a. Executive shall receive base salary at a minimum annual rate of Two
Hundred Thousand Dollars ($200,000) with all such annual base salary
payable in accordance with Company's then applicable payroll practices and
subject to such deductions and withholdings as may be required by law or
agreed to by Executive.
b. In the event that 100% of the respective Annual Target is attained
in any calendar year described on Exhibit A, then, in addition to his base
salary, Executive shall be eligible to participate in the PSC Management
Incentive Plan and qualify for a target bonus of up to 35% of base salary
in the event that Company and Executive achieve their pre-established
performance goals in such Management Incentive Plan for such calendar year.
c. Executive shall qualify for a performance-based bonus in the amount
of $500,000 in the event that Company receives from Telxon within twelve
(12) months following the date of this Agreement a purchase order having
standard prices, terms and conditions and otherwise being acceptable to
Company for a minimum of 1,000 GAP Scan Engines or Ultra Pens. This
performance-based bonus will be payable upon payment in full by Telxon for
the products purchased under such purchase order and shall be paid to
Executive even if at the time Company receives such an order or orders from
Telxon, and/or at the time Company receives such payment from Telxon,
Executive is no longer employed by Company (except if Executive has
terminated his employment without Good Reason or Company has terminated
Executive's employment for Good Cause.).
d. Executive shall receive additional performance-based compensation
equal to the sum of (i) the applicable Earned Commission Rate applied to
Net Sales of GAP/GEO Products in the event that Net Sales of GAP/GEO
Products in each such calendar year exceed specific Achieved Percentages of
Annual Target levels all as described on Exhibit A attached to this
Agreement; plus (ii) 50% of net royalties received by Company during each
such calendar year (including the fair market value of all rights obtained
through cross-licensing) from third parties for rights to GEO patents
issued as of December 17, 1999. For purposes of the foregoing, the Net
Sales of GAP/GEO Products for a year shall consist of the aggregate Net
Selling Price for all sales to Company and third parties of GAP/GEO
Products. By way of illustration: (x) If Company sells a GAP engine to a
third party for $80, the applicable Earned Commission Rate shall be
calculated on the Net Selling Price (e.g., $80 x 4.5% = $3.60 to be paid to
Executive); (y) If Company uses a GAP engine in a Company product (e.g., a
PSC gun) the applicable Earned Commission Rate shall be calculated on the
engine Net Selling Price payable by OEM third parties (Executive will not
earn a commission on the selling price of the total PSC product, only on
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the value of the engine); and (z) for all GAP commercial products (e.g.,
the UltraPen) Executive will earn the applicable Earned Commission Rate on
the Net Selling Price (e.g., if an UltraPen is sold to a customer for $150,
a 4.5% Earned Commission Rate payable to Executive will be $6.75). Net
Selling Price shall be defined as the selling price, less (v)
transportation and packaging costs, (w) insurance, (x) duties, taxes and
other governmental charges, (y) commercial, trade and cash discounts,
returns and adjustments or allowances actually granted by Company and (z)
any royalties paid to third parties with respect to GAP/GEO Products.
Executive's entitlement to the performance based compensation pursuant to
this Section 3.d. shall continue following termination until the fifth
(5th) anniversary date of this Agreement, unless (A) the Term of the
Agreement is not extended by Executive for an additional two years as
described in Section 2 hereof (if, however, Executive wishes to extend the
Agreement for an additional two (2) years and Company does not elect to
extend the Agreement, performance-based compensation pursuant to this
Section 3.d. shall continue following termination until the fifth (5th)
anniversary date of this Agreement), (B) Executive's employment hereunder
is terminated by Company for Good Cause or (C) Executive's employment
hereunder is terminated by Executive without Good Reason. Otherwise,
Executive's entitlement to the performance-based compensation hereunder
shall terminate upon termination of Executive's employment hereunder. For
purposes of this Agreement, "GAP/GEO Products" shall be defined as those
Products listed on Exhibit B which is attached to this Agreement.
e. Executive shall be eligible to participate in the benefit plans,
including stock options, group life insurance, group medical coverage,
401(k) and other benefits generally available to senior management officers
of Company, all determined in accordance with the terms and eligibility
requirements of those plans and as in effect from time to time in the
discretion of Company's Board of Directors.
f. Pursuant to Company's 1994 Stock Option Plan, on or about January
1, 2000, Company will award Executive 20,000 stock options, upon the terms
and conditions and subject to the restrictions set forth in the PSC 1994
Stock Option Plan.
g. Executive shall receive a monthly auto allowance equal to $500 net.
h. Effective January 1, 2000, Executive's vacation period shall be six
weeks per calendar year. In addition, Executive shall be entitled to such
Company holidays as are generally available to senior management officers
of Company.
i. After consultation with Executive, Company shall provide Executive
appropriate equipment for him to work while at home. If this Agreement is
terminated for any reason, Executive shall have the option to purchase such
equipment at its fair market value at the time of Termination (as
hereinafter defined).
j. In the event that Company is not allowed to deduct for federal
income tax purposes, an amount of compensation otherwise payable to
Executive in any fiscal year (other than payments pursuant to the
Noncompetition and Confidentiality Agreement of even date), that amount of
compensation otherwise payable to Executive that exceeds or causes the
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amount payable to Executive to exceed any applicable deduction limitations
(the "Deferred Amount") shall be deferred and paid to Executive as such
amounts entitle Company to full deductibility for federal income tax
purposes; notwithstanding the foregoing, any and all Deferred Amounts shall
be paid to Executive no later than seven (7) years from the date of this
Agreement. Executive and Company agree to explore tax alternatives which
may allow for the full payment to Executive and full tax deductibility by
Company, of all compensation in the year earned.
4. Confidential Information.
a. Executive currently has and will continue to have intimate
knowledge of the business and confidential affairs of Company (including
GAP Technologies, Inc. and GEO Labs, Inc. prior to acquisition by Company
of the business and assets of those companies) and its subsidiaries,
including information and matters not readily available to the public
relating to Company and its present and future subsidiaries which are: (i)
of a technical nature, such as, but not limited to, methods, know-how,
formulae, compositions, drawings, blueprints, compounds, processes,
discoveries, machines, prototypes, 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 employee personnel records;
or (iii) pertaining to future developments, such as, but not limited to,
research and development, future marketing or merchandising plans or ideas
(hereinafter collectively referred to as "Confidential Information").
Confidential Information shall also include information of the customers
and vendors of Company and its subsidiaries which was learned by Executive
as a consequence of his employment with Company or with GAP Technologies,
Inc. or GEO Labs, Inc. Executive agrees to keep secret all Confidential
Information and not to disclose it to anyone outside of Company, not to
authorize the disclosure of Confidential Information to anyone outside of
Company, or otherwise use his knowledge of Confidential Information for his
own personal benefit, or the benefit of anyone other than Company or its
subsidiaries, either during the Term or at any time thereafter, except with
Company's prior written consent.
b. Executive acknowledges and agrees that the Confidential Information
is a valuable asset of Company, and its protection as confidential is vital
to the success of the business of Company. All memoranda, notes, records,
plans, drawings, reports, papers and other documents (and all copies
thereof) relating to or containing Confidential Information, some of which
may be prepared by Executive, and all objects associated therewith (such as
models and samples) in any way obtained by Executive are and at all times
shall remain Company's sole and exclusive property even if prepared or
created, in whole or in part, by Executive, and whether or not directly
disclosed or entrusted to Executive by Company or any other person. This
shall include, but is not limited to, documents and objects concerning any
process, apparatus, fixture, mold, die or product manufactured, used,
developed, investigated or considered by Company or any subsidiary and any
reports, sketches, formulae, computer programs, computer disks, prototypes,
price lists, customer lists or information, samples and all other materials
containing Confidential Information. Executive shall exercise the highest
degree of care in safeguarding Confidential Information against disclosure
of any kind or nature, whether intentional or unintentional and generally
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take all steps necessary to ensure the maintenance of its confidentiality.
Executive shall comply with all policies and procedures as Company may from
time to time establish to protect and preserve Confidential Information.
Executive shall not, except for Company's use or sole benefit, copy or
duplicate any of the aforementioned documents or objects, nor remove them
from the facilities of Company or any subsidiary, nor use any information
concerning them except for the benefit of Company or any subsidiary, either
during his employment or thereafter. Executive agrees to deliver all
originals and copies of the aforementioned documents and objects, if any,
that may be in his possession or under his control to Company on
termination of his employment with Company or at any other time on
Company's request. Nothing in this Agreement modifies or reduces
Executive's obligation to comply with applicable laws relating to trade
secrets, confidential information or unfair competition.
c. Prior to the date of this Agreement, Executive received
confidential information from the counter-parties to the Bi-Directional
Nondisclosure Agreements and Mutual Confidentiality Agreements described on
attached Exhibit C. Executive agrees and covenants that except as necessary
to fulfill obligations to Counter-Parties he shall not utilize in the
fulfillment of his duties pursuant to this Agreement any confidential
information received by him from any of the counter-parties pursuant to
such Agreements or disclose any such information to anyone including
employees, agents and representatives of Company.
5. Inventions.
a. Executive shall promptly disclose to Company, in writing, all
ideas, discoveries, designs, improvements, innovations and inventions
(collectively referred to herein as "Inventions"),whether patentable or
not, either relating to the existing or planned business, products,
processes, or procedures of Company, or any parent or subsidiary of
Company, or suggested by or resulting from Executive's work at Company, or
resulting wholly or in part from the use of Company's time, material,
facilities or ideas, which Executive has made or conceived or may make or
conceive, whether during or outside of working hours, whether or not using
resources of Company or its subsidiaries, whether alone or with others, at
any time during Executive's employment or within one year after termination
thereof. Executive agrees that all such Inventions shall be the exclusive
property of Company.
b. Executive hereby assigns to Company all his rights and interests in
and to all such Inventions and all patents and copyrights which may be
obtained on them, in this and all foreign countries. At Company's expense,
but without charge to it, Executive will execute, acknowledge and deliver
to Company any specific assignments to any such Inventions or other
relevant documents and take any such further action as may be considered
necessary by Company at any time during or subsequent to the period of
Executive's employment to obtain or defend letters patent in any and all
countries or to obtain documents relating to registration, ownership or
transfer of copyrights, or to vest title in such Inventions in Company or
its successors or assigns or to obtain for Company any other legal
protection for such Inventions, and Executive will continue to cooperate in
this manner even after Executive's employment by Company terminates.
