SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 1995.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO .
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Commission file number 1-9348
QMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 63-0737870
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Magnum Pass, Mobile, Alabama 36618
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (334) 633-4300
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, $.01
par value per share New York Stock Exchange
Rights to purchase shares of Series A New York Stock Exchange
Participating Preferred Stock
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes XX No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. XX
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AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF NOVEMBER 27, 1995; APPROXIMATELY $39,630,764.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF NOVEMBER 27, 1995:
10,676,815
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR ITS ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD JANUARY 23, 1996 ARE INCORPORATED BY REFERENCE INTO
PART III.
PART I
ITEM 1. BUSINESS.
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General
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The Registrant designs and manufactures intelligent controllers which
enhance the graphics capabilities and performance of computer printing and
imaging systems. The Registrant incorporates its controllers, which consist
of software implemented on printed circuit boards, into computer printing and
imaging systems which it markets, sells and supports. The Registrant also
markets its controllers separately for incorporation into products marketed by
others.
The Registrant was incorporated under the laws of the State of Alabama in
1977 and reincorporated as a Delaware corporation in 1982. Its principal
executive offices are located at One Magnum Pass, Mobile, Alabama 36618, (334)
633-4300.
Products(1)
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The Registrant's principal products are intelligent nonimpact print systems
consisting of purchased print engines, proprietary hardware and software,
proprietary intelligent printer-to-computer interfaces and other components.
The Registrant also designs, markets and supports intelligent raster image
processors implemented as either proprietary software or hardware; proprietary
intelligent printer-to-computer interfaces to enable printers marketed by others
to perform specialized publishing applications; intelligent processors with
proprietary hardware, software and intelligent printer-to-computer interfaces to
enable impact printers marketed by others to produce graphics such as labels and
bar codes used in the automatic identification market segment; and intelligent
processors with proprietary hardware, software and intelligent interfaces to
perform specialized office functions including printing, copying, scanning and
faxing.
The majority of the Registrant's products support the functionality of
Adobe Systems Incorporated's PostScript(TM) page description language and
Hewlett Packard's PCL(R) page description language. The Registrant offers
products with PostScript Level 1 from Adobe as well as products with
UltraScript(TM), a QMS-developed PostScript interpreter that is compatible
with Adobe's PostScript Levels I and II. All but a small number of products
that support UltraScript also support the QMS-developed PCL5 page description
language.
(1) The following trademarks and registered trademarks of the Registrant are
used herein: QFORM(TM), CrownImage(TM), CrownNet(TM), CrownAdmin(TM), QMS(R),
magicolor(R), Crown(R), ColorScript(R) and MAGNUM(R). PostScript(TM) and
UltraScript(TM) are trademarks of Adobe Systems Incorporated, which may be
registered in certain jurisdictions, and PCL(R) is a registered trademark of
Hewlett Packard Company. IBM(R) is a registered trademark of
International Business Machines Corporation. Xerox(R) is a registered
trademark of Xerox Corporation. MacIntosh(R) is a registered trademark
of Apple Computer, Inc.
The nonimpact printing products marketed by the Registrant address the
printing needs of customers in electronic publishing, general business,
automatic identification, scientific and engineering environments. The
Registrant's nonimpact printing products include both color and monochrome
printer systems with a variety of speeds, paper-handling and performance
characteristics.
The Registrant's intelligent processor products are used in impact printers
for interfacing and industrial graphics applications and in nonimpact printers
for electronic publishing and document-processing applications.
The Registrant also markets accessories, add-ons and software for use with
its nonimpact printing systems and offers spare parts, fonts, consumables,
maintenance services and other support for its products.
The majority of the Registrant's new product offerings during fiscal 1995
were based on the Registrant's Crown(R) advanced document-processing technology,
which provides a combination of high-performance capabilities. RISC (Reduced
Instruction Set Computing) processors, support for multiple page description
languages, simultaneously active computer and network interfaces, and the
ability to differentiate the resident languages supported by a product and
switch between them without user intervention are among the features Crown
technology provides.
During fiscal 1995, the Registrant enhanced its product line by introducing
print systems with capabilities to support simultaneous network connectivity to
multiple protocol stacks. This capability, called QMS CrownNet(TM), is a
line of adapter cards and software which enhances the entire Crown product
line with additional connectivity in the IBM(R) OS/2 marketplace and
significantly enhances its support in the Novell Netware(R) arena. It also
provides superior performance to several other network options.
During fiscal 1995, the Registrant enhanced its product line by releasing a
number of enabling products consisting of, but not limited to: QFORM(TM), a
software package that allows QMS laser printers to replace line printers in
classic IS forms-based operations; AFP and UDK host software emulations, which
allow QMS laser printers to replace IBM and Xerox(R) legacy printers; and Crown
Administration, a software tool allowing management of networked QMS printers
from a central point and a high performance PostScript Level II printer driver
for both PC and MacIntosh(R) compatibility.
The Registrant also released a color copier option for the magicolor(R) LX
printers. This option allows scanning and printing of color documents. The
magicolor CX, a native 600 dpi (dots per inch) next generation color printer,
was also introduced. A 1200x1200 dpi monochrome printer, based on the already
released QMS 1660, was also introduced.
The CrownImage(TM) software released in fiscal 1995 enables QMS printers to
scan, store, change, retrieve and print documents utilizing an icon-driven,
user-friendly graphical interface. The scanners, printers, faxes and file
servers that are controlled by CrownImage on a networked basis allow each to be
physically located in non-contiguous areas.
Most of the Registrant's products provide high-resolution (600x600,
1200x600 and 1200x1200 dpi), large format laser printing (monochrome and/or
color), advanced document-handling features, optional network connectivity or a
combination of these features.
SALES AND MARKETING
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The market for the Registrant's products is related to the market for
computer systems generally. Current end users of the Registrant's products
include many Fortune 500 companies, governmental agencies and educational
institutions. In the United States, the Registrant sells its products primarily
through its direct sales channel and through resellers including national and
regional distributors and computer dealers.
As of September 29, 1995, the Registrant operated direct sales offices in
28 cities in 20 states.
During fiscal 1995, wholly owned subsidiaries of the Registrant operated in
Europe, Canada, Australia and Japan. The Registrant, either directly or through
its international network, markets its products in approximately 68 countries
outside of the United States. Subsequent to the end of fiscal 1995, the
Registrant sold its subsidiaries in Europe and Australia, and also sold the
assets of its subsidiary in Japan. The Registrant signed master distributor
agreements with the purchasers so that the Registrant's products will continue
to be marketed in these countries.
The Registrant's 10 largest customers accounted for an aggregate of
approximately 26% of total net sales during fiscal 1995. During fiscal 1995, no
single customer accounted for more than 10% of the Registrant's total net sales.
The Registrant's products are advertised in the United States and
international markets and exhibited at industry trade shows in the United States
and internationally under the Registrant's name and under the names of its
wholly owned subsidiaries. The Registrant also provides field sales support,
including training for customers and resellers, trade show exhibits, sales
training and assistance to sales representatives to facilitate sales. The
Registrant believes that this support has been well-received by its customers
and sales organizations and has assisted the Registrant in the introduction of
new products.
INTERNATIONAL OPERATIONS
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In fiscal 1993, 1994 and 1995, international sales totaled $128,782,000,
$135,532,000 and $132,130,000, respectively, representing approximately 43%, 46%
and 51%, respectively, of the Registrant's net sales. The Registrant derives
its international sales primarily from Western Europe, Canada, the United
Kingdom, Scandinavia, Australia and Japan. To a lesser degree, international
sales have been generated in various Far Eastern and Pacific Rim countries (in
addition to Japan) and in Central and South America. The Registrant generally
invoices customers in their local currency and therefore is exposed to currency
translation risks.
In terms of the cost of goods sold of components used in the Registrant's
products, the Registrant purchases a substantial majority of such components
abroad, primarily from Japanese companies. Accordingly, the cost of such
components may increase as the value of the United States dollar depreciates
relative to the currency of the source country.
The financial statements of the Registrant's foreign subsidiaries are
affected by foreign currency fluctuations. For financial information regarding
the Registrant's foreign and domestic operations and export sales, see Notes 1
and 14 of Notes to the Registrant's Consolidated Financial Statements under Item
8 (Financial Statements and Supplementary Data).
SERVICE, SUPPORT AND WARRANTY
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The Registrant provides a high level of technical and software support and
maintenance service and support to its end users directly and through
distributors, resellers and third party service providers. A staff of engineers
and technicians provides systems applications support, field service support and
customer training for the use and maintenance of the Registrant's products. In
the United States, the Registrant provides technical hardware and software
support and maintenance service from its home office in Mobile, Alabama, and
from field offices located in 53 cities in 32 states. Technical support is
provided via telephone and electronic bulletin boards while a national service
organization provides choices of return to depot or factory, on site and special
contractual service. In fiscal 1995, the Registrant provides international
technical service in Europe from its office located in Utrecht, the
Netherlands, and in Australia and Canada. In Canada, the Registrant provides
service through its direct service organization as well as through certain
authorized dealers. (See Sales and Marketing regarding the sale of the
Registrant's subsidiaries in Europe, Australia and Japan.)
The Registrant warrants its products for a period of 90 days to 2 years
from the date of shipment, depending on the product. The Registrant's annual
warranty costs have not been significant relative to the Registrant's net sales.
COMPETITION
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Competition in the computer printing industry is extremely intense and a
number of the Registrant's competitors have far greater financial, technical,
marketing and manufacturing resources than the Registrant. Management believes
that performance, reliability, versatility of features, product support and
price are the primary bases of competition in this market. Further, in some of
its markets, the Registrant competes against noncomputerized means of labeling
products, such as offset printing. The Registrant would be adversely affected
if its competitors successfully marketed products that were technologically
superior or significantly lower in price.
The Registrant's intelligent print systems are positioned to compete in the
low- and medium-speed, nonimpact page printer market. Nonimpact laser printing
competes with other technologies in the computer printer market, including
inkjet, dye sublimation, ion disposition, magnetic, thermal and impact printers.
Companies whose nonimpact printers compete with the Registrant's include Apple
Computers Inc., Canon, Inc., Oki Electric Industry Company, Ltd., Digital
Equipment Corporation, Hewlett-Packard Company, Lexmark International, Inc., NEC
Technologies, Inc., Seiko Epson Corp., Tektronix, Inc. and Xerox Corporation.
Many of these competitors are larger companies with greater financial resources
than those of the Registrant.
MANUFACTURING AND QUALITY CONTROL
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The Registrant assembles its intelligent processors by adding components to
printed circuit boards manufactured according to its designs and specifications.
Essentially, the Registrant manufactures its products by assembling components
and subassemblies manufactured by others. The intelligent processors, which
include electronic circuitry and software designed by the Registrant, are tested
to assure quality and consistency of production and design.
Most of the parts, components and subassemblies used in the Registrant's
products are available to the Registrant from a variety of sources. When
management determines that a particular supplier is sufficiently reliable,
however, the Registrant generally chooses to rely on a single source for its
requirements in order to ensure a sufficient supply to meet its needs. If the
Registrant were required to change its sources of certain of those materials
unexpectedly, the Registrant might be adversely affected during the time it
would take to negotiate new arrangements with another vendor and to integrate
those materials into its production process. See "Print Engines" below.
During fiscal 1995, the Registrant performed manufacturing and assembly
operations in Mobile, Alabama; Utrecht, the Netherlands; and Utsunomiya, Japan.
(See Sales and Marketing regarding the sale of the Registrant's subsidiaries
in Europe, Australia and Japan.)
One of the Registrant's wholly owned subsidiaries manufactures prototype
printed circuit boards for the Registrant and for sale to third parties. This
subsidiary has provided the Registrant with partial vertical integration in the
production of printed circuit boards. The Registrant is currently seeking to
sell this subsidiary; however, no agreement with any potential buyer has been
reached.
In addition to in-house manufacturing, the Registrant routinely contracts
with certain vendors to manufacture high-volume, standard products.
ORDER BACKLOG
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Only firm purchase orders are included in the Registrant's backlog.
Backlog generally is deliverable within 12 months from the date of the purchase
orders. As of September 30, 1994 and September 29, 1995, backlog consisted of
orders to purchase $8,577,000 and $7,129,000, respectively, of QMS products and
services. These figures include orders generated by the Registrant's
international operations. The Registrant expects to fill all of the September
29, 1995 backlog during fiscal 1996.
The Registrant attempts to maintain adequate finished goods inventory to
ship goods off the shelf whenever possible. Because a substantial portion of
the sales in any given month historically has been derived from new orders
received during the month, backlog is not necessarily an accurate indicator of
future revenues. The Registrant does not believe that sales of its products are
subject to significant seasonal fluctuations.
PRINT ENGINES
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The Registrant purchases substantially all of the print engines for its
products from third-party manufacturers. The Registrant has agreements to
purchase print engines for its products from Canon U.S.A., Inc. The Registrant
also purchases print engines from other vendors, including Ricoh Company, Ltd.,
Hitachi America, Ltd., Fujitsu America, Inc., Minolta Co., Ltd. and Oce'-
Nederland B.V. While other sources are available, the Registrant currently
relies on these suppliers' abilities to make print engines available as needed
by the Registrant. Some of these print engines are supplied to the Registrant
pursuant to the terms of contracts entered into which specify prices to be paid
for each print engine depending upon the annual volume of print engines
purchased from that manufacturer. Certain of the Registrant's supply contracts
with foreign manufacturing sources are subject to adjustment for exchange rate
fluctuations.
The Registrant believes that its requirements for print engines for fiscal
1996 will be adequately met under the terms of existing arrangements and those
expected to be entered into in fiscal 1996. The Registrant has some flexibility
to adjust delivery schedules and quantities as demand for specific print engines
changes as a result of changes in product mix and customer demand. Although
print engines are available from a variety of sources, most of the Registrant's
print engines are supplied by Hitachi America, Ltd. and Minolta Co., Ltd.
Consequently, disruption of the Registrant's contracts with these suppliers
would adversely affect the Registrant during the time required to negotiate new
arrangements with a different print engine supplier or suppliers and to bring
the new product to market.
RESEARCH AND DEVELOPMENT
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The Registrant's research and development program examines new technologies
as they relate to current product offerings, develops new and improved
applications for the Registrant's products and provides insights into new
directions for the Registrant's business.
The Registrant places significant emphasis on the addition of new features
for its nonimpact print systems and enhancement of these systems to satisfy new
applications. The Registrant solicits and receives continuing advice from its
end users and various resellers in identifying appropriate additions. To
augment in-house development efforts, the Registrant also contracts with third
parties to develop products to its specifications or to license applications and
other software. In addition, the Registrant assists certain software design
firms in adapting their existing software for use with the Registrant's
products.
As of September 29, 1995, approximately 13.6% of the Registrant's employees
were employed in its research and development department. During fiscal 1993,
1994 and 1995, the Registrant spent approximately $17,810,000, $15,960,000 and
$16,932,000, respectively, for research and development and software costs and
received no customer-sponsored funding for research and development. In fiscal
years 1993, 1994 and 1995, approximately $8,803,000, $7,056,000 and $7,096,000,
respectively, of the software costs for those fiscal years were capitalized in
accordance with Financial Accounting Standards (FAS) Statement No. 86.
PATENTS AND TRADEMARKS
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The Registrant currently holds United States patents on certain of its
products; however, most of the Registrant's revenue is derived from products for
which there is no patent protection. Because of rapid technological changes in
the computer industry in general and in the electronic printing industry in
particular, the Registrant does not believe that patents offer a significant
degree of protection for most products and technological advances. The
Registrant's strategy for maintaining its competitive position is to continue to
emphasize product research and development, coupled with a high level of
customer support.
The Registrant has obtained registration of many of its trademarks, and
applications pending on others, in the United States and other countries.
ENVIRONMENTAL MATTERS
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Management believes the Registrant is in compliance in all material
respects with applicable federal, state and local statutes and ordinances
regulating the discharge of materials into the environment. Management does not
believe the Registrant will be required to expend any material amounts in order
to remain in compliance with these laws and regulations or that compliance will
materially affect its capital expenditures, earnings or competitive position.
EMPLOYEES
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As of September 29, 1995, the Registrant employed 980 permanent employees
in the United States. During fiscal 1995, the Registrant had four foreign
operating subsidiaries employing an aggregate of 214 permanent employees: QMS
Europe B.V., with sales and support organizations in the Netherlands and in
offices in Germany, France, the United Kingdom and Sweden, employing a total of
99 permanent employees; QMS Canada, Inc., with sales and support organizations
in Calgary, Montreal, Ottawa, Quebec City, Toronto and Vancouver, employing a
total of 60 permanent employees; QMS Australia, with sales and support
organizations in Melbourne and Sydney, employing a total of 16 permanent
employees; and QMS Japan, Inc., with sales and support organizations in Tokyo
and Utsunomiya, employing a total of 39 permanent employees. (See Sales and
Marketing regarding the sale of the Registrant's subsidiaries in Europe,
Australia and Japan.)
Management believes that much of its future success depends on its ability
to attract and retain skilled personnel. The Registrant has implemented a Cash
or Deferred Retirement Plan and maintains stock option plans for officers and
key employees.
The Registrant's employees are not subject to collective bargaining
agreements and there have been no work stoppages due to labor difficulties.
Management of the Registrant believes that its relations with its employees are
good.
ITEM 2. PROPERTIES.
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The Registrant's headquarters facilities cover an aggregate of 117,000
square feet, of which 50,000 square feet are used for product research and
development. The Registrant's primary manufacturing and warehousing facility
covers 152,000 square feet. Both of these facilities are located on 20 of the
77 acres owned by the Registrant in Mobile, Alabama. The Registrant rents
approximately 4,060 additional square feet of warehousing and office space in
the Mobile area.
In Fort Walton Beach, Florida, one of the Registrant's subsidiaries owns
and operates a 35,000 square foot facility on ten acres of land. During fiscal
1995, the Registrant and its other subsidiaries leased additional space in
United States cities in which the Registrant operated sales and/or service
offices, as well as in France, the Netherlands, Sweden, Germany, the United
Kingdom, Canada, Australia and Japan. In San Jose, California, the Registrant
conducts sales, service and engineering operations in a 13,295 square foot
leased facility. (See Sales and Marketing regarding the sale of the
Registrant's subsidiaries in Europe, Australia and Japan.)
The Registrant's properties are utilized approximately five and one-half
days per week, with no significant underutilization of facilities. The
Registrant believes that its owned and leased properties are sufficient for its
current and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
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The Registrant is a defendant in various litigation in the normal course of
business. Based on consultation with various counsel in these matters,
management is of the opinion that the ultimate resolution of such claims will
not materially affect the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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MARKET PRICE AND DIVIDEND INFORMATION
The Company's common stock is listed on the New York Stock Exchange under the
ticker symbol "AQM." The table below sets forth the per share quarterly high
and low closing prices of QMS common stock for the fiscal years ended September
29, 1995 and September 30, 1994. No cash dividends were declared in either of
the last two fiscal years and the Board of Directors has no present intention to
pay cash dividends in the foreseeable future. The new credit facility contains
provisions which may restrict the payment of dividends. There were 1,693
holders of record of the Company's common stock at November 27, 1995.
<TABLE>
<CAPTION>
1995 1994
Fiscal Quarter High Low High Low
<S> <C> <C> <C> <C>
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First $10 1/2 $7 7/8 $11 3/4 $8 5/8
Second 9 3/8 5 1/4 9 7/8 7 7/8
Third 6 3/8 5 8 1/4 7
Fourth 6 3/8 4 10 3/4 6 7/8
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
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<TABLE>
FIVE-YEAR SUMMARY - FINANCIAL AND OTHER DATA
For the fiscal years ended September 29, 1995, September 30, 1994,
October 1, 1993, October 2, 1992 and September 27, 1991
<CAPTION>
Dollars in thousands, except
per share amounts 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Operating results
Net sales $ 259,740 $ 292,688 $ 297,380 $ 260,691 $ 304,266
Cost of sales 210,032 196,538 201,804 168,431 192,182
Marketing and selling expense 47,066 48,812 48,702 42,816 38,897
Research and development expense 9,836 8,904 9,018 10,885 9,064
General and administrative expense 29,308 31,156 39,246 37,983 33,764
Restructuring expense 8,364 0 0 0 0
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Operating income (loss) (44,866) 7,278 (1,390) 576 30,359
Interest income 171 80 756 468 600
Interest expense (4,113) (3,235) (3,342) (3,037) (3,768)
Divestitures of businesses 3,675 0 0 0 0
Miscellaneous income (expense) 847 (83) (946) (2,384) (211)
----------------------------------------------------------------------------
Income (loss) before income taxes (44,286) 4,040 (4,922) (4,377) 26,980
Income tax provision (benefit) 0 1,080 (1,526) (1,444) 8,903
----------------------------------------------------------------------------
Net income (loss) $ (44,286) $ 2,960 $ (3,396) $ (2,933) $ 18,077
============================================================================
Earnings (loss) per common share
Primary $ (4.15) $ 0.28 $ (0.31) $ (0.27) $ 1.60
Fully diluted (4.15) 0.28 (0.31) (0.27) 1.59
Weighted average number of shares
(in thousands)
used in computing earnings per share:
Primary 10,677 10,723 10,792 10,994 11,275
Fully diluted 10,677 10,761 10,821 10,994 11,386
Balance sheet
Total assets $ 135,538 $ 182,023 $ 170,217 $ 168,007 $ 170,226
Net working capital 35,511 79,390 78,359 73,961 80,907
Long-term debt obligations 26,974 35,687 41,527 31,424 21,780
Stockholders' equity 43,213 89,002 85,729 89,419 97,688
Other data
Current ratio 1.55 2.44 2.82 2.59 2.66
Gross profit margin 19.1% 32.9% 32.1% 35.4% 36.8%
Net profit (loss) margin (17.1)% 1.0% (1.1)% (1.1)% 5.9%
Return on average stockholders' equity (67.0)% 3.3% (3.9)% (3.1)% 20.6%
Persons employed at year end 1,194 1,382 1,425 1,584 1,538
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Fiscal Years 1995, 1994 and 1993 Compared
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GENERAL
The Company expected a level of operating improvement in fiscal 1995; instead,
the year resulted in the largest loss in the Company's history. The losses put
the Company under extreme cash flow pressure because the need for cash increased
and the Company's borrowing capacity was constrained. During the year, the
Company recorded special and restructuring charges in both the second and the
fourth quarters. The elements and impact of the charges are discussed below.
Additionally, many changes in the Company's structure were effected in order to
generate cash and to put the Company in a position to return to profitability.
On August 23, 1995, the Company announced its intention to sell or liquidate
operational assets in Europe and Japan as part of its business strategy for
fiscal 1996. In this regard, the Company reached agreement with Jalak
Investments BV for the purchase of all of the common shares of QMS Europe BV and
QMS Australia Pty Ltd. Jalak Investments BV was formed by Peter van Schaick,
who previously was co-managing director for QMS Europe BV. The sale was
consummated on October 17, 1995, and will result in net proceeds to the Company
of over $10 million. As part of the same transaction, the Company signed an
exclusive master distributor agreement with QMS Europe BV (now owned by Jalak
Investments BV) to continue marketing QMS products under the QMS name throughout
Europe, the Middle East, India, Africa, Australia and New Zealand. The
agreement with the new QMS Europe BV calls for commission payments to the
Company on all sales of QMS products by QMS Europe BV.