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c. Executive represents that he has listed and briefly described on
Exhibit D attached hereto all inventions, if any, patented or unpatented,
which he conceived or made prior to his employment by Company, and which
were not previously, validly assigned to GEO Labs, Inc., or to GAP
Technologies, Inc., and which he wishes to exclude from this Agreement.
d. Executive acknowledges that all Creative Works (as defined below)
that are covered by the definition of a "work made for hire" under 17
U.S.C.ss.101 of the U.S. Copyright Act of 1976 (the "Copyright Act") will
be considered a "work made for hire", and Company will be regarded as the
author and owner of all copyrights in any such works. As to any Creative
Works that are not "work made for hire" under the Copyright Act, such that
Executive is regarded as the copyright author and owner, Executive hereby
assigns and agrees to assign to Company all of his right, title and
interest in any such Creative Works Executive authors, either solely or
jointly with others, at any time during Executive's employment or within
one year after termination thereof, either relating to the existing or
planned business, products, processes, or procedures of Company, or any
parent or subsidiary of Company, or suggested by or resulting from
Executive's work at Company, or resulting wholly or in part from the use of
Company's time, material, facilities or ideas, that Executive has made or
conceived or may make or conceive, whether or not during working hours or
with Company's resources. Executive agrees that all such Creative Works
shall be the exclusive property of Company. As used herein, "Creative
Works" shall mean any and all original works of authorship fixed in any
tangible medium of expression, including but not limited to writings,
compilations of data, charts, forms, drawings, software, videos,
photographs, music, designs and mask works, and further including but not
limited to any other subject matter for which copyright or mask work
protection would apply, specifically including original or revised designs,
computer software, advertising and marketing materials, instructional and
procedural manuals, and related documents and copies thereof.
6. Noncompete.
a. In light of the special and unique services that have been and will
be furnished to Company by Executive and the Confidential Information that
has been and will be disclosed to him during his employment, Executive
agrees that during the Noncompetition Period (as defined), he will not,
without the written consent of Company, directly or indirectly, whether as
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 Company (as
hereinafter defined). However, nothing herein shall prevent Executive from
owning not more than five percent (5%) of the outstanding publicly traded
shares of common stock of a corporation, as to which corporation Executive
has no relationship other than as a shareholder. In addition, during the
Noncompetition Period, Executive will not, directly or indirectly, (i)
induce or attempt to induce any officer or employee of Company or its
subsidiaries (other than Pam Plesko) to leave the employ of Company or its
subsidiaries, or in any way interfere with the relationship between Company
or its subsidiaries and any officer, employee, director or shareholder
thereof; (ii) hire directly or through another entity any person who is an
employee of Company or its subsidiaries on the date of termination of
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employment of Executive; or (iii) induce or attempt to induce any customer,
dealer, supplier or licensee to cease doing business with Company or its
subsidiaries, or in any way interfere with, or induce or attempt to induce
any change in, the relationship between any such customer, dealer, supplier
or licensee and Company or its subsidiaries.
b. Executive specifically agrees that because of his special expertise
and the special and unique services that he will be furnishing Company, and
because of the Confidential Information that has been acquired by him or
that will be disclosed to him during his employment with Company, the
above-stated geographic areas and the Noncompetition Period, in and during
which he will not compete with Company, are reasonable in scope and
duration and are necessary to afford Company just and adequate protection
against the irreparable damage which would result to Company from any
activities prohibited by this Section.
c. For purposes of this Agreement, the "Business of Company" is the
development, manufacturing and marketing of technologies, products
(including such products as radio frequency and batch portable data
collection terminals, handheld or fixed or miniature bar code laser, CCD or
image scanners or engines, RFID readers, other laser scanners,
self-checkout systems, verification products, electronic shelf labeling
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
stripe 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, electronic interchange of bar coded or
related data. The Business of Company shall also include any business in
which Company or any of its subsidiaries is actually engaged or as to which
it is doing research and development during Executive's employment with
Company.
d. For purposes of this Agreement, the "Noncompetition Period" shall
begin on the date of this Agreement and continue so long as Executive
receives any compensation of any kind pursuant to this Agreement and for a
period of 24 months thereafter provided, that any compensation received
under the Stock Option Plan described at Section 3.f. and any deferral of
compensation pursuant to Section 3.j. shall not extend the Noncompetition
Period otherwise applicable.
7. Remedies.
a. If Executive commits a breach, or threatens to commit a breach, of
any of the provisions of Sections 4, 5 or 6 Company shall have the
following rights and remedies: (i) the right and remedy to have the
provisions of Sections 4, 5 or 6 specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any such breach
or threatened breach will cause irreparable injury to Company or its
subsidiaries and that money damages will not provide an adequate remedy to
Company or its subsidiaries; (ii) the right and remedy to require Executive
to account for and pay over to Company all compensation, profits, monies,
accruals, increments or other benefits (hereinafter collectively referred
to as the "Benefits") derived or received thereby as the result of any
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transactions constituting a breach of any of the provisions of Sections 4,
5 or 6, Executive hereby agreeing to account for and pay over the Benefits
to Company; and (iii) the right and remedy to withhold payment of
compensation or other benefits otherwise payable to Executive hereunder or
otherwise, and such withheld amount may be a portion or all of the payable
compensation or benefits, at the discretion of the Board. Each of the
foregoing rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to Company under law or in equity.
b. If any covenant contained in Sections 4, 5 or 6 or any part
thereof, is hereafter construed to be invalid or unenforceable, except as
provided in Section 7.c., the same shall be given full effect, without
regard to the invalid portions.
c. If any covenant contained in Sections 4, 5 or 6 or any part
thereof, is held to be unenforceable because of the duration of such
covenant or the area covered thereby, the parties agree and intend that the
court making such determination should reduce the duration and/or area of
such covenant to the extent reasonably necessary for the protection of
Company and, in its reduced form, the covenant shall then be strictly
enforceable.
d. The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in Sections 4, 5 or 6 upon the courts of
any state or foreign jurisdiction within the geographical scope of such
covenants. If the courts of any one or more of such states or jurisdictions
shall hold such covenants wholly unenforceable by reason of the breadth of
such scope or otherwise, it is the intention of the parties hereto that
such determination not bar or in any way affect Company's right to the
relief provided above in the courts of any other states or jurisdictions
within the geographical scope of such covenants, as to breaches of such
covenants as they relate to each state being, for this purpose, severable
into diverse and independent covenants.
e. If any action, suit or other proceedings in law or in equity is
brought to enforce the covenants contained in Sections 4, 5 or 6 or to
obtain money damages for the breach thereof, and such action results in the
award of a judgment for money damages or in the granting of any injunction
in favor, all expenses (including attorneys' fees) in such action, suit or
other proceeding shall (on demand) be paid by the prevailing party in such
suit, action or other proceeding.
8. Termination.
a. In the event of the termination of employment of Executive by
Company prior to the expiration of the Term for any reason other than Good
Cause (as hereinafter defined), death, disability, or a Change in Control
(as hereinafter defined), Company will continue to pay Executive for the
applicable Severance Period as specified in this Section an amount equal to
Executive's base salary at the annual rate then in effect. Such amount
shall be payable biweekly. In addition, Company will continue to provide
Executive with Executive's then current health, dental, life and accidental
death and dismemberment insurance benefits for the applicable Severance
Period. In the event of termination pursuant to this Section prior to the
expiration of the initial three-year Term, the Severance Period shall be
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equal to the then remaining portion of the three-year Term. In the event of
termination of employment pursuant to this Section after the expiration of
the initial three-year Term, the Severance Period shall be a period of one
(1) year. All payments made to Executive hereunder will be subject to all
applicable employment and withholding taxes.
b. In the event of the termination of employment of Executive within
the two (2) year period following a Change in Control (as hereinafter
defined) of Company, and such termination is: (i) by Company for any reason
other than Good Cause (as hereinafter defined), death or disability, or
(ii) by Executive for "Good Reason" (as hereinafter defined), Company will
pay Executive over a period of three (3) years following such termination
an amount equal to the product of (x) Executive's base salary at the annual
rate then in effect and (y) the highest annual bonus paid to Executive
under Company's current Management Incentive Plan or any successor plan in
the three full fiscal years preceding termination multiplied by 2.9.
Payments of such amount shall be made biweekly. In addition, Executive will
be immediately vested in any retirement, incentive or option plans then in
effect and Company will continue to provide Executive with Executive's then
current health, dental, life and accidental death and dismemberment
insurance benefits for a period of three years. All payments made to
Executive hereunder will be subject to all applicable employment and
withholding taxes.
c. Notwithstanding anything in this Section to the contrary, the
maximum amount of cash and other benefits payable (whether on a current or
deferred basis and whether or not includible in income for income tax
purposes) under this Section (the "Severance Benefits") shall be limited to
the extent necessary to avoid causing any portion of such Severance
Benefits, or any other payment in the nature of compensation to Executive,
to be treated as a "parachute payment" within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended. Any adjustment
required to satisfy the limitation described in the preceding sentence
shall be accomplished first by reducing any cash payments that would
otherwise be made to Executive and then, if further reductions are
necessary, by adjusting other benefits as determined by Company.
d. A "Change in Control" shall be deemed to have occurred:
(i) On the date that any person or group deemed a person under
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934,
other than Company, in a transaction or series of transactions, has
become the beneficial owner, directly or indirectly (with beneficial
ownership as determined as provided in Rule 13d-3, or any successor
rule under such Act), of 30% or more of the outstanding voting
securities of Company; or
(ii) On the date on which one third or more of the members of the
Board of Directors shall consist of persons other than Current
Directors (for these purposes, a "Current Director" shall mean any
member of the Board of Directors elected at or continuing in office
after, the 1999 Annual Meeting of Shareholders, any successor of a
Current Director who has been appointed or nominated by a majority of
the Current Directors then on the Board, and any other person who has
been appointed or nominated by a majority of the Current Directors
then on the Board); or
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(iii) On the date of approval of (x) the merger or consolidation
of Company with another corporation where the shareholders of Company,
immediately prior to the merger or consolidation, would not
beneficially own, immediately after the merger or consolidation,
shares entitling such shareholders to 50% or more of all votes
(without consideration of the rights of any class of stock to elect
directors by a separate class vote) to which all shareholders of the
corporation would be entitled in the election of directors or where
the members of the Board of Directors of Company, immediately prior to
the merger or consolidation, would not immediately after the merger or
consolidation, constitute a majority of the Board of Directors of the
corporation issuing cash or securities in the merger or consolidation
or (y) the sale or other disposition of all or substantially all of
the assets of Company.