On September 25, 1995, the Company sold a portion of its consumables business to
International Imaging Materials, Inc. (also known as IIMAK), resulting in net
proceeds of over $5 million. Under the agreement, IIMAK has the right to sell
color thermal printer ribbons, paper and transparencies to QMS customers in
North and South America. These consumables are used with the discontinued QMS
ColorScript(R) line of printers. QMS retains all of its other consumables
business relating to its monochrome and color laser printer models.
On December 8, 1995, the Company sold the majority of the assets of its wholly
owned subsidiary to a new company that will also be known as QMS Japan KK. The
new company purchased most of the assets of the former subsidiary of QMS,
assumed most of the liabilities and will continue to market QMS products under
an exclusive master distributor agreement. The new QMS Japan KK was formed by
Yoji Kawai, formerly the president and general manager of the QMS subsidiary in
Japan. QMS Japan KK will pay commissions to the Company based on all sales of
QMS products into a defined exclusive territory, which includes Japan, South
Korea, China, Hong Kong, Singapore and other Asian countries.
With these cash generation transactions accomplished or agreed to in principle,
the Company was able to enter into a new credit facility with Foothill Capital
Corporation on November 7, 1995. Proceeds from the new credit facility were
used to repay in full all amounts owed by the Company to its bank lending group
and to repay portions of other long-term debt that existed at the end of fiscal
1995. The new credit facility also provides the Company with new working capital
borrowing capacity and is more fully described in Note 7 to the Company's
Consolidated Financial Statements and below.
Going forward, the Company will seek to leverage a reduced operating expense
structure to profitability through focus on technologies, products, channels and
services that produce sustainable, improved gross margins. The Company's
strategic plan is to focus on high-margin networkable laser print systems, color
laser printers, consumables and service.
NET SALES
<TABLE>
TABLE OF NET SALES COMPARISONS FOR KEY CHANNELS
<CAPTION>
YEAR-TO-YEAR
NET SALES INCREASES/(DECREASES)
----------------------------------------------- ------------------------------
(IN THOUSANDS) 1995 1994 1993 1995 1994
- ------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
U.S. DIRECT $73,047 $85,835 $65,831 $(12,788) $20,004
U.S. SERVICE 31,564 28,393 27,725 3,171 668
U.S. RESELLER 15,162 33,374 64,334 (18,212) (30,960)
QMS EUROPE 81,916 78,572 81,409 3,344 (2,837)
QMS JAPAN 30,876 31,743 18,210 (867) 13,533
QMS CANADA 12,860 18,187 18,974 (5,327) (787)
QMS AUSTRALIA 6,475 7,437 8,932 (962) (1,495)
QMS CIRCUITS 3,851 3,438 3,625 413 (187)
ALL OTHER 3,989 5,709 8,340 (1,720) (2,631)
---------------------------------------------- ------------------------------
TOTAL $259,740 $292,688 $297,380 $(32,948) $(4,692)
============================================== ==============================
</TABLE>
The U.S. direct sales and service channel sells the higher end of the Company's
product offerings and consumables to major corporate accounts and supports those
sales with nationwide service capability. Generally, product gross margins and
the cost of distribution are higher in this channel than in the reseller
channel. During fiscal 1995, the U.S. direct sales operations resulted in a net
sales decrease of 14.9%, after having increased by 30% in fiscal 1994. The
Company has identified this change in revenue from U.S. direct sales as the
single most important cause of the Company's poor financial performance in
fiscal 1995. Instability in marketing and sales management led to inconsistent
strategies and focus. The Company considers success in this area of its
business to be of utmost importance, and accordingly has restructured the
Company to focus on delivering high-end, departmental and shared resource
networking products to the market through this channel. The U.S. service
business experienced a net sales gain in fiscal 1995 of 11%, after a 2.4%
increase in fiscal 1994. Revenues from U.S. service are dependent to a great
degree on an increasing installed base of printers sold by the U.S. direct sales
channel. Additionally, the Company's U.S. service organization has begun to
service products that were sold by other manufacturers, taking advantage of
printer engine knowledge and geographic dispersion.
The U.S. reseller channel is responsible for attracting and qualifying resellers
of the lower end of the Company's product line. Generally, gross margins and
distribution costs are lower in this channel than in the direct channel. The
U.S. reseller channel experienced a decline in net sales of printer products in
fiscal 1995 of nearly 54.6%, after a net sales decrease of 48% in fiscal 1994.
During fiscal 1995 and fiscal 1994, the U.S. reseller channel product mix was
under extreme competitive pressure which resulted in lower sales volume and
continued price erosion. Additionally, instability in sales and marketing
management led to inconsistent strategies. The performance in the U.S. reseller
channel improved during the fourth quarter of fiscal 1995 as sales of the QMS
magicolor LX improved. On September 25, 1995, the Company introduced the QMS
magicolor CX color laser print system. This product offers several new features,
including new color screening technology, improved color management tools and
microfine toner. These features result in higher image quality and should
improve revenue generated in the U.S. reseller channel in fiscal 1996. This
product fits well with the Company's sales and marketing strategies for 1996
because a significant consumables business follows the printer sales.
QMS Europe BV and QMS Australia Pty Ltd were sold to Jalak Investments BV
subsequent to the end of the fiscal year (as described previously). During
fiscal 1995, QMS Europe BV experienced a net sales increase of 4.3% and QMS
Australia had a sales decline of nearly 13%. In fiscal 1996, the Company will
continue to sell component parts and controller boards to QMS Europe under a
master distributor agreement and the Company will also receive a commission from
QMS Europe on all sales of QMS-branded products. The result will be a
significant decrease in the sales revenue recognized by the Company, but the
arrangement will also eliminate the entire operating expense structure of QMS
Europe BV.
QMS Japan KK was sold subsequent to the end of fiscal 1995 (as described
previously). During 1995, QMS Japan sold primarily the lower end of the
Company's product offerings to distributors in Japan and Southeast Asia ("SEA").
QMS Japan began management of the SEA portion of the Company's business during
fiscal 1994, when the Company closed its Hong Kong office. The Company has made
a significant development commitment to the special language requirements for
the Japanese market. During fiscal 1995, QMS Japan experienced a small revenue
decline after having increased net sales by 74% in fiscal 1994. New competition
forced sales price erosion for low-end monochrome products. In fiscal 1996, the
Company will continue to sell component parts and controller boards to QMS Japan
KK under a master distributor agreement, and the Company will also receive a
commission from QMS Japan KK on all sales that they make of QMS-branded
products. The result will be a significant decrease in the sales revenue
recognized by the Company, but the arrangement will also eliminate the entire
operating expense structure of QMS Japan KK.
QMS Canada, Inc., a wholly owned subsidiary headquartered in Montreal, sells the
entire line of Company products, including service and accessories, directly to
end users and also through resellers. Net sales for QMS Canada declined by 29%
in 1995 and by 4% in 1994. The primary reason for the decline in 1995 was
competitive pressure, which resulted in lower sales volume and price erosion.
QMS Circuits, Inc., a wholly owned subsidiary based in Fort Walton Beach,
Florida, manufactures and markets printed circuit boards for the Company and for
third-party sales. During fiscal 1995, 1994 and 1993, the Company also sold
Magnum(R) controller boards, controller-level products to original equipment
manufacturers and printer products into Latin America.
GROSS PROFIT
The significant decline in gross profit dollars in fiscal 1995, a total of $46.4
million, has three main components. 1) Special charges of $18.1 million
related to inventory obsolescence and the write-off of certain software costs
incurred in connection with the implementation of the Company's strategic plan
(as described under General above). These special charges relate primarily to
low-end products that are not a part of the Company's primary focus going
forward. 2) The significant volume declines in the U.S. direct and U.S.
reseller channels (as described under Net Sales above), as well as price
erosion, resulted in lower gross profit in fiscal 1995 of approximately $18
million. 3) The volume decreases in Japan and Canada described above resulted
in less gross profit in fiscal 1995 of $5.4 million. Gross profit dollars
increased slightly in fiscal 1994 despite the fact that sales were lower than in
fiscal 1993. Gross profit as a percentage of sales improved to 32.9% in fiscal
1994 from 32.1% in fiscal 1993. The gross profit percentage improvement
reflects a higher percentage of total sales being generated through the U.S.
direct channel in fiscal 1994 where the higher end of the Company's product
offering is sold directly to end users. Going forward, the Company's new
strategic focus and the method of doing business in Europe and Japan are
intended to result in higher gross margin percentages of sales than were
experienced in fiscal 1995.
OPERATING EXPENSES
Operating expenses, excluding restructuring charges, totaled $86.2 million in
fiscal 1995, approximately 3% less than the fiscal 1994 operating expense level;
however, due to the reduction in sales, these operating expenses were 33.2% of
sales, up from 30.4% in fiscal 1994. The Company implemented workforce
reductions in both the second and the fourth quarters of fiscal 1995 that
resulted in headcount reductions totaling 175 people. The Company's total
headcount after the reductions and after the change in corporate structure from
the divestiture of its businesses in Europe, Australia and Japan is 942, down
from 1,194 at fiscal 1995 year end. As part of the Company's operating plan for
1996, management performed an exhaustive review of operating expenses throughout
the Company and made reductions in every functional area, including a reduction
in executive and senior management salaries and perquisites, reductions in the
costs of employee benefits, the sale of the Company aircraft and many other
items. Management will continue to emphasize cost containment. During fiscal
1994, operating expenses were contained at $88.9 million, a decrease of $8.1
million compared to fiscal 1993. Fiscal 1993 operating expenses included a
charge of approximately $3 million as a result of reducing the Company's work
force by about 12% and the consolidation of several of the Company's leased
facilities around the world. Excluding this charge, operating expenses were $94
million in fiscal 1993.
Research and development expenses increased by 10.4% in fiscal 1995 and were
essentially the same in fiscal 1994 as they were in fiscal 1993. Capitalized
software costs amounted to $7.1 million, $7.1 million and $8.8 million for
fiscal 1995, 1994 and 1993, respectively. Management continues to believe that
investment in product research and development is critical to the Company's
future growth and competitive position in the marketplace, and is directly
related to continued, timely development of new and enhanced products.
RESTRUCTURING CHARGES
During fiscal 1995, restructuring charges, as part of the Company's cost
reduction effort, totaling approximately $8.4 million were recorded to recognize
costs associated with salary continuation and outplacement services ($3.7
million), the write-off of certain fixed assets and facility lease obligations
($2.4 million), and the write-down of the Company's investment in QMS Japan
($2.3 million). The subsequent sale of QMS Japan in early December 1995 did not
result in additional losses.
OTHER INCOME (EXPENSE)
Interest expense increased by 27% in fiscal 1995 and was approximately the same
amount in fiscal 1994 and fiscal 1993. In fiscal 1995, the Company's borrowing
needs grew because of the operating losses. The net gain on divestitures of
businesses (see Note 18 to the Company's Consolidated Financial Statements)
includes a loss on the sale of the Europe and Australia entities (approximately
$2 million) and a gain on the sale of a portion of the Company's consumables
business (approximately $5.7 million). Miscellaneous income (expense) includes
a gain on the sale of the Company aircraft (approximately $517,000) and a net
gain on foreign currency transactions (approximately $400,000).
The Company did not enter into any material foreign exchange contracts in fiscal
1995 or in fiscal 1994. In fiscal 1993, the Company entered into foreign
exchange contracts against forecasted European sales in local currencies to
minimize, or offset, the risk of exchange rate fluctuations. In fiscal 1993,
net foreign currency gains under these contracts were $343,362.
INCOME TAX
For fiscal 1995, no benefit or provision for income taxes was recognized. A
provision of 26.7% of pretax income was recognized for fiscal 1994, and a
benefit of 31% of pretax loss was recognized for fiscal 1993. Effective
October 3, 1992, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." The adoption of this standard
had no material impact on the consolidated financial statements for fiscal 1993.
Recent audits by tax authorities in Japan, the Netherlands, Canada and the U.S.
were all resolved with no adverse tax consequences. Fiscal years 1993 and
forward are still subject to review.
FACTORS WHICH MAY AFFECT FUTURE RESULTS
The Company's products include components, primarily microprocessors and dynamic
random-access memory devices, which from time to time are sensitive to market
conditions that result in limited availability and/or extreme price
fluctuations. An interruption in the supply of or significant changes in price
for these components could have an adverse effect on the Company's operating
results. The Company purchases significant quantities of print engine
mechanisms from Japanese suppliers. An appreciation of the value of the yen to
the dollar results in higher prices, which can be mitigated through yen-sharing
arrangements with suppliers, foreign exchange contracts and price negotiations;
however, severe price increases could develop which would adversely affect
operating results.
Because the Company competes in an industry of rapid technological advance, it
is important that the Company be able to develop new products in a timely, cost-
effective manner. The Company has invested significantly in its Crown advanced
document processing technology which, in addition to providing significantly
improved functionality, is intended to reduce the time it takes to develop
products. New product introduction delays could, however, have an adverse
impact on operating results.
These factors, including increasingly competitive pressures in the Company's
markets, along with others that may affect operating results, mean that past
financial performance may not be a reliable indicator of future performance.
Investors should not use historical trends to anticipate results or trends in
future periods. In addition, the Company participates in a highly dynamic
industry, which can result in significant volatility of the Company's common
stock price.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $7.4 million at September 29, 1995, compared to
$5 million and $3.6 million at the end of the two previous years. The cash flow
from operations was $12.4 million for fiscal 1995, compared to $23.2 million in
fiscal 1994 and $3.1 million in fiscal 1993. The Company's financing for fiscal
1995 and 1994 came principally from cash flows from operations, capital leases
and a secured revolving credit agreement. In addition, during fiscal 1995, cash
flows of $5.7 million came from the sale of the ink roll consumables business
and $7.8 million from short-term bank borrowings. During fiscal 1993, the
Company's financing came principally from borrowings under a secured revolving
credit agreement.
The Company's working capital was $35.5 million at September 29, 1995, down from
$79.4 million at the end of fiscal 1994 and $78.4 million at the end of fiscal
1993. The reduction of $43.9 million during fiscal 1995 is principally due to
reducing net inventories by $22.3 million, net trade accounts receivable by
$13.7 million and acquiring new short-term bank borrowings of $7.8 million.
During fiscal 1995, the Company reduced its total long-term debt levels to $24.5
million, down from $34.3 million in fiscal 1994. Bank borrowings under the
Company's secured revolving credit agreements were reduced to $17.8 million at
the end of fiscal 1995, compared to $23.2 million at the end of fiscal 1994.
Senior secured notes payable were reduced from $15.1 million at the end of
fiscal 1994 to $10.9 million at the end of fiscal 1995. These reductions were
directly related to the Company's efforts to refinance its short- and long-term
indebtedness, as discussed more fully below.
At September 29, 1995, the Company was not in compliance with certain covenants
in its credit agreements. As members of the bank group had expressed a desire
to exit the credit facility, management entered into negotiations to establish a
new credit agreement. On November 7, 1995, the Company entered into a new loan
arrangement with Foothill Capital Corporation. Proceeds from the new loan
arrangement were used to repay in full all amounts owed by the Company to its
bank lending group and to repay portions of other long-term debt that existed at
the end of fiscal 1995. The new loan arrangement also provides the Company with
additional working capital borrowing capacity and is more fully described in
Note 7 to the Company's Consolidated Financial Statements.
Management believes that the Company's fiscal 1996 working capital and capital
expenditure needs, as well as funding for research and development, will be met
by cash flow from operations and by the new financing arrangement.
INFLATION
Inflationary factors have not had a significant effect on the Company's
operations in the past three years. A significant increase in inflation would
adversely affect the Company's operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
- ---------------------------------------------------
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the fiscal years ended September 29, 1995, September 30, 1994 and October 1, 1993
<CAPTION>
Dollars in thousands, except per share amounts 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Printers and supplies $ 228,176 $ 264,295 $ 269,655
U.S. service 31,564 28,393 27,725
------------------------------------------------------
Total net sales 259,740 292,688 297,380
Cost of sales
Printers and supplies 191,010 180,397 186,523
U.S. service 19,022 16,141 15,281
------------------------------------------------------
Total cost of sales 210,032 196,538 201,804
Gross profit
Printers and supplies 37,166 83,898 83,132
U.S. service 12,542 12,252 12,444
------------------------------------------------------
Total gross profit 49,708 96,150 95,576
------------------------------------------------------
Operating expenses
Marketing and selling 47,066 48,812 48,702
Research and development 9,836 8,904 9,018
General and administrative 29,308 31,156 39,246
------------------------------------------------------
Total 86,210 88,872 96,966
Restructuring expenses 8,364 0 0
------------------------------------------------------
Total operating expenses 94,574 88,872 96,966
------------------------------------------------------
Operating income (loss) (44,866) 7,278 (1,390)
------------------------------------------------------
Other income (expense)
Interest income 171 80 756
Interest expense (4,113) (3,235) (3,342)
Divestitures of businesses 3,675 0 0
Miscellaneous income (expense) 847 (83) (946)
-------------------------------------------------------
Total 580 (3,238) (3,532)
-------------------------------------------------------
Income (loss) before income taxes (44,286) 4,040 (4,922)
Income tax provision (benefit) 0 1,080 (1,526)
-------------------------------------------------------
Net income (loss) $ (44,286) $ 2,960 $ (3,396)
=======================================================
Earnings (loss) per common share
Primary and fully diluted $ (4.15) $ 0.28 $ (0.31)
Weighted average number of shares (in thousands)
used in computing earnings (loss) per common share
Primary 10,677 10,723 10,792
Fully diluted 10,677 10,761 10,821
</TABLE>
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
For the fiscal years ended October 1, 1993,
September 30, 1994 and September 29, 1995
<CAPTION>
Common Stock Treasury Stock
------------ --------------
Additional Foreign
Shares Paid-In Retained Number of Currency
Issued Amount Capital Earnings Shares Amount Translation
DOLLARS IN THOUSANDS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance October 2, 1992 11,832,806 $ 118 $ 39,857 $63,337 1,152,187 $ (13,236) $ (657)
Stock options exercised 132 (55,394) 423
Purchase of treasury shares 30,500 (306)
Translation adjustment (543)
Net loss (3,396)
------------------------------------------------------------------------------------------
Balance October 1, 1993 11,832,806 118 39,989 59,941 1,127,293 (13,119) (1,200)
Stock options exercised 1 (8,602) 66
Purchase of treasury shares 40,700 (287)
Translation adjustment 533
Net income 2,960
------------------------------------------------------------------------------------------
Balance September 30, 1994 11,832,806 118 39,990 62,901 1,159,391 (13,340) (667)
Stock options exercised 4 (3,400) 26
Translation adjustment (1,533)
Net loss (44,286)
------------------------------------------------------------------------------------------
Balance September 29, 1995 11,832,806 $ 118 $ 39,994 $18,615 1,155,991 $ (13,314) $ (2,200)
==========================================================================================
</TABLE>
- --------
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
<TABLE>
At September 29, 1995
and September 30, 1994
<CAPTION>
Dollars in thousands 1995 1994
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,431 $ 4,956
Trade receivables (less allowance for doubtful accounts
of $546 in 1995 and $504 in 1994) 37,721 51,462
Inventories, net 47,482 69,770
Other current assets 7,066 8,335
--------------------------------
Total current assets 99,700 134,523
Property, plant and equipment, net 26,721 30,826
Other assets, net 9,117 16,674
--------------------------------
Total $ 135,538 $ 182,023
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,586 $ 20,791
Short-term bank loans 7,764 0
Income taxes payable 0 641
Current maturities of long-term debt and capital lease obligations 4,990 5,099
Other current liabilities 34,849 28,602
--------------------------------
Total current liabilities 64,189 55,133
Long-term debt 24,511 34,340
Capital lease obligations 1,119 1,347
Deferred income taxes 1,162 2,201
Other liabilities 1,344 0
--------------------------------
Total liabilities 92,325 93,021
--------------------------------
Stockholders' equity
Preferred stock-authorized, 500,000 shares of no par value; none issued
Common stock-authorized, 50,000,000 shares of $.01 par value; issued,
11,832,806 shares in 1995 and 1994 118 118
Additional paid-in capital 39,994 39,990
Retained earnings 18,615 62,901
Treasury stock, at cost (1,155,991 shares in 1995 and
1,159,391 shares in 1994) (13,314) (13,340)
Foreign currency translation (2,200) (667)
---------------------------------
Total stockholders' equity 43,213 89,002
--------------------------------
Total $ 135,538 $ 182,023
================================
</TABLE>
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the fiscal years ended September 29, 1995,
September 30, 1994 and October 1, 1993
<CAPTION>
Dollars in thousands 1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (44,286) $ 2,960 $ (3,396)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation of property, plant and equipment 8,406 9,496 9,106
Amortization and write-off of capitalized and
deferred software and other 15,925 8,147 7,540
(Gain) loss from disposal of property, plant and equipment (521) 161 21
Provision for losses on accounts receivable 282 228 326
Provision for losses on inventory 19,132 5,388 8,923
Provision for restructuring expense 8,364 0 0
Gains from divestitures of businesses (3,675) 0 0
Foreign currency transactions 47 (165) 536
Changes in assets and liabilities which provided (used) cash:
Trade receivables 13,484 (11,301) 3,653
Inventories 3,149 (4,381) (17,881)
Other current assets 1,269 (1,409) (1,008)
Other assets (504) 373 (985)
Accounts payable (4,205) 9,725 (3,621)
Income taxes payable (641) 805 (2,759)
Other current liabilities (4,117) 935 3,185
Other liabilities 1,344 0 0
Deferred income taxes (1,039) 2,201 (525)
--------------------------------------------------------
Total adjustments 56,700 20,203 6,511
--------------------------------------------------------
Net cash provided by operating activities 12,414 23,163 3,115
--------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,107) (6,115) (8,188)
Additions to capitalized software costs (7,096) (7,056) (8,803)
Additions to deferred software costs (768) (836) (1,189)
Proceeds from disposal of property, plant and equipment 1,262 198 254
Proceeds from divestitures of business 5,675 0 0
--------------------------------------------------------
Net cash used in investing activities (6,034) (13,809) (17,926)
--------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt and capital lease obligations 723 0 21,000
Payments of long-term debt, including current maturities (9,708) (6,195) (9,483)
Payments of capital lease obligations, including
current maturities (1,181) (1,004) (1,036)
Proceeds from short-term debt 7,764 0 0
Proceeds from stock options exercised 30 67 555
Purchase of treasury stock 0 (287) (306)
--------------------------------------------------------
Net cash provided by (used in) financing
activities (2,372) (7,419) 10,730
--------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,533) (561) (423)
--------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,475 1,374 (4,504)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,956 3,582 8,086
--------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,431 $ 4,956 $ 3,582
========================================================
</TABLE>
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of QMS, Inc. and its wholly owned subsidiaries. All
material intercompany items have been eliminated.
FISCAL YEAR - The Company's fiscal year ends on the Friday closest to September
30. Fiscal 1995, 1994 and 1993 included 52 weeks.
CASH EQUIVALENTS - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost,
which includes materials, labor and production and material overhead, is
determined on the first-in, first-out basis. Market is based on replacement
cost or net realizable value, as appropriate.
PROPERTY, PLANT AND EQUIPMENT - Expenditures for property, plant and equipment,
major renewals, and betterments are capitalized at cost. Certain assets are
financed under lease contracts which have been capitalized. Aggregate lease
payments, discounted at appropriate rates, have been recorded as long-term debt,
the related leased assets have been capitalized, and the amortization of such
assets is included in depreciation expense.
Expenditures for maintenance, repairs and minor renewals are charged to expense.