e. Company shall have the right to terminate the services of Executive
at any time without further liability or obligations to Executive for any
of the following reasons, each constituting "Good Cause" hereunder: (i)
Executive has failed or refused to perform such services as may reasonably
be delegated or assigned to Executive, consistent with Executive's
position, by the Chief Executive Officer or by the Board of Directors; (ii)
Executive has been grossly negligent in connection with the performance of
Executive's duties; (iii) Executive has committed acts involving
dishonesty, willful misconduct, breach of fiduciary duty, fraud, or any
similar offense which materially affects Executive's ability to perform
Executive's duties for Company or may materially adversely affect Company;
(iv) Executive has violated a law material to the Business of Company or
has caused Company or any of its subsidiaries to violate such a law; or (v)
Executive has been convicted of a felony. Termination of the services of
Executive for Good Cause shall not be effective unless and until acted upon
by the Board of Directors and unless and until written notice shall have
been given to Executive which notice shall include identification with
specificity of each and every factual basis or incident upon which the
termination is based.
f. For purposes of this Agreement, Good Reason shall mean the
occurrence or existence of any of the following with respect to Executive:
(i) Executive's annual rate of salary is reduced from the annual rate then
currently in effect or Executive's other employee benefits are in the
aggregate materially reduced from those then currently in effect (unless
such reduction of salary or employee benefits applies to executives or
employees of Company generally); or (ii) Executive is required, in order to
fulfill his employment obligations hereunder, to relocate his residence; or
(iii) Executive is assigned duties that are demeaning or are otherwise
materially inconsistent with the duties then currently performed by
Executive. Before Executive may terminate his employment for Good Reason,
Executive must notify Company in writing of his intention to terminate and
Company shall have 20 days after receiving such written notice to remedy
the situation, if possible.
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g. The election by either party not to extend the Term pursuant to
Section 2 hereof shall not constitute a termination of Executive pursuant
to this Agreement or for any other reason.
h. Executive shall not be entitled to receive any benefits pursuant to
this Agreement following termination or nonrenewal of the Agreement unless
and until Executive executes and delivers to Company a release in form and
substance satisfactory to Company releasing Company, its subsidiaries and
its directors, officers and employees, from any and all claims arising out
of or relating to Executive's employment with Company, the termination of
such employment or the decision by Company not to extend the Term of this
Agreement.
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
(a) personally delivered; or (b) sent to the parties at their respective
addresses indicated herein by private mail or courier service. The respective
addresses to be used for all such notices and other communications are as
follows:
If to Executive:
George A. Plesko
380 Steeplechase Drive
Media, PA 19063
With a copy to:
Reed Smith Shaw & McClay LLP
2500 One Liberty Place
1650 Market Street
Philadelphia, Pennsylvania 19103-7301
Attention: Peter J. Tucci
If to Company:
PSC Inc.
675 Basket Road
Webster, NY 14580
Attention: Elizabeth J. McDonald, Esq.
With a copy to:
Foley & Lardner
Firstar Center
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Attention: Timothy J. Sheehan
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If personally delivered, such communications shall be deemed delivered upon
receipt; if sent by courier pursuant to this section, such communication shall
be deemed delivered upon receipt. Any party to this Agreement may change its
address for purposes of this Agreement by giving notice thereof in accordance
with this section.
10. Miscellaneous.
a. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by the parties hereto. No waiver by any party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
b. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement or the Option
Agreement between Company and Executive.
c. This Agreement shall not be assigned by Executive without the
written consent of Company, and any attempted assignment without such
written consent shall be null and void and without legal effect. This
Agreement shall be binding upon and inure to the benefit of Company, its
successors and assigns and Executive and his heirs, executors,
administrators and legal representatives.
d. Executive shall be liable for all taxes levied against Executive
relating to amounts paid to Executive by Company, and amounts paid by
Company will be net of all applicable FICA and income tax withholding, if
any.
e. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New York, excluding
any choice of law rules that may direct the application of the laws of
another jurisdiction. The parties hereto consent to the jurisdiction of any
federal or state court situated in Monroe County, New York, and waive any
objection based on lack of personal jurisdiction, improper venue or forum
non-conveniens, with regard to any actions, claims, disputes or proceedings
relating to this Agreement.
f. Executive acknowledges and agrees that the recitals set forth at
the beginning of this Agreement are true and correct and constitute a part
of this Agreement.
g. If any provision of this Agreement shall be deemed illegal or
unenforceable, such illegality or unenforceability shall not affect the
validity and enforceability of any legal and enforceable provisions hereof,
unless such illegality or unenforceability shall destroy the underlying
business purpose of this Agreement.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of such
together will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
/s/ George A. Plesko
--------------------------------------------
George A. Plesko
PSC INC.
By: /s/ William J. Woodard
-----------------------------------------
Its: Vice President--Chief Financial Officer
-----------------------------------------
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
ANNUAL TARGETS, ACHIEVED PERCENTAGE, EARNED COMMISSION RATE
Annual Achieved Percentage 100% or more of 85% of Target 70% of Target 55% of Target Below 55% of
Target Target
- -------------------------------------------------------------------------------------------------------------------------------
Target Earned Commission Rate 4.50% 3.75% 3.00% 2.25% 0%
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
2000 @ $ 5M= $ 225K $ 159K $ 105K $ 62K $0
2001 @ $10M= $ 450K $ 319K $ 210K $124K $0
2002 @ $15M= $ 675K $ 478K $ 315K $186K $0
2003 @ $20M= $ 900K $ 638K $ 420K $248K $0
2004 @ $25M= $1.125M $ 797K $ 525K $309K $0
Total $3.375M $2.391M $1.575M $929K $0
</TABLE>
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EXHIBIT B
GAP/GEO PRODUCTS
All versions of products that are being sold by GAP, as of the effective date of
this Employment Agreement, and any similar or repackaged versions of such
current GAP products, as follows:
a) Laser scanning pens and wands
b) Nanoscanners
c) Fixed beam scanners such as those shipped to ISI or prototyped
for ATL
d) SQ engines
e) Fixed-mount FM series scanners
f) Tetherless laser scanning pens or wands (excluding the value of
any radio components)
Products covered by claims contained in GEO's issued patent portfolio as of
December 17, 1999, all as described in the GEO Asset Purchase Agreement
(collectively, the "GEO Patents"), provided that no commission shall be owed or
paid on any PSC products existing on the Closing Date, any PSC product design
existing on the Closing Date, and/or any new, enhanced, or repackaged versions
of such products having similar design.
New scan engine products which incorporate an articulated scan element
("flipper") of the type generally shown in figures 1-8, 10-12, and 16-19 of U.S.
Patent Application, Serial No. 09/286,577.
The following new GAP products specifically described by George Plesko prior to
the date hereof:
a) Ultrapen with USB interface
b) Any card scanner or module incorporating SQ or flipper technology
c) 3 volt ultra pen
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EXHIBIT C
BI-DIRECTIONAL NON-DISCLOSURE AGREEMENTS
1. Bi-Directional Non-Disclosure Agreement dated June 23, 1997 by and between
GAP Technologies, Inc. and ITS
2. Bi-Directional Non-Disclosure Agreement dated March 20, 1997 by and between
GAP Technologies, Inc. and Datavision, Inc.
3. Bi-Directional Non-Disclosure Agreement dated February 5, 1997 by and
between GAP Technologies, Inc. and Telxon Corporation
4. Bi-Directional Non-Disclosure Agreement dated January 4, 1999 by and
between GAP Technologies, Inc. and Casio Manufacturing Corporation
5. Mutual Confidentiality Agreement dated January 6, 1999 by and between GAP
Technologies, Inc. and Symbol Technologies, Inc.
6. Confidentiality and Non-Disclosure Agreement dated February 16, 1999 by and
between GAP Technologies, Inc. and Internet Cargo Services, Inc.
7. Bi-Directional Non-Disclosure Agreement dated June 11, 1998 by and between
GAP Technologies, Inc. and Microvision, Inc.
8. Bi-Directional Non-Disclosure Agreement dated March 9, 1999 by and between
GAP Technologies, Inc. and JTEL CO. LTD.
9. Bi-Directional Non-Disclosure Agreement dated June 29, 1999 by and between
GAP Technologies, Inc. and Metrologic Instruments, Inc.
10. Bi-Directional Non-Disclosure Agreement dated July 14, 1999 by and between
GAP Technologies, Inc. and Intermec Technologies Corporation
11. Agreement dated March 24, 1997 by and between GAP Technologies, Inc. and
William Svedas
12. Associates Agreement on Inventions and Confidential Information dated March
24, 1997 by and between GAP Technologies, Inc. and Edward Casacia
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EXHIBIT D
RETAINED TRADE RIGHTS
None
-71-
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT
This Noncompetition And Confidentiality Agreement ("Agreement") is entered
into as of this 21st day of December, 1999 by and between George A. Plesko
("Shareholder") and PSC Inc. ("Buyer").
RECITALS
A. Pursuant to those certain Asset Purchase Agreements, dated even
date herewith ("Purchase Agreements"), Buyer is acquiring through
subsidiaries certain assets of GEO Labs, Inc., and GAP Technologies, Inc.
(the "Companies");
B. Shareholder owns all of the outstanding capital of Companies;
C. Shareholder will receive substantial benefit under the terms of the
Purchase Agreements;
D. Buyer has required as a condition to executing the Purchase
Agreements that Shareholder enter into this Agreement;
E. Companies are engaged in the development of technology and
inventions, the legal ownership of patents and patent applications with
respect to technology and inventions, and the development, design,
manufacture and marketing of miniature bar code laser scanners and other
technologies, products and services for the automatic identification and
keyless data entry industry, including without limitation products,
services, applications systems and technologies relating to bar coded data,
magnetic stripe 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 and related data and any other business in which the Companies are
actually engaged or as to which they are doing research and development on
the date hereof or have done so on any date in the past (the "Business");
and
F. Following the transactions contemplated by the Purchase Agreements,
Buyer will continue to operate the Business, which is highly competitive,
and Buyer desires that it be protected from the use or disclosure of
Companies' confidential information by Shareholder and from direct or
indirect competition from Shareholder for a reasonable period of time and
within a reasonable geographic area.
NOW, THEREFORE, Shareholder and Buyer hereby agree as follows:
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1. Confidential Information.