When items are disposed of, the cost and accumulated depreciation are eliminated
from the respective accounts, and the resulting gain or loss is included in the
statement of operations.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets or the lease term, whichever is shorter.
REVENUE RECOGNITION - Sales of printers and supplies are recorded upon shipments
of products to customers provided that no significant vendor obligations remain
and collectibility of the resulting receivables is probable. Service revenue is
recognized at the time the services are provided or upon completion of certain
obligations under deferred service contracts.
WARRANTY POLICY - The Company warrants its products for a period of 90 days to 2
years from the date of shipment, depending on the product.
DEFERRED SERVICE REVENUES - Amounts billed for service contracts are credited to
deferred service revenue and reflected in revenues over the terms of the
contracts, which range up to three years.
DEFERRED SOFTWARE COSTS - Purchased computer software costs are amortized based
on current and future revenue for each product with an annual minimum
amortization equal to straight-line amortization over the remaining estimated
economic life of the product.
CAPITALIZED SOFTWARE COSTS - The Company capitalizes the qualifying costs of
developing proprietary software included in its products. Capitalization of
costs requires that technological feasibility has been established. Upon
completion of projects, amortization is determined based on the larger of the
amounts computed using (a) the ratio that current gross revenue for each product
bears to the total of current and anticipated future gross revenues for that
product or (b) the straight-line method over the remaining estimated economic
life of the product. Amortization adjustments are made to reflect net
realizable value.
Capitalized software costs for fiscal 1995, 1994 and 1993 totaled $7,096,000,
$7,056,000 and $8,803,000, respectively. For fiscal 1995, 1994 and 1993,
$13,853,000, $7,345,000 and $6,835,000, respectively, were charged as
amortization expense on completed projects, and were included in cost of
goods sold. For fiscal 1995 and 1993, amortization included net realizable
value adjustments of $4,639,000 and $86,850, respectively. The amortization
for fiscal 1994 includes no net realizable value adjustment.
RESEARCH AND DEVELOPMENT - The Company expenses research and development costs,
including expenditures related to development of the Company's software products
that do not qualify for capitalization.
INCOME TAX - In February 1992, the Financial Accounting Standards Board issued
the Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which was adopted by the Company, effective October 3, 1992. The
adoption of this Standard had no material effect on the Company's fiscal 1993
operations. Under this method, deferred tax liabilities and assets are
determined based on the difference between financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. (See Note 13.)
EARNINGS (LOSSES) PER COMMON SHARE - Earnings (losses) per common share are
computed based on the weighted average number of common and common equivalent
shares outstanding, as appropriate. Common equivalent shares result from the
assumed exercise of outstanding stock options that have a dilutive effect when
applying the treasury stock method.
FOREIGN CURRENCY TRANSLATION - The Company's subsidiary in Europe transacts a
significant amount of business in U.S. dollars. Accordingly, the U.S. dollar is
deemed to be the functional currency of this subsidiary, and all foreign
currency gains and losses are included in income currently.
The financial position and results of operations of the Company's other foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of such subsidiaries are translated using current
exchange rates. Revenues and expenses of such subsidiaries have been translated
at rates approximating the actual rates on the dates of the transactions.
Translation adjustments are included as a separate component of stockholders'
equity except for QMS Japan, for which a gain of approximately $2.3 million was
included in restructuring charges in fiscal 1995 as a component of the write-
down of the Company's investment in QMS Japan. (See Note 17.) Foreign currency
transaction gains (losses) are included as a component of miscellaneous income
(expense). (See Note 14.)
RECLASSIFICATIONS - Certain reclassifications have been made to fiscal 1994 and
1993 amounts to conform to the fiscal 1995 presentation.
NOTE 2 INVENTORIES
Inventories at September 29, 1995 and September 30, 1994 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Raw materials $ 11,709 $ 24,003
Work in process 3,152 5,842
Finished goods 43,453 46,733
Inventory reserve (10,832) (6,808)
------------------------------
$ 47,482 $ 69,770
==============================
</TABLE>
Inventory reserves are calculated based on specific identification of items that
are potentially excess or obsolete. Reserves are also recorded on a routine
basis due to rapid obsolescence of certain inventory items. The increase in
reserve is due to special charges against inventory (approximately $6.4 million)
taken in the fourth quarter of fiscal 1995 due to the change in the Company's
strategic focus, as described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NOTE 3 OTHER ASSETS
Other assets at September 29, 1995 and September 30, 1994 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Capitalized software costs, net $ 5,955 $ 12,982
Deferred software costs, net 659 977
Other 2,503 2,715
-----------------------------
$ 9,117 $ 16,674
============================
</TABLE>
Accumulated amortization of capitalized software costs amounted to $30,002,000
and $16,509,000 at September 29, 1995 and September 30, 1994, respectively.
Accumulated amortization of deferred software costs amounted to $3,143,000 and
$1,987,000 at September 29, 1995 and September 30, 1994, respectively.
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 29, 1995 and September 30, 1994 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 1,408 $ 1,408
Buildings and improvements 20,871 20,682
Machinery and equipment 38,853 42,365
Office furniture and equipment 8,073 8,425
-----------------------------
69,205 72,880
Less accumulated depreciation 42,484 42,054
-----------------------------
$ 26,721 $ 30,826
=============================
</TABLE>
NOTE 5 SHORT-TERM BANK BORROWINGS
Short-term bank borrowings at September 29, 1995 and September 30,
1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Unsecured demand note with Credit
Lyonnais Bank, Nederland
(interest at 1-1/2% above prime) $ 5,307 $ 0
Unsecured demand note with Sanwa Bank
Limited, Hong Kong
(interest at 3/4% above Euro-rate) 802 0
Unsecured demand notes with Dai-Ichi
Kangyo Bank Ltd., Japan
(interest at 3.0%) 1,655 0
----------------------------------
$ 7,764 $ 0
==================================
</TABLE>
Proceeds from the above loans were used for working capital.
Subsequent to year end, these loans were repaid as part of the
divestiture of the Company's European and Japanese subsidiary
operations.
NOTE 6 OTHER CURRENT LIABILITIES
Other current liabilities at September 29, 1995 and September 30, 1994 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Employment costs $ 7,106 $ 8,670
Deferred service revenue 10,330 11,374
Accrued royalties 487 1,061
Accrued warranty 1,138 825
Accrued interest 636 371
Sales and use tax payable 502 1,688
Reserves for restructuring charges
and divestitures of businesses 10,149 0
Other 4,501 4,613
-----------------------------
$ 34,849 $ 28,602
=============================
</TABLE>
NOTE 7 LONG-TERM DEBT
Long-term debt at September 29, 1995 and September 30, 1994 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Indebtedness to banks under secured
revolving credit agreement
(10.75% at September 29, 1995) $ 17,776 $ 23,200
10.13% senior secured notes payable
in equal semi-annual installments of
$1,052,632 plus interest through 1998 4,987 7,368
6.15% senior secured notes payable in
monthly installments of $194,026
including interest through 1998 5,877 7,780
----------------------------
28,640 38,348
Less current portion of long-term debt 4,129 4,008
----------------------------
$ 24,511 $ 34,340
============================
</TABLE>
The 6.15% senior secured notes are secured by a first priority lien on portions
of the Company's land and buildings located in Mobile, Alabama.
On November 7, 1995, the Company entered into an agreement with Foothill Capital
Corporation ("Foothill") which allowed the Company to retire the existing
secured revolving credit agreement and the 10.13% senior secured notes payable.
The new credit facility provides for a three-year revolving line of credit with
maximum availability of $30 million, secured by the Company's domestic accounts
receivable, inventory and machinery and equipment. The stated rate of interest
for any borrowings under the new agreement is one and one-half percent over
prime. Additional provisions of the new credit facility provide for a term loan
of $1.2 million secured by machinery and equipment and the availability of a
second term loan of $5 million. The $1.2 million term loan requires minimum
annual principal payments of approximately $300,000.
Although the Company was not in compliance with certain covenants contained in
the credit agreements existing at year end and has not obtained waivers of non-
compliance from the lenders, the new long-term credit facility with Foothill
provided the Company with the capacity to pay off these debts individually and
collectively and, therefore, they have been classified as long-term debt in the
financial statements.
The new credit facility with Foothill includes requirements for a minimum
current ratio, a maximum total liabilities to equity ratio and minimum levels of
tangible net worth and working capital.
In connection with the new financing arrangements, Foothill was granted a
warrant to purchase 100,000 shares of the Company's common stock, at a price of
$5 a share, which is exercisable through October 30, 1999.
Following is the Company's disclosure in accordance with Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments." The fair value of the Company's long-term debt is estimated based
on the quoted prices for the same or similar issues. The fair value, as of
September 29, 1995 and of September 30, 1994, has been estimated as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Secured revolving credit facility $ 17,776 $ 17,776 $ 23,200 $ 23,200
10.13% senior secured notes 4,987 5,025 7,368 7,627
6.15% senior secured notes 5,877 5,559 7,780 7,524
</TABLE>
NOTE 8 LEASES
The Company has capital leases that expire through fiscal 2000. The Company
is obligated under operating leases for certain sales and service offices
expiring through fiscal 2003. Future minimum lease payments under capital
and operating leases with noncancelable terms in excess of one year as of
September 29, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
Capital
Lease Operating
Fiscal Year Obligations Leases
<S> <C> <C>
1996 $ 991 $ 4,451
1997 815 3,359
1998 277 1,861
1999 62 868
2000 40 590
Thereafter 0 1,239
--------------------------
Total minimum payments 2,185 $ 12,368
=========
Less amounts representing interest 205
---------
Present value of minimum payments 1,980
Less current maturities under
capital lease obligations 861
---------
$ 1,119
=========
</TABLE>
Rent expense under operating leases for fiscal 1995, 1994 and 1993 was
$6,120,000, $7,233,000 and $7,120,000, respectively.
Assets recorded under capital leases (included in property, plant and equipment
in the accompanying consolidated balance sheets) at September 29, 1995 and
September 30, 1994 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Machinery and equipment $ 2,256 $ 3,835
Office furniture and equipment 1,652 1,920
---------------------------
3,908 5,755
Less accumulated depreciation 2,840 3,330
---------------------------
$ 1,068 $ 2,425
===========================
</TABLE>
NOTE 9 EMPLOYEE BENEFIT PLANS
The Company has a Cash or Deferred Retirement Plan which covers substantially
all employees and is a qualified plan under Section 401(k) of the Internal
Revenue Code. Employees may make a pretax contribution of up to 10% of their
annual salaries and are provided investment choices from among a Retirement
Preservation Trust, a Corporate Bond Fund, a Capital Fund, a Basic Value Fund
and a Company Stock Fund. The Company may match employee contributions at
varying rates up to a maximum of 3.5% of annual salary, and Company
contributions are made on an annual basis. The plan is a calendar year plan.
Employees at the end of the plan year are fully vested in applicable Company
contributions. In fiscal 1995, 1994 and 1993, the Company contributed
$1,010,244, $1,046,137 and $1,029,391 to the plan, respectively.
NOTE 10 STOCK OPTION PLANS
The Company's stock option plans allow incentive or non-qualified stock options
to be granted to key employees and directors providing the right, when
exercisable, to purchase up to an aggregate of 1,872,688 shares of the Company's
common stock. In the case of incentive stock options, the option price is not
less than the fair market value at date of grant. A non-qualified optionee may
receive the right to be paid cash upon the exercise of a non-qualified option in
an amount intended to approximate 100% of the amount of the federal, state and
local income tax payable by that optionee upon exercise of the option.
For employees with less than one year of service with the Company, one-fourth of
the granted options may be exercised one year after the date of grant, with an
additional one-fourth exercisable each year thereafter, although other exercise
provisions are allowed. For employees with greater than one year of service,
one-fifth of the granted options may be exercised on the date of grant, with an
additional one-fifth exercisable each year thereafter, although other exercise
provisions are allowed. Options that expire or are canceled prior to exercise
are restored to the shares available for future grants. At September 29, 1995,
the Company had reserved 355,138 shares for the future grant of options under
these plans.