1.1 Defined. Confidential Information of the Companies shall, for
purposes of this Agreement, include but not be limited to information and
matters not readily available to the public which are:
(a) of a technical nature, such as, but not limited to, methods,
know-how, formulae, compositions, drawings, blueprints, compounds,
processes, discoveries, prototypes, machines, inventions, computer
programs, and similar items;
(b) of a business nature, such as, but not limited to,
information about sales or lists of customers, vendors, competitors,
prices, costs, purchasing, profits, markets, product strengths and
weaknesses, business processes, business and marketing plans and
activities, financial information, and employee personnel records and
information; or
(c) pertaining to future developments, such as, but not limited
to, research and development, or future marketing or merchandising
plans or ideas.
Confidential Information shall also include information of the
Companies' customers and vendors which was learned by Shareholder as a
consequence of his employment with or ownership of or control over the
Companies.
1.2 Nondisclosure. Shareholder shall maintain all Confidential
Information in strict confidence and secrecy, and shall not at any time,
directly or indirectly, except in connection with performing services under
his Employment Agreement with Buyer or as explicitly requested by Buyer,
(i) use for any purpose, (ii) disclose to any person, or (iii) keep or make
copies of documents, tapes, discs, programs or other information storage
media containing or reflecting, any Confidential Information. Shareholder
shall, upon request of Buyer, immediately return to Buyer any documents,
tapes, discs, or other information storage media containing or reflecting
any Confidential Information (whether prepared by Shareholder or not).
Nothing in this Agreement modifies or reduces Shareholder's obligation to
comply with applicable laws relating to trade secrets, confidential
information or unfair competition.
2. Restrictive Covenants.
2.1 Covenant Not to Compete. Shareholder covenants and agrees that he
will not directly or indirectly for a period of four (4) years from the
date hereof: (i) directly or indirectly engage in or assist another to
engage in work or activity connected with the development, manufacture or
sale of products or services which compete with the existing or prior
products or services of the Companies or any parent or subsidiary of the
Companies; (ii) persuade or attempt to persuade any employee or consultant
of the Companies not to take employment with Buyer or to leave the employ
of Buyer or to stop providing services to Buyer; (iii) solicit or assist in
soliciting any client of the Companies with respect to any products or
services of the type offered or previously offered by the Companies; or
(iv) provide or assist in providing any products or services to any clients
of the Companies (including any party to whom the Companies have made a
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sales proposal within eighteen (18) months prior to the date hereof) of the
type offered by the Companies. The geographic scope of the covenant not to
compete shall extend to the entire world. Recognizing the specialized
nature of the Business and the scope of the competition that Buyer will
face after the Closing, Shareholder hereby acknowledges that the duration
and geographic scope of this covenant not to compete is reasonable.
2.2 Relief for Violations. If the geographic or time restriction
contained in this Section shall be determined by a court of law to be
unreasonable, the court may amend this Section to provide a reasonable
geographic or time restriction which shall then be binding upon the Buyer
and the Shareholder. Shareholder acknowledges that the broad geographic
scope of this covenant is required because the Business is international in
scope.
3. Consideration. Buyer shall pay to Shareholder as consideration hereunder
an amount equal to $250,000, payable in two equal installments of $125,000 each
on the third and fourth anniversaries of the date hereof. If Shareholder
breaches any of his obligations herein, Buyer shall have the right, in addition
to other remedies available to it, to withhold any further payment hereunder,
and to terminate his employment and the further payment of any compensation or
benefits to him pursuant to his Employment Agreement with Buyer of even date.
Shareholder agrees that any breach or threatened breach by him of any of the
above provisions cannot be remedied solely by the recovery of damages and Buyer
shall be entitled to an injunction against such breach or threatened breach
without the requirement of posting bond. Nothing herein, however, shall be
construed as prohibiting Buyer from pursuing, in conjunction with an injunction
or otherwise, any other remedies available at law or in equity for any such
breach or threatened breach, including the recovery of damages. The failure of
Buyer to initiate any action upon a breach of this Agreement shall not
constitute a waiver of that or any other breach hereof.
4. Other Provisions.
4.1 Recitals. Shareholder acknowledges and agrees that the recitals
set forth at the beginning of this Agreement are true and correct and
constitute a part of this Agreement.
4.2 Waivers. No failure on the part of Buyer to object to or complain
of any breach or default by Shareholder or to take any other action with
respect thereto, irrespective of how long such failure may continue, shall
constitute or be deemed a waiver of that or of any other breach or default.
No waiver by Buyer of any breach or default on the part of Shareholder
shall be effective unless set forth in writing and executed by Buyer, and
any such waiver shall operate only as a waiver of the particular breach or
default specified in such written waiver and shall not be effective as a
waiver of any other subsequent breach or default on the part of
Shareholder.
4.3 Assignment. Shareholder shall not assign any portion of this
Agreement without the prior written consent of Buyer. Any attempted
assignment without such prior written consent shall be null and void and
without legal effect. This Agreement shall be binding upon and inure to the
benefit of Buyer and Shareholder and their respective successors, heirs,
legal representatives and assigns permitted hereunder.
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<PAGE>
4.4 Notices. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered;
or (b) sent to the parties at their respective addresses indicated herein
by private mail courier service. The respective addresses to be used for
all such notices, demands or requests are as follows:
(a) If to Buyer, to:
PSC Inc.
675 Basket Road
Webster, NY 14580-0787
Attention: Elizabeth J. McDonald
General Counsel
(with a copy to):
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202-5368
Attention: Timothy J. Sheehan
or to such other person or address as Buyer shall furnish to Shareholder in
writing.
(b) If to Shareholder, to:
George A. Plesko
380 Steeplechase Drive
Media, PA 19063
(with a copy to):
Reed Smith Shaw & McClay LLP
2500 One Liberty Place
1650 Market Street
Philadelphia, PA 19103-7301
Attention: Peter J. Tucci
or to such other person or address as Shareholder shall furnish to Buyer in
writing.
If personally delivered, such communication shall be deemed delivered
upon actual receipt; if sent by courier pursuant to this Section, such
communication shall be deemed delivered upon receipt. Any party to this
Agreement may change its address for the purposes of this Agreement by
giving notice thereof in accordance with this Section.
4.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the state of New York without regard to the
conflict of laws provisions thereof.
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4.6 Severability. In the event a court of competent jurisdiction
determines that the provisions of this Agreement, including the restrictive
covenants, are excessively broad as to duration, geographical scope or
activity, or are otherwise unenforceable, it is expressly agreed that the
invalidity of such provisions shall not affect the enforceability of the
remaining provisions, which will remain in full force and effect, and any
such over broad provisions will be deemed, without further action on the
part of any person, to be modified, amended and/or limited, but only to the
extent necessary to render the same valid and enforceable in such
jurisdiction.
IN WITNESS WHEREOF, Shareholder and Buyer have executed and delivered
this Agreement on the date first written above.
PSC INC.
By: /s/ William J. Woodard
----------------------------
/s/ George A. Plesko
-------------------------------
Shareholder
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 19th day of
January, 2000 by and between PSC INC., a New York corporation (the "Company"),
and ANDY J. STORMENT ("Executive").
R E C I T A L S :
WHEREAS, Executive is employed by PERCON INCORPORATED, a Washington
corporation ("Percon");
WHEREAS, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of November 9, 1999, among the Company, Percon and West
Acquisition Corp., a Washington corporation ("Sub"), Sub is merging with and
into Percon (hereinafter referred to as the "Merger"), and Percon is becoming a
wholly-owned subsidiary of the Company;
WHEREAS, the Company is desirous of assuring the continued employment of
Executive, and Executive is desirous of continued employment with the Company,
on the terms set forth herein.
WHEREAS, because of, among other things, Executive's intimate knowledge of
the business of Percon as it is currently conducted and the business of the
Company as it will be conducted during the term of this Agreement, the Company
and Executive recognize the detrimental effect on such businesses that will
result if Executive were to enter into competition with the Company during
Executive's employment with the Company and for a reasonable period of time
thereafter.
NOW, THEREFORE, in consideration of the covenants and agreements of the
parties herein contained, the parties hereto agree as follows:
1. Employment. The Company hereby employs Executive as a Senior Vice
President. Executive hereby accepts such employment and agrees to remain in the
employ of the Company or any of its affiliates (as hereinafter defined) for the
Term (as hereinafter defined). In the capacity of Senior Vice President,
Executive shall have such duties and responsibilities as are established by the
President and Chief Executive Officer of the Company, subject to the oversight
of the Board of Directors of the Company. Executive agrees, in performing his
obligations hereunder, to use his best efforts and to dedicate his business
time, skill, labor and attention to the performance of such obligations on a
full-time basis. As used herein, "affiliate" shall mean, with respect to any
entity, any other person or entity controlling, controlled by or under common
control with such entity.
2. Term. Subject to the terms and conditions of this Agreement, including
but not limited to the provisions for termination set forth in Section 11, the
employment of Executive under this Agreement shall commence on the date hereof
and continue through and including the close of business on December 31, 2001,
unless extended by the written mutual agreement of the parties hereto (the
"Term").
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3. Compensation.
(a) Base Salary. As consideration for all services that the Executive will
render to the Company and its affiliates in any capacity, the Company shall pay
to Executive an annual base salary at the annual rate of $200,000 ("Base
Salary"), payable in accordance with the customary payroll practices of the
Company applicable to executive employees, subject to such deductions and
withholdings as may be required under applicable federal, state or local laws or
as agreed to by Executive.
(b) Annual Bonus. In lieu of management incentive plan compensation,
Executive will be entitled to an annual bonus ("Annual Bonus") for each calendar
year during the Term in an amount equal to (i) the product obtained by
multiplying the Incremental Gross Margin (as hereinafter defined) for the
applicable calendar year by (ii) five percent (5%).
For purposes hereof, "Incremental Gross Margin" is an amount equal to the
product obtained by multiplying (A) the amount by which total sales revenue for
the portables products more fully described on Exhibit A hereto ("Portables
Products") for the applicable calendar year exceeds the sales revenue targets
for Portables Products for the applicable calendar year, also as set forth on
Exhibit A by (B) the Gross Margin Percentage (as hereinafter defined) over such
year with respect to Portables Products. For purposes of this Agreement, "Gross
Margin Percentage" is an amount equal to the quotient obtained by dividing (x)
the amount, if any, by which total sales revenue for the Portables Products for
the applicable year exceeds the cost of goods sold with respect to the Portables
Products for the applicable year by (y) total sales revenue for the Portables
Products for the applicable year. For purposes of this Agreement, sales revenue
and cost of goods sold shall be determined in accordance with generally accepted
accounting principles applied on a basis consistent with the Company's financial
statements on the date hereof, and cost of goods sold with respect to the
Portables Products shall be determined on a cost allocation basis consistent
with that used by the Company on the date hereof, which the Company represents
to be a fair and reasonable basis of allocation.
Payment of the Annual Bonus, if any, shall be made no later than forty-five
(45) days after completion of the calendar year in which the Annual Bonus was
earned.
4. Benefits. Executive shall be entitled throughout the Term and any
extension of the Term, if any (but not beyond termination of Executive's
employment except as provided in Section 11), to (a) receive all health, dental,
disability and life insurance benefits to which full time executive officers of
the Company are entitled as to which he meets the eligibility requirements
universally applicable to all such executive officers; (b) participate in the
Company's "401(k)" plan; and (c) receive an automobile allowance of $800 per
month. After he has completed one year of employment with the Company, Executive
will be eligible to receive grants of options under the Company's stock option
plan, except that the making of any grants of options to Executive and the size
of grants shall be subject to the discretion of the Board of Directors of the
Company.
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5. Expenses. Executive shall be reimbursed by the Company for travel and
other business expenses incurred in the performance of his duties hereunder,
subject to the Company's reimbursement policies.
6. Confidential Information. Executive agrees that during the Term and
thereafter he will (i) hold Confidential Information (as defined below) in
strictest confidence and not use such Confidential Information, disclose such
Confidential Information to any person or entity or authorize any person to use
or disclose such Confidential Information without the written authorization of
the Company, except in connection with services Executive is rendering in the
normal course of his employment or consultancy (if any) with the Company or any
affiliate, (ii) comply with all policies and procedures as the Company may from
time to time establish to protect and preserve Confidential Information of which
Executive has received notice and (iii) exercise due care in safeguarding
Confidential Information against disclosure of any kind or nature, whether
intentional or unintentional, and use his best efforts to ensure the maintenance
of its confidentiality. As used herein, "Confidential Information" means any
confidential information or knowledge or data of the Company or any of its
affiliates (including Percon), whether or not patentable or copyrightable, in
any way acquired by Executive from the inception of his employment with Percon
through the termination of his employment with the Company or any of its
affiliates including without limitation information or knowledge (A) of a
technical nature, such as, but not limited to, Trade Rights (as defined in the
Merger Agreement), methods, know-how, formulae, compositions, drawings,
blueprints, compounds, processes, discoveries, machines, manufacturing
procedures, techniques, computer databases, source codes, computer codes,
designs, programs, prototypes, inventions and computer programs; (B) of a
business nature, such as, but not limited to, information about sales or lists
of customers (including mailing lists), prices, costs, purchasing, profits,
markets, sales and marketing methods, documents, records, contract forms,
computer disks containing data and other materials and information relating to
the products, services or business of the Company and its affiliates, strengths
and weaknesses of products, business processes, business and marketing plans and
activities and employee personnel records; (C) pertaining to future
developments, such as, but not limited to, research and development and future
marketing or merchandising plans or ideas; or (D) of or pertaining to the
customers and vendors that Executive learns or has learned as a consequence of
his employment with the Company or Percon and as to which the Company and/or any
of its affiliates has an obligation of secrecy; provided, however, that
Confidential Information shall not include information that is or becomes
publicly available other than through breach by Executive of his obligations
hereunder.
Executive acknowledges and agrees that the Confidential Information is a
valuable asset of the Company, and its protection as confidential is vital to
the success of the Business (as defined below). Executive acknowledges and
agrees that all Confidential Information is and shall at all times remain the
sole and exclusive property of the Company, even if prepared or created, in
whole or in part, by Executive, and whether or not directly disclosed or
entrusted to Executive by the Company or any other person.
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Immediately upon termination of Executive's employment by the Company,
Executive shall deliver to the Company all originals and copies of everything in
his possession or under his control that embodies or contains any Confidential
Information, including, without limitation, all documents, correspondence,
specifications, blueprints, notebooks, reports, sketches, formulae, computer
programs, computer discs, prototypes, price lists, customer lists or
information, samples and all other materials.
The foregoing shall be in addition to any obligation Executive may have
under applicable law in respect of trade secrets and other legally protected
information.
7. Noncompetition.
(a) To preserve the goodwill associated with the Business and for other
good and valuable consideration, receipt of which is hereby acknowledged,
Executive hereby covenants and agrees that he will not, directly or indirectly,
during the Covenant Period:
i. engage in, continue in or carry on any business that competes with
the Business;
ii. own or control any financial interest in any Conflicting
Organization (as defined below) (other than as a holder of not more than
five percent (5%) of the combined voting power of the outstanding stock of
a publicly-traded company);
iii. consult with, advise or assist in any way, whether or not for
consideration, any Conflicting Organization in any respect, including, but
not limited to, advertising or otherwise endorsing the products of any such
competitor; soliciting customers or otherwise serving as an intermediary
for any such competitor; or engaging in any form of business transaction on
other than an arm's-length basis with any such entity; or
iv. engage in any practice the purpose of which is to evade the
provisions of this covenant not to compete.
The parties agree that the geographic scope of the foregoing covenants not to
compete shall extend throughout the entire world. In the event a court of
competent jurisdiction determines that the provisions of this Section 7 are
excessively broad as to duration, geographical scope or activity, it is
expressly agreed that this covenant not to compete shall be construed so that
the remaining provisions shall not be affected, but shall remain in full force
and effect, and any such over broad provisions shall be deemed, without further
action on the part of any person, to be modified, amended and/or limited, but
only to the extent necessary to render the same valid and enforceable in such
jurisdiction. Executive hereby acknowledges that the foregoing provisions are
reasonable.
(b) As used herein,
i. The term "Conflicting Organization" means any person (including
Executive as sole proprietor), entity, corporation, partnership, joint
venture or other organization, or the part or division of any diversified
organization, engaged in or planning or attempting to become engaged in the
Business. Without limitation, Symbol Technologies, Inc.; Metrologic
Instruments Inc.; Telxon Corporation; Welch Allyn Data Collection,
Inc./Hand Held Products Inc.; Intermec Technologies Corp. (UNOVA); Teklogix
Corp. and any subsidiary, joint venture or affiliate of any of the
foregoing shall each be deemed a Conflicting Organization.
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ii. The term "Business" means the design, engineering, development,
manufacture, marketing, distribution, sale, license and/or service of
Business Products (as defined below); provided, however, that following the
Termination Date (as defined below), the meaning of the term "Business"
will be determined based upon Business Products determined as of the
Termination Date.
iii.The term "Business Products" means: (1) radio frequency and batch
portable data collection terminals, (2) fixed station and integrated
decoders, (3) hand-held or fixed laser, CCD or image scanners, (4)
warehouse management and fixed asset management application software, (5)
products, services, applications, systems and technologies of the Company
and its affiliates relating to bar coded data, magnetic stripe 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, electronic interchange of bar coded or related data and RFID
readers, including without limitation self check-out systems, verification
products and electronic shelf labeling products, and (6) products that are
being developed, manufactured, marketed, distributed, sold, licensed or
serviced by the Company or any affiliate of the Company or are within the
actual or demonstrably anticipated research or development of the Company
or any affiliate of the Company.
iv. The term "Covenant Period" means the period commencing on the date
hereof and ending on the later of (1) the date one (1) year after the date
Executive's employment with the Company terminates for any reason or (2) if
Executive receives payments under Section 11(a)(i) or pursuant to the
agreement described in Section 16, the date through which the Company makes
such payments.
8. Nonsolicitation.
(a) Customers. As an independent obligation of Executive, Executive will
not, on behalf of a Conflicting Organization, during the Covenant Period, be
connected in any way with the solicitation of any then current or potential
customers of the Company or its affiliates.
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(b) Employees. During the Covenant Period, Executive will not, other than
on behalf of the Company or any of its affiliates, employ, induce to leave the
employ of the Company or any affiliate of the Company, or associate as a
partner, member or otherwise in a direct, material business relationship with
(i) any employee, consultant or sales representative of the Company or any
affiliate of the Company, (ii) any person who shall have been an employee,
consultant or sales representative of the Company or any affiliate of the
Company within the one-year period prior to the expiration or termination of the
Term and any extension thereof or (iii) any person who shall have been an
employee, consultant or sales representative of the Company or any affiliate of
the Company at any time during the one year after the date hereof who became
known to Executive prior to the date hereof by virtue of his relationship with
the Company or any affiliate of the Company. This paragraph shall not apply to
employees whose duties are secretarial or clerical or to employees whose
employment the Company or any affiliate of the Company has terminated after the
date hereof.
9. Inventions; Creative Works.
(a) Executive will promptly disclose to the Company, in writing, all ideas,
discoveries, designs, improvements, innovations and inventions (collectively
referred to herein as "Inventions"), whether patentable or not, either relating
to the existing or planned business, products, processes, or procedures of the
Company, or any parent or subsidiary of the Company, or suggested by or
resulting from Executive's work at the Company, or resulting wholly or in part
from the use of the Company's time, material, facilities or ideas, that
Executive has made or conceived or may make or conceive, whether or not during
working hours or with the Company's resources, alone or with others, at any time
during Executive's employment or within one year after termination thereof.
Executive agrees that all such Inventions shall be the exclusive property of the
Company.
(b) Executive hereby assigns to the Company all Executive's rights and
interests in and to all such Inventions and all patents and copyrights that may
be obtained on them in this and all foreign countries. At the Company's expense,
but without charge to it, Executive will execute, acknowledge and deliver to the
Company any specific assignments to any such Inventions or other relevant
documents and take any such further action as may reasonably be considered
necessary by the Company at any time during or subsequent to the period of
Executive's employment to obtain or defend letters patent in any and all
countries or to obtain documents relating to registration, ownership or transfer
of copyrights, or to vest title in such Inventions in the Company or its
successors or assigns or to obtain for the Company any other legal protection
for such Inventions, and Executive will continue to provide reasonable
cooperation in this manner even after Executive's employment by the Company
terminates.
(c) Executive represents that there are no Inventions, if any, patented or
unpatented, that Executive conceived or made prior to his employment by the
Company or Percon that Executive wishes to exclude from this Agreement.