The Company's stock option plans also provide that, in the event of a change of
control (as defined in each of the plans), all options then outstanding would
become exercisable immediately either in full or in part.
Under the Company's 1987 plan, no more than 500,000 shares may be issued to
directors, whether or not they are also key employees. Stock options under the
plan expire not later than ten years from the date of grant. The Company's 1984
plan expired during fiscal 1994, and no additional options can be granted under
the plan. Outstanding stock options under the plan were not affected by the
plan's expiration.
During fiscal 1995, the Company repriced certain stock option grants under the
1987 Stock Option Plan. Stock option grants of 158,360 shares that were
previously issued at option prices greater than the current fair market value
were forfeited and replaced with stock option grants for 79,180 shares (a rate
of one new share for two previous shares) at the fair market value on the date
of grant. The grant of these repriced options was restricted to non-executive
officer employees.
During fiscal 1994, the Company adopted the Stock Option Plan for Directors
whereby non-employee directors receive non-qualified stock option grants
annually, and may make an irrevocable election annually to receive stock options
at a below-market exercise price in lieu of cash directors' fees. Compensation
expense under this plan for fiscal 1995 and 1994 was $77,244 and $39,750,
respectively.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Number Price Per
of Shares Share Total
<S> <C> <C> <C>
Outstanding,
October 2, 1992 1,101,324 $4.62 to $24.12 $15,160,095
Granted 269,550 8.50 to 16.25 2,719,100
Exercised (55,394) 4.62 to 15.00 (554,920)
Terminated (197,710) 6.62 to 22.38 (3,218,562)
------------ --------------
Outstanding,
October 1, 1993 1,117,770 6.75 to 24.12 14,105,713
Granted 238,571 4.38 to 10.50 2,011,273
Exercised (8,602) 7.50 to 14.00 (66,848)
Terminated (142,188) 7.50 to 24.12 (1,762,637)
------------ --------------
Outstanding,
September 30, 1994 1,205,551 4.38 to 24.12 14,287,501
Granted 705,529 4.44 to 10.00 4,495,941
Exercised (3,400) 8.25 to 9.00 (29,863)
Terminated (390,130) 4.63 to 24.12 (4,974,800)
------------ --------------
Outstanding,
September 29, 1995 1,517,550 $4.38 to $24.12 $ 13,778,779
============ ==============
Exercisable,
September 29, 1995 720,446
============
</TABLE>
NOTE 11 SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENTS
In fiscal 1992, the Company entered into separate agreements with three officers
of the Company, under which each officer is entitled to a monthly benefit upon
either the officer's leaving the Company's employment, retirement or departure
following a change in control of the Company, to be paid over a ten-year benefit
period. In fiscal 1995, 1994 and 1993, the Company expensed $366,396, $291,806
and $441,938, respectively, related to these benefits. In fiscal 1995, the
Company paid benefits of $27,831 under these agreements.
NOTE 12 STOCKHOLDER RIGHTS PLAN
In November 1988, the Company adopted a Stockholder Rights Plan and pursuant to
the plan declared a dividend on its common stock of one right (a "Right") for
each share of common stock then outstanding and for each share of common stock
issued thereafter and prior to the time the Rights expire or become exercisable.
Upon the occurrence of certain events, each Right becomes exercisable to
purchase one one-hundredth of a share of Series A Participating Preferred Stock
at a price of $40. The Rights expire on November 30, 1998 and, prior to the
occurrence of certain events, may be redeemed at a price of $.01 per Right. Of
the Company's 500,000 authorized shares of preferred stock, no par value, the
Board of Directors has designated 250,000 shares as Series A Participating
Preferred Stock.
NOTE 13 INCOME TAXES
The components of income (loss) before income taxes and the provision (benefit)
for income taxes (both domestic and foreign), for fiscal 1995, 1994 and 1993 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic $(41,709) $ 6,527 $ (540)
Foreign (2,577) (2,487) (4,382)
--------------------------------------------
Total $(44,286) $ 4,040 $ (4,922)
============================================
Provision (benefit) for income taxes:
Current:
Federal $ 0 $ 436 $ 169
Foreign (247) 452 (2,119)
State 0 439 0
--------------------------------------------
(247) 1,327 (1,950)
--------------------------------------------
Deferred:
Federal 0 0 0
Foreign 247 (247) 424
State 0 0 0
--------------------------------------------
247 (247) 424
--------------------------------------------
Total $ 0 $ 1,080 $ (1,526)
============================================
</TABLE>
At September 29, 1995, the Company had domestic operating loss carryovers of
approximately $36 million which will expire in fiscal 2010, and general business
credit carryovers of approximately $1.7 million which will expire during fiscal
2002 through 2007. Foreign tax credit carryforwards of approximately $1.7
million existed at September 29, 1995 and will expire in fiscal 1996 through
1998.
There were no undistributed earnings in the Company's Canadian subsidiary at
fiscal 1995 year end. Undistributed earnings of the Company's other foreign
subsidiaries which were divested will not result in any material taxes payable
by the Company.
During fiscal 1994, the Company settled outstanding issues with tax authorities
in Japan, the Netherlands, Canada and the U.S. without adverse results.
A reconciliation of the statutory federal income tax rate to the effective rate
for fiscal 1995, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Tax at federal statutory rate $(15,500) $ 1,415 $ (1,723)
State income taxes, net of
federal benefit 0 283 0
Operating losses generating
no tax benefit 15,618 0 0
Utilization of carryovers 0 (1,465) 0
Foreign sales corporation benefit 0 (423) (221)
Tax effect of international
operations, net 0 1,075 (161)
Other, net (118) 195 579
--------------------------------------------
Total $ 0 $ 1,080 $ (1,526)
============================================
</TABLE>
Deferred tax assets and liabilities that arise as a result of temporary
differences at September 29, 1995 and September 30, 1994 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Inventory reserves $ 3,187 $ 2,085
Restructuring reserves 1,275 0
Foreign tax credits 1,700 1,700
General business credit carryforwards 1,742 1,742
Net operating loss carryforwards 13,455 1,575
Deferred income 746 747
Other 791 1,644
---------------- --------------
Total gross deferred tax assets 22,896 9,493
Deferred tax asset valuation allowance (19,294) (2,775)
---------------- --------------
Total deferred tax assets 3,602 6,718
Deferred tax liabilities:
Depreciation (1,159) (1,190)
Capitalized software costs (2,221) (4,842)
Deferred software costs (222) (341)
Deferred tooling 0 (98)
---------------- --------------
Total deferred tax liabilities (3,602) (6,471)
---------------- --------------
Net deferred tax assets $ 0 $ 247
================ ==============
</TABLE>
The valuation allowance was established based on certain assumptions about
levels of future pretax income that are consistent with historical results. As
the Company had losses in fiscal 1995 and 1993, the deferred tax asset valuation
allowance reflects an evaluation which recognizes uncertainties related to the
future utilization of certain carryovers. The valuation allowance for deferred
tax assets increased by approximately $16.5 million during fiscal 1995. The
Company did not recognize tax benefits for fiscal 1995 losses due to
restrictions on the carryback of the losses and there is no assurance that the
benefits may be realized in the future.
NOTE 14 BUSINESS SEGMENT AND FOREIGN OPERATIONS
The Company's domestic operations and those of its wholly owned European,
Canadian, Australian/New Zealand and Japanese subsidiaries for fiscal 1995, 1994
and 1993 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales to unaffiliated
customers from:
United States $ 127,610 $ 157,156 $ 169,853
Europe 81,917 78,572 81,413
Canada 12,859 18,186 18,974
Australia/New Zealand 6,476 8,573 8,932
Japan 30,878 30,201 18,208
Net transfer between
geographic areas 52,151 60,984 53,188
Adjustments and eliminations (52,151) (60,984) (53,188)
--------------------------------------------------
Consolidated $ 259,740 $ 292,688 $ 297,380
==================================================
</TABLE>
All transfers between geographic areas are sales from the U.S. parent to its
foreign subsidiaries.
A summary of operating income by geographic areas is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Operating income (loss):
United States $ (29,100) $ 22,056 $ 14,303
Europe 4,810 2,136 1,862
Canada (1,122) (262) (568)
Australia/New Zealand (600) 469 616
Japan 1,193 2,012 757
Adjustments and eliminations 533 (552) 522
--------------------------------------------------
Consolidated operating profit (24,286) 25,859 17,492
General corporate expenses (20,580) (18,581) (18,882)
Interest income 171 80 756
Interest expense (4,113) (3,235) (3,342)
Divestitures of businesses 3,675 0 0
Miscellaneous income (expense)* 847 (83) (946)
--------------------------------------------------
Consolidated income (loss)
before income taxes $ (44,286) $ 4,040 $ (4,922)
==================================================
</TABLE>
*Miscellaneous expense includes foreign currency transaction gains
(losses) as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
United States $ (305) $ (346) $ (314)
Europe 542 518 (1,348)
Canada 0 0 598
Australia/New Zealand (37) 25 (91)
Japan 200 1 (46)
--------------------------------------------------
Total $ 400 $ 198 $ (1,201)
==================================================
</TABLE>
Identifiable assets by geographical area are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Identifiable assets:
United States $ 88,164 $ 131,179 $ 127,227
Europe 19,933 23,009 21,360
Canada 4,632 6,711 6,424
Australia/New Zealand 2,996 3,568 2,635
Japan 10,466 13,077 7,143
Adjustments and eliminations (1,231) (2,180) (1,166)
--------------------------------------------------
124,960 175,364 163,623
Corporate assets 10,578 6,659 6,594
-------------------------------------------------
Total assets $ 135,538 $ 182,023 $ 170,217
=================================================
</TABLE>
The transfers between geographic areas are priced at cost plus a reasonable
profit.
A summary of the Company's foreign sales to indicated geographic areas for
fiscal 1995, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Europe $ 77,309 $ 74,305 $ 76,561
Canada 12,875 18,198 18,992
Far East & Pacific Rim 37,368 39,187 27,390
Other 6,683 6,654 5,839
-------------------------------------------------
Total $ 134,235 $ 138,344 $ 128,782
=================================================
</TABLE>
U.S. export sales included in the above summary for fiscal 1995, 1994 and 1993
were $2,171,260, $2,802,489 and $1,298,769, respectively.
No customer accounted for 10% or more of consolidated net sales for fiscal 1995,
1994 and 1993.
NOTE 15 SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes for fiscal 1995, 1994 and 1993 is as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Interest $ 4,113 $ 3,235 $ 3,143
Income taxes 2,688 1,193 5,033
</TABLE>
Additions to capital lease assets and related obligations were $823,000,
$1,705,000 and $41,000 in fiscal 1995, 1994 and 1993, respectively, as a result
of the Company entering into equipment leases.
NOTE 16 COMMITMENTS AND CONTINGENCIES
At September 29, 1995, the Company had a commitment of approximately $13.2
million under contracts to purchase print engines.
The Company was contingently liable for approximately $1.2 million as of
September 29, 1995, principally the result of written letters of credit, with
various expiration dates, issued in the normal course of business for the
purchase of inventory. These letters are not collateralized by the Company.
The Company is a defendant in various litigation in the normal course of
business. Based on consultation with various counsel in these matters,
management is of the opinion that the ultimate resolution of such claims will
not materially affect the Company's financial position or results of operations.
NOTE 17 RESTRUCTURING CHARGES
During fiscal 1995, the Company recognized restructuring charges totaling
approximately $8.4 million. These costs included $3.7 million associated with
salary continuation and outplacement services for a group of 175 employees from
all levels and functional areas of the Company, $2.4 million related to the
write-off of certain fixed assets and facility lease obligations and $2.3
million for the write-down of the Company's investment in QMS Japan. The
subsequent sale of QMS Japan in early December 1995 did not result in additional
losses.