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(d) Executive acknowledges that all Creative Works (as defined below) that
are covered by the definition of a "work made for hire" under 17 U.S.C. ss.101
of the U.S. Copyright Act of 1976 (the "Copyright Act"), either relating to the
existing or planned business, products, processes, or procedures of the Company,
or any parent or subsidiary of the Company, or suggested by or resulting from
Executive's work at the Company, or resulting wholly or in part from the use of
the Company's time, material, facilities or ideas, that Executive has made or
conceived or may make or conceive, whether or not during working hours or with
the Company's resources, alone or with others, at any time during Executive's
employment or within one year after termination thereof, will be considered a
"work made for hire", and the Company will be regarded as the author and owner
of all copyrights in any such works. As to any such Creative Works that are not
"work made for hire" under the Copyright Act, such that Executive is regarded as
the copyright author and owner, Executive hereby assigns and agrees to assign to
the Company all of his right, title and interest in any such Creative Works
Executive authors, either solely or jointly with others, at any time during
Executive's employment or within one year after termination thereof, either
relating to the existing or planned business, products, processes, or procedures
of the Company, or any parent or subsidiary of the Company, or suggested by or
resulting from Executive's work at the Company, or resulting wholly or in part
from the use of the Company's time, material, facilities or ideas, that
Executive has made or conceived or may make or conceive, whether or not during
working hours or with the Company's resources. Executive agrees that all such
Creative Works shall be the exclusive property of the Company. As used herein,
"Creative Works" shall mean any and all original works of authorship fixed in
any tangible medium of expression, including but not limited to writings,
compilations of data, charts, forms, drawings, software, videos, photographs,
music, designs and mask works, and further including but not limited to any
other subject matter for which copyright or mask work protection would apply,
specifically including original or revised designs, computer software,
advertising and marketing materials, instructional and procedural manuals, and
related documents and copies thereof.
10. Injunctive Relief. Executive agrees that the provisions and
restrictions of Sections 6, 7, 8 and 9 are necessary to protect the legitimate
continuing interests of the Company, that any violation or breach of these
provisions will result in irreparable injury to the Company for which a remedy
at law would be inadequate and that, in addition to any relief at law that may
be available to the Company for such violation or breach and regardless of any
other provision contained in this Agreement, the Company shall be entitled to
injunctive and other equitable relief without posting any bond or other
security. Nothing herein, however, shall be construed as prohibiting the Company
from pursuing, in conjunction with an injunction or otherwise, any other
remedies available to the Company for such breach or threatened breach,
including the recovery of damages from Executive.
11. Termination of Employment.
(a) Termination of Employment Without Cause. In the event of the
termination of employment of Executive by the Company prior to the expiration of
the Term without Cause (as hereinafter defined) or the voluntary termination of
employment by Executive for Good Reason (as hereinafter defined), Executive
shall be entitled to receive only (i) from the effective date of such
termination (the "Termination Date") until the expiration of the Term or the
first anniversary of the Termination Date, whichever is later, an amount equal
to Executive's Base Salary at the annual rate in effect at the Termination Date,
(ii) reimbursement for any and all monies advanced in connection with
Executive's employment for expenses incurred by Executive through the
Termination Date, subject to the Company's reimbursement policies, (iii) the pro
rata portion of any Annual Bonus payable for the calendar year in which the
termination occurred, determined on the basis of the number of days Executive
was employed by the Company during the year in which such termination occurred,
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(iv) Executive's then current health, dental, life and accidental death and
dismemberment insurance benefits for a period until the expiration of the Term
or the first anniversary of the Termination Date, whichever is later, and (v)
all other payments and benefits to which Executive may be entitled pursuant to
this Agreement or under the terms of any Company benefit plan in which Executive
was participating through the Termination Date. Payment of amounts set forth in
clause (i) above shall be made in accordance with the Company's prevailing
practice; with respect to clauses (iv) and (v) above, pursuant to the terms of
the benefit plan establishing such benefit; with respect to clause (ii), within
ten (10) business days after the later of the Termination Date or the submission
of satisfactory documentation; and with respect to clause (iii), no later than
forty-five (45) days after completion of the calendar year in which the Annual
Bonus was earned. In the event of Executive's death while receiving severance
payments hereunder, all remaining severance installment payments otherwise
payable to Executive hereunder will be paid in the same amounts and in the same
manner to Executive's heirs and legal representatives. All payments made to
Executive hereunder will be subject to all applicable employment and withholding
taxes.
For purposes of this Agreement, "Cause" shall mean (A) Executive's failure
(it being understood that a failure to achieve performance goals in and of
itself or an inability to act because the Company fails to provide adequate
supporting resources shall not constitute "failure" for purposes of this
definition) or refusal to perform such services as may reasonably be delegated
or assigned to Executive, consistent with Executive's position (except to the
extent such failure or refusal to perform is a direct result of a relocation of
the location of Executive's principal office to a location more than twenty-five
(25) miles from Eugene, Oregon) or Executive's violation of express Company
policies, (B) Executive's gross negligence in connection with the performance of
Executive's duties, (C) Executive's commission of acts involving dishonesty,
willful misconduct, breach of fiduciary duty, fraud, or any similar offense
that, in any such case, materially affects Executive's ability to perform
Executive's duties for the Company or any of its affiliates or may materially
adversely affect the Company or any of its affiliates, (D) Executive's
conviction of a felony, or (E) the violation of a material law by the Company or
any affiliate where Executive willfully caused the Company or such affiliate to
commit such violation. Termination of the services of Executive for Cause shall
not be effective unless and until acted upon by the Board of Directors of the
Company and unless and until written notice shall have been given to Executive
which notice shall include identification with specificity of each and every
factual basis or incident upon which the termination is based. Notwithstanding
the preceding sentence, in connection with the termination of the services of
Executive for Cause under clause (A) above, the Board of Directors of the
Company shall take no action until Executive has been provided written notice of
the services Executive has failed or refused to perform, or the policies
Executive has violated, and such failure or refusal, or such violation, remains
unremedied for thirty (30) days after Executive has received such notice.
For purposes of this Agreement, "Good Reason" shall mean the occurrence of
any of the following: (A) a material reduction of Executive's duties, title,
authority or responsibilities with the Company relative to Executive's duties,
title, authority or responsibilities with the Company as in effect immediately
prior to such reduction, or the assignment to Executive of such reduced duties,
title, authority or responsibilities, other than such changes in duties, title,
authority and responsibilities as may be a natural consequence of Percon
becoming a wholly owned subsidiary of the Company; (B) a material violation of
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the Company's obligations under this Agreement; (C) a material reduction by the
Company in the kind or level of employee benefits (other than the Base Salary
and Annual Bonus provided for by Section 3(a) and 3(b) of this Agreement) to
which Executive was entitled immediately prior to such reduction, with the
result that Executive's overall benefits package is materially reduced, unless
the overall benefits package of executive officers of the Company generally is
similarly reduced; (D) the relocation of Executive to a facility or a location
more than 25 miles from the city, village, town or other municipality in which
Executive is then located; or (E) the failure of the Company to obtain the
assumption of this Agreement by any successors to the Company's business.
Termination of the services of Executive for Good Reason shall not be effective
unless and until written notice shall have been given to the Company which
notice shall include identification with specificity of each and every factual
basis or incident upon which the termination is based. Notwithstanding the
preceding sentence, in connection with the termination of the services of
Executive for Good Reason under clause (A), (B) or (C) above, no such
termination may be effective unless Executive has provided to Company written
notice identifying with specificity each and every factual basis or incident
upon which the termination is based and such basis or incident remains
unremedied for thirty (30) days after Executive has delivered such notice.
(b) Termination for Cause or by Voluntary Resignation. If, during the Term,
Executive's employment is terminated by the Company for Cause or terminated by
Executive's voluntary resignation other than for Good Reason, then Executive
shall be entitled to receive only (i) Executive's Base Salary earned through the
Termination Date and (ii) reimbursement for any and all monies advanced in
connection with Executive's employment for expenses incurred by Executive
through the Termination Date, subject to the Company's reimbursement policies.
Payment of amounts set forth in clause (i) above shall be made in
accordance with the Company's normal practice for payment of final wages to
terminating employees; and with respect to clause (ii), within ten (10) business
days after the later of the Termination Date or the submission of satisfactory
documentation.
(c) Termination by Reason of Death or Disability. If, during the Term,
Executive's employment is terminated by reason of death or disability, then
Executive (or in the event of Executive's death, his estate, heirs and
beneficiaries, as applicable) shall be entitled to receive only (i) all Base
Salary earned through the Termination Date; (ii) reimbursement for any and all
monies advanced in connection with Executive's employment for expenses incurred
by Executive through the Termination Date, subject to the Company's
reimbursement policies; (iii) the pro rata portion of any Annual Bonus payable
for the calendar year in which the termination occurred, determined on the basis
of the number of days Executive was employed by the Company during the year in
which such termination occurred, and (iv) all other payments and benefits to
which Executive may be entitled pursuant to this Agreement or under the terms of
any Company benefit plan in which Executive was participating through the
Termination Date.
Payment of amounts set forth in clause (i) above shall be made in
accordance with the Company's normal practice; with respect to clause (iv)
above, pursuant to the terms of the benefit plan establishing such benefit; with
respect to clause (ii), ten (10) business days after the later of the
Termination Date or the submission of satisfactory documentation; and with
respect to clause (iii), no later than forty-five (45) days after completion of
the calendar year in which the Annual Bonus was earned.
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(d) Notwithstanding the foregoing, the Company may condition the
entitlement of Executive or his estate, heirs and beneficiaries, as applicable,
to any payment or benefit under this Section 11 upon receipt of a fully executed
general release in favor of the Company and its affiliates in reasonable form to
be prepared by the Company, except that Executive shall not be required to
release entitlements to indemnification under applicable law or the charter or
bylaws of the Company and its affiliates, rights under this Section 11 or rights
under Section 5.10 of the Merger Agreement.
(e) Without limitation, the provisions of Sections 6, 7, 8 and 9 shall
survive the termination of Executive's employment for any reason.
12. Notice. All notices given in connection with this Agreement shall be in
writing and shall be delivered either by personal delivery, by certified or
registered mail, return receipt requested, or by a recognized express courier or
delivery service, addressed to the parties hereto at the following addresses:
If to Executive:
Mr. Andy J. Storment
855 Lariat Drive
Eugene, OR 97401
Copy to:
Perkins Coie LLP
1211 S.W. Fifth Avenue, Suite 1500
Portland, Oregon 97204-3715
Attention: Roy W. Tucker
If to the Company:
PSC Inc.
675 Basket Road
Webster, New York 14580
Attention: Elizabeth J. McDonald
Copy to:
Patrick G. Quick
Foley & Lardner
777 East Wisconsin Ave.
Milwaukee, Wisconsin 53202
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or at such other address and number as either party shall have previously
designated by written notice given to the other party in the manner hereinabove
set forth. If notice is personally delivered, such communication shall be deemed
delivered upon actual receipt; if sent by express courier or delivery service
pursuant to this paragraph, such communication shall be deemed delivered upon
actual receipt or, if the addressee fails or refuses to accept delivery, as of
the date of such failure or refusal; and if sent by U.S. mail pursuant to this
paragraph, such communication shall be deemed delivered as of the date of
delivery indicated on the receipt issued by the relevant postal service, or, if
the addressee fails or refuses to accept delivery, as of the date of such
failure or refusal.
13. Waiver. Any waiver of a breach of any of the terms of this Agreement
shall not operate as a waiver of any other breach of such terms or of any other
terms, nor shall failure to enforce any term hereof operate as a waiver of any
such term or of any other term.
14. Severability. If any term of this Agreement or the application thereof
is held invalid or unenforceable, then the validity or unenforceability shall
not affect any other term of this Agreement. This Agreement shall be enforced to
the broadest extent possible under the law.
15. Governing Law; Venue. This Agreement shall be construed and enforced in
accordance with and governed by the internal laws of the State of Oregon,
without reference to conflict of law principles of any jurisdiction (including
without limitation Oregon) which would result in the application of the domestic
substantive laws of any other jurisdiction.
16. Change in Control. Simultaneous with the execution hereof, Executive
and the Company are entering into a Change-in-Control (the "Change in Control
Agreement"). Anything in this Agreement to the contrary notwithstanding, if
there is a Change in Control (as defined in the Change in Control Agreement) of
the Company at a time that the Change in Control Agreement is in effect and if
Executive's employment is thereafter terminated at such time as this Agreement
and the Change in Control Agreement are still in effect, then the obligations of
the Company and the rights of Executive in respect of such termination shall be
as provided in the Change in Control Agreement rather than this Agreement.
17. Termination Obligations. Executive agrees that if his employment
hereunder is terminated for any reason, then he will meet at a mutually
agreeable time and location (upon which the Company and Executive will use their
best efforts to agree) with a representative of the Company to discuss, among
other matters, the provisions of this Agreement and Executive's obligations
hereunder within three (3) business days after his termination.
18. Assignment. Neither this Agreement nor any interest herein may be
assigned by Executive. The Company may freely assign this Agreement and any and
all interest herein to any person or entity that, directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Company or in connection with a transfer, directly or
indirectly, of all or substantially all of the business of the Company or
Percon.
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19. Miscellaneous. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in a
writing, signed by all parties hereto. This Agreement shall be binding upon and
inure to the benefit of the Company, its successors and assigns and Executive
and his heirs, executors, administrators and legal representatives. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original but all of which together will constitute one and the
same instrument.
20. Entire Agreement; Amendment. This Agreement and the Change in Control
Agreement contain the entire agreement between the parties with respect to the
employment of Executive by the Company or Percon and supersede all previous
agreements related to the employment of Executive by the Company or Percon.
Notwithstanding the foregoing, Executive acknowledges he has independent
obligations under that certain Noncompetition Agreement between Executive and
the Company dated as of the date hereof. This Agreement may not be amended or
changed except by a writing signed by both parties.
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IN WITNESS WHEREOF, Executive has executed this Agreement and the Company
has caused this Agreement to be executed as of the date first above written.
PSC INC.
By:
--------------------------------
Its:
-------------------------------
EXECUTIVE:
-----------------------------------
Andy J. Storment
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EXHIBIT A
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As used herein, "Portables Products" means (a) all products and services of
Percon and its affiliates immediately prior to the date hereof and (b) those
products and services of PSC within its Commercial/Industrial HHLS Business
immediately prior to the date hereof.
Targets
-------
1999 Total 2000 Total 2001 Total
(in millions) (in millions) (in millions)
Portables Product areas:
1. Existing Percon Business $32 $39 $45
1999 = $35 million
2000 = $42 million
2. Existing PSC Commercial/ $36 $40 $44
Industrial HHLS Business
1999 = $36 million
2000 = $40 million
EXAMPLE: Sales of Portables Products are $89 million in Year 2000 and gross
margin percentage is 45%.
$89 - $79 = $10 million x 45% = $4.5 million x 5% = $225,000
million million Incremental Gross Incremental Incentive Annual
Actual Base Sales Margin Gross Margin Factor Bonus Earned
Notwithstanding the foregoing, if sales of Portables Products exceed $68 million
but are less than $79 million in Year 2000, then Executive shall be entitled to
an Annual Bonus of $25,000 for such year. Notwithstanding the foregoing, if
sales of Portables Products exceed $79 million but are less than $89 million in
Year 2001, then Executive shall be entitled to an Annual Bonus of $25,000 for
such year.
-90-
NONCOMPETITION AGREEMENT
NONCOMPETITION AGREEMENT (this "Agreement") dated as of January 19, 2000,
between ANDY J. STORMENT, a resident of the State of Oregon ("Shareholder"), and
PSC Inc., a New York corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, pursuant to that certain Agreement and Plan of Merger dated as of
November 9, 1999 (the "Merger Agreement"), among Purchaser, West Acquisition
Corp., a Washington corporation and wholly-owned subsidiary of Purchaser
("Newco"), and Percon Incorporated, a Washington corporation (`Percon"), Newco
is merging (the "Merger") with and into Percon and Percon is surviving the
Merger and will continue its corporate existence under the laws of the State of
Washington.
WHEREAS, Percon's business consists of, among other things, designing,
engineering, developing, manufacturing, marketing, distributing, selling,
licensing and servicing data collection and management hardware and software
products primarily for the automatic data collection industry and the associated
goodwill developed in connection therewith ("Goodwill").
WHEREAS, following the Merger, Purchaser will own 100% of the issued and
outstanding shares of Percon.
WHEREAS, Shareholder and an affiliate of Shareholder beneficially own
approximately 16.6% of the issued and outstanding shares of Percon, is
receiving, directly or indirectly, substantial consideration in connection with
the Merger and is associated with the Goodwill such that Shareholder may be in a
position to divert the Goodwill for the benefit of a competing enterprise.
WHEREAS, to induce Purchaser to complete the Merger and to preserve the
Goodwill, it is a condition to the obligations of Purchaser under the Merger
Agreement that Shareholder enters into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements hereinafter set forth, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. Agreements.
(a) Noncompetition. Shareholder will not, directly or indirectly, for a
period of two (2) years following the Closing Date (as defined in the Merger
Agreement) in any location worldwide.
i. engage in, continue in or carry on any business that competes with
the Business (as defined below);
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<PAGE>
ii. own or control any Conflicting Organization (as defined below)
(other than as a holder of not more than five percent (5%) of the combined
voting power of the outstanding stock of a publicly-traded company);
iii.consult with, advise or assist in any way, whether or not for
consideration, any Conflicting Organization in any respect, including, but
not limited to, advertising or otherwise endorsing the products of any such
competitor; soliciting customers or otherwise serving as an intermediary
for any such competitor; or engaging in any form of business transaction on
other than an arm's-length basis with any such entity; or
iv. engage in any practice the purpose of which is to evade the
provisions of this covenant not to compete.
Notwithstanding the foregoing,
(x) Shareholder may engage in a business (an "Excepted Business") as
to which, and only for so long as, all of the following conditions are met:
(A) the business derives less than twenty percent (20%) of its revenues
from the resale of products and services that are Business Products (as
defined below) or other products of Purchaser and its affiliates (as
defined below) and the business does not design or manufacture Business
Products or other products of Purchaser and its affiliates; (B) the
business is not owned or controlled by any Conflicting Organization that
would be a Conflicting Organization even if it did not own or control the
Excepted Business; (C) Shareholder uses his best efforts (subject to his
obligations to such business) to cause such business to resell Business
Products of Purchaser or its affiliates and other products of Purchaser and
its affiliates in lieu of comparable products of competitors to the extent
Purchaser and/or its affiliates make such products available on competitive
terms and conditions; and (D) Shareholder obtains the consent of Purchaser
to engage in such business in advance, which consent Purchaser may not
unreasonably withhold but which Purchaser may give contingent on
Shareholder's continued compliance with the other conditions in this
paragraph. Without limitation, Shareholder's obligation to use best efforts
shall include (subject to his obligations to such business) meeting, at
Purchaser's request, with a representative of Purchaser to discuss, among
other matters, a transition schedule under which such business would
attempt to sell Business Products and other products of Purchaser and its
affiliates as an increasing percentage of such business's sales.
(y) Each covenant of Shareholder in this Section 1 shall extend for a
period of three (3) years following the Closing Date in respect of each of
the following (the "Specified Organizations"): Symbol Technologies, Inc.;
Metrologic Instruments Inc.; Telxon Corporation; Welch Allyn Data
Collection, Inc./Hand Held Products Inc.; Intermec Technologies Corp.
(UNOVA); Teklogix Corp. and any subsidiary, joint venture or affiliate of
any of the foregoing.
For purposes of this Agreement, "affiliate" shall mean, with respect to any
entity, any other person or entity controlling, controlled by or under common
control with such entity.
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<PAGE>
(b) Recognizing the specialized nature of the business of Percon and its
affiliates and the scope of competition, Shareholder acknowledges the geographic
scope of this covenant not to compete to be reasonable and to be coextensive
with the business of Percon and its affiliates on the date hereof. The time
period of this covenant shall be extended for any period during which
Shareholder is in breach of Section 1(a).