NOTE 18 DIVESTITURES OF BUSINESSES
On September 25, 1995, the Company completed a cash sale of a portion of its
color thermal ink roll consumables business to International Imaging Materials,
Inc., resulting in a gain of $5.7 million.
On October 17, 1995, the Company sold all of the common shares of QMS Europe BV
and QMS Australia Pty Ltd. This transaction resulted in a loss of approximately
$2 million. The proceeds from this transaction were received in the form of
cash of $6.3 million, short-term receivables of $1.6 million and a $4 million
note receivable, payable in quarterly installments of $1 million each with
interest at 6.5%.
On December 8, 1995, the Company sold the majority of the assets of QMS Japan
with the purchaser acquiring most of the assets and assuming most of the
liabilities. This transaction resulted in a loss of approximately $2.3 million.
The proceeds from this transaction were received in the form of cash of
$500,000 to be paid December 20, 1995, short-term receivables of $500,000 and a
$3.0 million note receivable, payable over 54 months with interest at 8%.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of QMS, Inc. is responsible for the preparation, integrity and
objectivity of the consolidated financial statements and all other sections of
this annual report. The financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management made informed estimates and judgments of the
expected effects of events and transactions based upon currently available facts
and circumstances.
Management maintains a system of internal accounting controls which it believes
is adequate to provide reasonable assurance that assets are safeguarded,
transactions are executed in accordance with management authorization and the
financial records are reliable for preparing the consolidated financial
statements. The concept of reasonable assurance recognizes that the cost of a
system of internal accounting controls should not exceed the benefits derived
and that there are inherent limitations in the effectiveness of any system of
internal accounting controls.
The Company's independent auditors, Deloitte & Touche LLP, have audited the
Company's consolidated financial statements and expressed an opinion that such
statements present fairly the Company's financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. Their audit was conducted in accordance with generally accepted
auditing standards and included such procedures believed by them to be
sufficient to provide reasonable assurance that the consolidated financial
statements are free of material misstatement.
The Board of Directors, acting through its Audit Committee, oversees
management's responsibilities in the preparation of the consolidated financial
statements. In performing this function, the Audit Committee, which is composed
of directors who are not employees of the Company, meets periodically with
management and the independent auditors to review the work of each. Deloitte &
Touche LLP has free access to the Audit Committee and to the Board of Directors,
without management present, to discuss internal accounting control, auditing and
financial reporting matters.
We believe these policies and procedures provide reasonable assurance that our
operations are conducted with a high standard of business conduct and that the
financial statements reflect fairly the financial position, results of
operations and cash flows of the Company.
/s/James L. Busby
President and Chief Executive Officer
/s/James K. Doan
Executive Vice President,
Finance and Administration,
and Chief Financial Officer
QUARTERLY DATA
<TABLE>
Unaudited quarterly data for the fiscal years
ended September 29, 1995 and September 30, 1994.
<CAPTION>
1995
First Second Third Fourth
Dollars in thousands, except per share Quarter Quarter (a) Quarter Quarter (b)
amounts
<S> <C> <C> <C> <C>
Net sales $ 70,520 $ 66,651 $ 62,698 $ 59,871
Gross profit 22,674 10,353 13,588 3,093
Net income (loss) 72 (14,511)(c) (9,478)(c) (20,369)(c)
Earnings (loss) per common share:
Primary and fully diluted $ .01 $ (1.36) $ (0.89) $ (1.91)
</TABLE>
<TABLE>
<CAPTION>
1994
First Second Third Fourth
Dollars in thousands, except per share Quarter Quarter Quarter Quarter
amounts
<S> <C> <C> <C> <C>
Net sales $ 70,654 $ 71,283 $ 73,538 $ 77,213
Gross profit 23,832 23,270 23,748 25,300
Net income (loss) (366) 551 1,205 1,570
Earnings (loss) per common share:
Primary and fully diluted $ (.03) $ .05 $ .11 $ .15
</TABLE>
(a) Includes special charges of $6.8 million principally associated with
inventory revaluation charged to cost of sales and $2.7 million for
restructuring charges.
(b) Includes special charges of $11.3 million related to inventory revaluations
and the write-down of certain software development costs charged to cost
of sales and $5.7 million for restructuring charges.
(c) The net loss amounts in the second, third and fourth quarters of fiscal
1995 do not include the recognition of any income tax benefits.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of QMS, Inc. and
subsidiaries as of September 29, 1995 and September 30, 1994, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the three fiscal years in the period ended September 29,
1995. Our audits also included the financial statement schedule listed in the
index at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of QMS, Inc. and subsidiaries as of
September 29, 1995 and September 30, 1994, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
September 29, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Birmingham, Alabama
November 7, 1995, except for Note 18 as
to which the date is December 8, 1995
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------------------------------------------------------------
The information required by this item is incorporated by reference to
information under the captions "Proposal 1 - Election of Directors - Directors
and Director Nominees and - Compliance with Section 16(a) of the Securities
Exchange Act of 1934" on pages 2-4 of the Proxy Statement and "Executive
Officers" on pages 4-5 of the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
- ---------------------------------
The information required by this item is incorporated by reference to
information under the captions "Proposal 1 - Election of Directors - Director
Compensation" on pages 3-4, "Executive Compensation Tables" on pages 6-9, "Stock
Performance Graph" on page 10, "Executive Agreements" on pages 10-11 and "Report
of the Compensation Committee of the Board of Directors of QMS, Inc." on pages
11-13 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------------------------------------------------------------------------
The information required by this item is incorporated by reference to
information under the caption "Beneficial Ownership of Common Stock" on pages 5-
6 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ---------------------------------------------------------
The information required by this item is incorporated by reference to
information under the caption "Compensation Committee Interlocks and Insider
Participation" on page 13 of the Proxy Statement.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- --------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements
The following financial statements are included in Item 8 of Part
II:
. Consolidated Statements of Operations for the Fiscal Years Ended
September 29, 1995, September 30, 1994 and October 1, 1993.
. Consolidated Statements of Changes in Stockholders' Equity for
the Fiscal Years Ended September 29, 1995, September 30, 1994
and October 1, 1993.
. Consolidated Balance Sheets at September 29, 1995 and September
30, 1994.
. Consolidated Statements of Cash Flows for the Fiscal Years
September 29, 1995, September 30, 1994 and October 1, 1993.
. Notes to Consolidated Financial Statements for the Fiscal Years
September 29, 1995, September 30, 1994 and October 1, 1993.
2. Financial Statement Schedules
The schedule listed below is included herein immediately after
the signature pages hereto. Schedules not listed below have been
omitted because they are not applicable or the required
information is included in the financial statements or notes
thereto.
Schedule
Number Description
------- -----------
VIII Valuation and Qualifying Accounts and Reserves for the
Three Fiscal Years Ended September 29, 1995.
The Registrant's independent auditors' report on the financial
statements and financial statement schedule listed above is located at
Item 8 of Part II.
3. Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------
<S> <C>
3(a) Restated Certificate of Incorporation, as amended as of February
17, 1987 1/ and Certificate of Amendment thereto filed with the
Secretary of State of Delaware as of January 31, 1991.2/
3(b) Bylaws of Registrant.1/
4(a) The rights of security holders are defined in Articles 4, 9 and
10 of the Restated Certificate of Incorporation of the
Registrant, Articles II, VI and VII of the Bylaws of the
Registrant and the Rights Agreement. [Incorporated herein by
reference to Exhibits 3(a), 3(b) and 4(b), respectively.]
4(b) Rights Agreement dated November 30, 1988.3/
10(a)(i) Cash or Deferred Retirement Plan, as amended and restated as of
December 17, 1993. 4/*
10(a)(ii) Trust Agreement dated November 1, 1993 relating to the Cash or
Deferred Retirement Plan as amended by an Amendment to the Trust
Agreement dated December 28, 1993. 4/
10(c)(i) Form of 1987 Stock Option Plan, as amended and restated as of
December 13, 1990.2/*
10(c)(ii) Form of First Amendment to the 1987 Stock Option Plan effective
November 7, 1991.2/*
10(d) Supplemental Executive Retirement Plan Agreements dated September
30, 1991. 4/*
10(e)(i) Worldwide Master Purchase Agreement 90-01 among Canon U.S.A.,
Inc., Canon Europa, N.V. and QMS, Inc. dated October 1, 1990.5/
10(e)(ii) SX/TX/LX Worldwide Master Purchase Agreement 90-02 among Canon
U.S.A., Inc., Canon Europa, N.V. and QMS, Inc. dated October 1,
1990.5/
10(e)(iii) LBP-20 Purchase Agreement 90-03-LBP-20 between Canon U.S.A., Inc.
and QMS, Inc. dated October 1, 1990.5/
10(h) Form of Executive Agreement entered into with: James L. Busby;
Donald L. Parker, Ph.D.; Charles D. Daley; and James K. Doan.
10/*
10(l)(i) Note Agreement dated June 30, 1993 ("1993 Note Agreement")
between QMS, Inc. and Connecticut General Life Insurance Company
for $10,000,000 in aggregate principal amount of QMS, Inc.'s
6.15% Senior Secured Notes due June 15, 1998.7/
10(l)(ii) Mortgage, Trust and Security Agreement dated June 30, 1993
between QMS, Inc. and First Alabama Bank of Mobile, as Trustee,
for QMS, Inc. $10,000,000 aggregate principal amount of 6.15%
Senior Secured Notes due June 15, 1998.7/
10(l)(iii) Senior Secured Notes, each dated July 1, 1993, with CIG & CO.
($3,500,000) and ($3,500,000) and ZANDE & Co. ($3,000,000).7/
10(l)(iv) Waiver Agreement dated November 23, 1993 waiving certain
provisions of the 1993 Note Agreement. 4/
10(l)(v) Waiver Agreement dated as of February 25, 1994 waiving certain
provisions of the 1993 Note Agreement. 8/
10(l)(vi) Waiver Agreement dated as of May 3, 1994 waiving certain
provisions of the 1993 Note Agreement. 9/
10(l)(vii) Waiver Agreement dated as of August 12, 1994 waiving certain
provisions of the 1993 Note Agreement. 13/
10(l)(viii) Waiver Agreement dated as of November 30, 1994 waiving certain
provisions of the 1993 Note Agreement. 13/
10(o) Stock Option Plan, dated July 30, 1984,11/* together with First
Amendment thereto effective as of January 1, 1987,1/* Second
Amendment thereto effective as of November 10, 1987,1/* Third
Amendment thereto effective as of April 6, 1989,10/* Fourth
Amendment thereto effective as of January 1, 1990,6/* and Fifth
Amendment thereto effective as of November 7, 1991.2/*
10(p) Stock Option Plan for Directors. 12/*
10(q)(i) Share Purchase Agreement dated October 12, 1995 between Jalak
Investments B.V. and QMS, Inc. 14/
10(q)(ii) Promissory Note dated October 16, 1995 in the original principal
amount of U.S. $4,000,000 from QMS Europe B.V. and QMS Australia
PTY Ltd. in favor of QMS, Inc. 14/
10(q)(iii) Pledge and Security Agreement and Pledging of Shares, each dated
October 16, 1995 by Jalak Investments, B.V. in favor of QMS, Inc.