(c) Confidential Information. Without limiting Shareholder's obligations in
respect of trade secrets and similar information under applicable law,
Shareholder will (i) hold Confidential Information (as defined below) in
strictest confidence and not use such Confidential Information, disclose such
Confidential Information to any person or entity or authorize any person to use
or disclose such Confidential Information without the written authorization of
Purchaser, except in connection with services Shareholder is rendering in the
normal course of his employment or consultancy (if any) with Purchaser, (ii)
comply with all policies and procedures as Purchaser may from time to time
establish to protect and preserve Confidential Information of which Shareholder
has received notice and (iii) exercise due care in safeguarding Confidential
Information against disclosure of any kind or nature, whether intentional or
unintentional, and use his best efforts to ensure the maintenance of its
confidentiality. As used herein, "Confidential Information" means any
confidential information or knowledge or data of Percon or any of its
affiliates, whether or not patentable or copyrightable, in any way acquired by
Shareholder through the date hereof including without limitation information or
knowledge (A) of a technical nature, such as, but not limited to, Trade Rights
(as defined in the Merger Agreement), methods, know-how, formulae, compositions,
drawings, blueprints, compounds, processes, discoveries, machines, manufacturing
procedures, techniques, computer databases, source codes, computer codes,
designs, programs, prototypes, inventions and computer programs; (B) of a
business nature, such as, but not limited to, information about sales or lists
of customers (including mailing lists), prices, costs, purchasing, profits,
markets, sales and marketing methods, documents, records, contract forms,
computer disks containing data and other materials and information relating to
the products, services or business of Percon and affiliates, strengths and
weaknesses of products, business processes, business and marketing plans and
activities and employee personnel records; (C) information pertaining to future
developments, such as, but not limited to, research and development and future
marketing or merchandising plans or ideas; or (D) of or pertaining to the
customers and vendors that Shareholder learns or has learned as a consequence of
his ownership of or employment with Percon and as to which Percon and/or any of
its affiliates has an obligation of secrecy; provided, however, that
Confidential Information shall not include information that is or becomes
publicly available other than through breach by Shareholder of his obligations
hereunder..
(d) Customers. As an independent obligation of Shareholder, Shareholder
will not, on behalf of a Conflicting Organization, during the two-year period
following the Closing Date, be connected in any way with the solicitation of any
then current or potential customers of Percon or any of its affiliates who were
such customers prior to the date hereof.
(e) Employees. For a period of two years after the date hereof, Shareholder
will not, other than on behalf of Purchaser or any of its affiliates, employ,
induce to leave the employ of Percon or any affiliate of Percon, or associate as
a partner, member or otherwise in a direct, material business relationship with
(i) any employee, consultant or sales representative of Percon or any affiliate
of Percon, (ii) any person who shall have been an employee, consultant or sales
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<PAGE>
representative of Percon or any affiliate of Percon within the one-year period
prior to the date hereof or (iii) any person who shall have been an employee,
consultant or sales representative of Percon or any affiliate of Percon at any
time during the one year after the date hereof who became known to Shareholder
prior to the date hereof by virtue of his relationship with Percon or any
affiliate of Percon. This paragraph shall not apply to employees whose duties
are secretarial or clerical or to employees whose employment Percon or any
affiliate of Percon has terminated after the date hereof.
(f) Conflicting Organizations. The term "Conflicting Organization" means
any person (including Shareholder as sole proprietor), entity, corporation,
partnership, joint venture or other organization, or the part or division of any
diversified organization, engaged in or planning or attempting to become engaged
in the Business (as defined below). Without limitation, each of the Specified
Organizations shall be deemed a Conflicting Organization. The term "Business"
means the design, engineering, development, manufacture, marketing,
distribution, sale, license and/or service of Business Products (as defined
below). The term "Business Products" means: (i) radio frequency and batch
portable data collection terminals, (ii) fixed station and integrated decoders,
(iii) hand-held or fixed laser, CCD or image scanners, (iv) warehouse management
and fixed asset management application software, and (v) products that are being
developed, manufactured, marketed, distributed, sold, licensed or serviced by
Percon or any affiliate of Percon as of the date hereof or are within the actual
or demonstrably anticipated research or development of Percon or any affiliate
of Percon as of the date hereof.
(g) Severability. The parties intend that the covenants of Shareholder
contained in this Section 1 shall be construed as a series of separate
covenants, one for each city, county or other political subdivision of the State
of Oregon and of each and every other State of the United States, or any other
country in the world, including France, each of which is deemed to be separately
named herein, where Percon or any of its affiliates is developing,
manufacturing, marketing, distributing, selling, licensing and/or servicing
products or attempting to do any of the foregoing as of the date hereof, each
for a series of one-year periods within the time span of the covenants contained
in this Section 1. Except for geographic coverage and periods of effectiveness,
each such separate covenant shall be identical in terms to the covenants
contained in this Section 1. If in any judicial proceeding a court shall refuse
to enforce any of the separate covenants deemed included in this Section 1, then
such unenforceable covenants shall be deemed eliminated for the purpose of that
proceeding to the extent necessary to permit the remaining separate covenants to
be enforced. It is the agreement of the parties that the maximum protection
available under the law within the foregoing limits shall be provided to
Purchaser and that if the restrictions hereby imposed are deemed by a court to
be unreasonably broad in time, territory or scope, then this Section 1 shall be
construed to impose only such restrictions as are not unreasonable.
(h) Compensation. In consideration of the agreement of Shareholder set
forth above, Purchaser shall pay to Shareholder in cash $18,750 per calendar
quarter over the eight (8)-quarter period commencing on the date hereof. The
initial such payment shall be made on the date that is the three (3) month
anniversary of the date hereof, with the remaining seven (7) payments being made
on the same day of each successive third month thereafter. If Purchaser shall
default in the obligation to make such payments to Shareholder, then Shareholder
shall be released from his obligations set forth in this Section 1. Subject to
the foregoing, the covenants of Shareholder in this Section 1 shall be deemed
independent covenants and be enforceable against Shareholder without regard to
the breach by Purchaser of any other provision of this Agreement or any
provision of the Merger Agreement or any other agreement.
-94-
<PAGE>
2. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Oregon, without reference to conflict of
law principles of any jurisdiction (including without limitation Oregon) which
would result in the application of the domestic substantive laws of any other
jurisdiction.
3. Successors and Assigns. Purchaser may sell,assign or otherwise transfer
the covenants of Shareholder herein, in whole or in part, to any person or
entity that purchases all or substantially all of the business of Percon. The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon any such purchaser, assignee or transferee, whether or not for
valuable consideration.
4. Equitable Relief for Violations. Shareholder agrees that the provisions
and restrictions contained in this Agreement are necessary to protect the
legitimate continuing interests of Purchaser in acquiring Percon pursuant to the
Merger Agreement, that any violation or breach of these provisions will result
in irreparable injury to Purchaser for which a remedy at law would be inadequate
and that, in addition to any relief at law that may be available to Purchaser
for such violation or breach and regardless of any other provision contained in
this Agreement, Purchaser shall be entitled to injunctive and other equitable
relief without posting any bond or other security. Nothing herein, however,
shall be construed as prohibiting Purchaser from pursuing, in conjunction with
an injunction or otherwise, any other remedies available to Purchaser for such
breach or threatened breach, including the recovery of damages from Shareholder.
5. Severability. If any term of this Agreement or the application thereof
is held invalid or unenforceable, then the validity or unenforceability shall
not affect any other term of this Agreement. This Agreement shall be enforced to
the broadest extent possible under the law.
6. Notices.All notices given in connection with this Agreement shall be in
writing and shall be delivered either by personal delivery, by certified or
registered mail, return receipt requested, or by a recognized express courier or
delivery service, addressed to the parties hereto at the following addresses:
(a) If to Shareholder, to:
Mr. Andy J. Storment
855 Lariat Drive
Eugene, OR 97401
with a copy to:
Perkins Coie LLP
1211 S.W. Fifth Avenue, Suite 1500
Portland, Oregon 97204-3715
Attention: Roy W. Tucker
-95-
<PAGE>
(b) If to Purchaser, to:
PSC Inc.
675 Basket Road
Webster, New York 14580
Attention: Elizabeth J. McDonald
with a copy to:
Patrick G. Quick
Foley & Lardner
777 East Wisconsin Ave.
Milwaukee, Wisconsin 53202
or at such other address and number as either party shall have previously
designated by written notice given to the other party in the manner hereinabove
set forth. If notice is personally delivered, such communication shall be deemed
delivered upon actual receipt; if sent by express courier or delivery service
pursuant to this paragraph, such communication shall be deemed delivered upon
actual receipt or, if the addressee fails or refuses to accept delivery, as of
the date of such failure or refusal; and if sent by U.S. mail pursuant to this
paragraph, such communication shall be deemed delivered as of the date of
delivery indicated on the receipt issued by the relevant postal service, or, if
the addressee fails or refuses to accept delivery, as of the date of such
failure or refusal.
7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same agreement.
8. Waiver. Any waiver of a breach of any of the terms of this Agreement
shall not operate as a waiver of any other breach of such terms or of any other
terms, nor shall failure to enforce any term hereof operate as a waiver of any
such term or of any other term.
9. Captions. All headings and captions are for convenience of reference
only and are not part of this Agreement, and shall have no effect on the
construction or interpretation of this Agreement or any section, subsection,
clause, or provisions hereof.
10. Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
11. Exclusive Agreement; No Third-Party Beneficiaries. Subject to the terms
of any employment or consulting agreement that may give rise to independent
obligations to Purchaser or others, this Agreement and the Merger Agreement
constitute the sole understanding of the parties with respect to the subject
matter hereof. The parties hereto intend to confer upon Purchaser and upon any
affiliates of Purchaser any and all rights and remedies in connection with
Shareholder's covenants contained herein. This Agreement shall be binding upon
and inure to the benefit of Purchaser, its successors and assigns and
Shareholder and his heirs, executors, administrators and legal representatives.
Subject to the foregoing and to Section 3, nothing contained herein shall be
deemed to confer upon any other person any right or remedy under or by reason of
this Agreement.
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<PAGE>
12. Taxes. Shareholder has sole responsibility for the payment of state and
federal income tax upon any payments made by PSC to Shareholder under this
Agreement, which payments shall be subject to withholding to the extent required
by applicable law.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
PSC INC.
By:
--------------------------------
Its:
-------------------------------
-------------------------------------
Andy J. Storment
-97-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule Q1 2000
</LEGEND>
<CIK> 319379
<NAME> PSC Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<EXCHANGE-RATE> 1
<CASH> 4,077
<SECURITIES> 0
<RECEIVABLES> 43,121
<ALLOWANCES> 971
<INVENTORY> 27,515
<CURRENT-ASSETS> 77,650
<PP&E> 28,271
<DEPRECIATION> 27,201
<TOTAL-ASSETS> 226,226
<CURRENT-LIABILITIES> 49,431
<BONDS> 0
0
1
<COMMON> 122
<OTHER-SE> 48,754
<TOTAL-LIABILITY-AND-EQUITY> 226,226
<SALES> 61,439
<TOTAL-REVENUES> 61,439
<CGS> 37,869
<TOTAL-COSTS> 24,791
<OTHER-EXPENSES> (9)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,423
<INCOME-PRETAX> (4,489)
<INCOME-TAX> (1,339)
<INCOME-CONTINUING> (3,150)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,150)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