14/
10(q)(iv) Deed of Subordination and Pledge dated October 16, 1995 by and
among QMS, Inc., QMS Europe B.V. and Credit Lyonnais Bank
Nederland N.V. 14/
10(q)(v) Master Distributor Agreement dated October 16, 1995 among the
Registrant, QMS Europe, B.V. and QMS Australia PTY Ltd. 14/
10(q)(vi) Trademark and Trade Name License Agreement dated October 16, 1995
between QMS Europe B.V. and QMS, Inc. 14/
10(r) Loan and Security Agreement dated November 7, 1995 by and between
QMS, Inc. and Foothill Capital Corporation. 15/
10(r)(i) Stock Pledge Agreement dated November 7, 1995 by and between QMS,
Inc. and Foothill Capital Corporation. 15/
10(r)(ii) Term Note A dated November 7, 1995 in the original principal
amount of $1,750,000 from QMS, Inc. in favor of Foothill Capital
Corporation. 15/
10(r)(iii) Term Note B dated November 7, 1995 in the original principal
amount of $5,000,000 from QMS, Inc. in favor of Foothill Capital
Corporation. 15/
10(r)(iv) Trademark Security Agreement dated November 7, 1995 made by QMS,
Inc. in favor of Foothill Capital Corporation. 15/
10(r)(v) QMS, Inc. Warrant to Purchase 100,000 shares of Common Stock,
dated November 7, 1995. 15/
10(r)(vi) General Security Agreement dated November 7, 1995 by and between
QMS Canada Inc. in favor of Foothill Capital Corporation. 15/
10(r)(vii) General Continuing Guaranty dated November 7, 1995 by QMS Canada
Inc. in favor of Foothill Capital Corporation. 15/
10(r)(viii) Security Agreement dated November 7, 1995 by and between Foothill
Capital Corporation and QMS Canada Inc. 15/
10(r)(ix) General Continuing Guaranty dated November 7, 1995 by QMS
Circuits, Inc. in favor of Foothill Capital Corporation. 15/
10(r)(x) Security Agreement dated November 7, 1995 between Foothill
Capital Corporation and QMS Circuits, Inc. 15/
10(s)(i) Asset Purchase Agreement dated September 30, 1995 between QMS
Japan Kabushiki Kaisha ("QMS Japan KK") and QMS, Inc.
10(s)(ii) Assumption of Liabilities dated September 30, 1995 by QMS Japan,
KK.
10(s)(iii) Inventory Johto-Tampo Agreement dated September 30, 1995 between
QMS Japan, KK and QMS, Inc.
10(s)(iv) Master Distributor Agreement dated September 30, 1995 between QMS
Japan, KK and QMS, Inc.
10(s)(v) Promissory Note dated September 30, 1995 in the original
principal amount of U.S. $3,000,000 from Yoji Kawai in favor of
QMS Japan, KK.
10(s)(vi) Promissory Note dated September 30, 1995 in the original
principal amount of U.S. $500,000 from Yoji Kawai in favor of
QMS Japan, KK.
10(s)(vii) Trademark and Trade Name License Agreement dated December 7, 1995
between QMS Japan, KK and QMS, Inc.
10(s)(viii) Assumption Agreement dated December 7, 1995 between QMS Japan, KK
and QMS, Inc.
11 Statement Regarding Computation of Earnings Per Share.
21 Subsidiaries of the Registrant.
27 Financial Data Schedules
</TABLE>
* Indicates a management contract or compensatory plan or arrangement.
1/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
October 2, 1987 (Commission File No. 1-9348).
2/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 27, 1991 (Commission File No. 1-9348).
3/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 30, 1988 (Commission File No. 1-9348).
4/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
October 1, 1993 (Commission File No. 1-9348).
5/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
October 2, 1992 (Commission File No. 1-9348).
6/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the quarter ended April
1, 1988 (Commission File No. 1-9348).
7/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended July 2, 1993 (Commission File No. 1-9348).
8/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended April 1, 1994 (Commission File No. 1-9348).
9/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended July 1, 1994 (Commission File No. 1-9348).
10/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 29, 1989 (Commission File No. 1-9348).
11/ Incorporated herein by reference to exhibit of same number in
Registrant's Registration Statement on Form S-1, filed September 19,
1984 (Registration No. 2-93329).
12/ Incorporated herein by reference to Appendix B to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders held on January
25, 1994 (Commission File No. 1-9348).
13/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 30, 1994 (Commission File No. 1-9348).
14/ Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on October 16, 1995 (Commission File No. 1-9348).
15/ Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on November 21, 1995 (Commission File No. 1-9348).
(b) Reports on Forms 8-K:
The following reports were filed on Forms 8-K during the most recent fiscal
quarter:
. Form 8-K dated October 16, 1995 reporting the sale of QMS Europe B.V. and
QMS Australia PTY Ltd.
. Form 8-K dated November 21, 1995 reporting the new credit agreement with
Foothill Capital Corporation.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
QMS, Inc.
<S> <C>
Date: December 21, 1995 By: /s/James L. Busby
---------------------------------------------------------------
James L. Busby
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: December 21, 1995 /s/James L. Busby
--------------------------------------------------------------
James L. Busby
President and Director (Principal Executive
Officer)
Date: December 21, 1995 /s/Charles D. Daley
--------------------------------------------------------------
Charles D. Daley
Director
Date: December 21, 1995 /s/Donald L. Parker, Ph.D.
--------------------------------------------------------------
Donald L. Parker, Ph.D.
Director
Date: December 21, 1995 /s/Lucius E. Burch, III
--------------------------------------------------------------
Lucius E. Burch, III
Director
Date: December 21, 1995 /s/Michael C. Dow
--------------------------------------------------------------
Michael C. Dow
Director
Date: December 21, 1995 /s/S. Felton Mitchell, Jr.
--------------------------------------------------------------
S. Felton Mitchell, Jr.
Director
Date: December 21, 1995 /s/G. William Speer
--------------------------------------------------------------
G. William Speer
Director
</TABLE>
SCHEDULE VIII
QMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 29, 1995
<TABLE>
<CAPTION>
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions (a) End of Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts--deducted from receivables
in the balance sheet
YEAR ENDED OCTOBER 1, 1993.........................$ 618,000 $ 326,000 $ 364,000 $ 580,000
========== =========== =========== ===========
YEAR ENDED SEPTEMBER 30, 1994......................$ 580,000 $ 228,000 $ 304,000 $ 504,000
========== =========== =========== ===========
YEAR ENDED SEPTEMBER 29, 1995......................$ 504,000 $ 282,000 $ 240,000 $ 546,000
========== =========== =========== ===========
Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions (b) End of Year
- ------------------------------------------------------------------------------------------------------------------------------
Inventory reserves and reserves for divestitures of businesses
YEAR ENDED OCTOBER 1, 1993.......................... $6,016,000 $ 8,923,000 $ 8,635,000 $ 6,304,000
========== =========== =========== ===========
YEAR ENDED SEPTEMBER 30, 1994....................... $6,304,000 $ 5,388,000 $ 4,884,000 $ 6,808,000
========== =========== =========== ===========
YEAR ENDED SEPTEMBER 29, 1995....................... $6,808,000 $29,281,000 $15,109,000 $20,980,000
========== =========== =========== ===========
Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions End of Year
- ----------------------------------------------------------------------------------------------------------------------------------
Reserves for restructuring charges and divestitures
of businesses
YEAR ENDED OCTOBER 1, 1993.......................... $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ===========
YEAR ENDED SEPTEMBER 30, 1994....................... $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ===========
YEAR ENDED SEPTEMBER 29, 1995....................... $ 0 $10,149,000 $ 0 $10,149,000
=========== =========== =========== ===========
- --------------------------------------
(a) Uncollectible accounts written off
(b) Disposal of inventory
</TABLE>
INDEX
3. Exhibits:
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ------------------------------------ ------
<S> <C>
3(a) Restated Certificate of Incorporation, as amended as
of February 17, 1987 1/ and Certificate of Amendment
thereto filed with the Secretary of State of Delaware
as of January 31, 1991.2/
3(b) Bylaws of Registrant.1/
4(a) The rights of security holders are defined in Articles
4, 9 and 10 of the Restated Certificate of Incorporation
of the Registrant, Articles II, VI and VII of the Bylaws
of the Registrant and the Rights Agreement. [Incorporated
herein by reference to Exhibits 3(a), 3(b) and 4(b),
respectively.]
4(b) Rights Agreement dated November 30, 1988.3/
10(a)(i) Cash or Deferred Retirement Plan, as amended and
restated as of December 17, 1993. 4/*
10(a)(ii) Trust Agreement dated November 1, 1993 relating to
the Cash or Deferred Retirement Plan as amended by
an Amendment to the Trust Agreement dated December
28, 1993. 4/
10(c)(i) Form of 1987 Stock Option Plan, as amended and restated
as of December 13, 1990.2/*
10(c)(ii) Form of First Amendment to the 1987 Stock Option
Plan effective November 7, 1991.2/*
10(d) Supplemental Executive Retirement Plan Agreements
dated September 30, 1991. 4/*
10(e)(i) Worldwide Master Purchase Agreement 90-01 among
Canon U.S.A., Inc., Canon Europa, N.V. and QMS, Inc.
dated October 1, 1990.5/
10(e)(ii) SX/TX/LX Worldwide Master Purchase Agreement
90-02 among Canon U.S.A., Inc., Canon Europa,
N.V. and QMS, Inc. dated October 1, 1990.5/
10(e)(iii) LBP-20 Purchase Agreement 90-03-LBP-20 between
Canon U.S.A., Inc. and QMS, Inc. dated October 1, 1990.5/
10(h) Form of Executive Agreement entered into with:
James L. Busby; Donald L. Parker, Ph.D.; Charles D.
Daley; and James K. Doan. 10/*
10(l)(i) Note Agreement dated June 30, 1993 ("1993 Note
Agreement" between QMS, Inc. and Connecticut
General Life Insurance Company for $10,000,000
in aggregate principal amount of QMS, Inc.'s 6.15%
Senior Secured Notes due June 15, 1998.7/
10(l)(ii) Mortgage, Trust and Security Agreement dated
June 30, 1993 between QMS, Inc. and First Alabama
Bank of Mobile, as Trustee, for QMS, Inc. $10,000,000
aggregate principal amount of 6.15% Senior Secured
Notes due June 15, 1998.7/
10(l)(iii) Senior Secured Notes, each dated July 1, 1993,
with CIG & CO. ($3,500,000) and ($3,500,000)
and ZANDE & Co. ($3,000,000).7/
10(l)(iv) Waiver Agreement dated November 23, 1993 waiving
certain provisions of the 1993 Note Agreement. 4/
10(l)(v) Waiver Agreement dated as of February 25, 1994
waiving certain provisions of the 1993 Note
Agreement. 8/
10(l)(vi) Waiver Agreement dated as of May 3, 1994 waiving
certain provisions of the 1993 Note Agreement. 9/
10(l)(vii) Waiver Agreement dated as of August 12, 1994
waiving certain provisions of the 1993 Note
Agreement. 13/
10(l)(viii) Waiver Agreement dated as of November 30, 1994
waiving certain provisions of the 1993 Note
Agreement. 13/
10(o) Stock Option Plan, dated July 30, 1984,11/* together
with First Amendment thereto effective as of January 1,
1987,1/* Second Amendment thereto effective as of
November 10, 1987,1/* Third Amendment thereto
effective as of April 6, 1989,10/* Fourth Amendment
thereto effective as of January 1, 1990, 6/* and Fifth
Amendment thereto effective as of November 7, 1991.2/*
10(p) Stock Option Plan for Directors. 12/*
10(q)(i) Share Purchase Agreement dated October 12, 1995
between Jalak Investments B.V. and QMS, Inc. 14/
10(q)(ii) Promissory Note dated October 16, 1995 in the original
principal amount of U.S. $4,000,000 from QMS Europe
B.V. and QMS Australia PTY Ltd. in favor of QMS, Inc. 14/
10(q)(iii) Pledge and Security Agreement and Pledging of Shares,
each dated October 16, 1995 by Jalak Investments, B.V.
in favor of QMS, Inc. 14/
10(q)(iv) Deed of Subordination and Pledge dated October 16,
1995 by and among QMS, Inc., QMS Europe B.V.
and Credit Lyonnais Bank Nederland N.V. 14/
10(q)(v) Master Distributor Agreement dated October 16,
1995 among the Registrant, QMS Europe, B.V.
and QMS Australia PTY Ltd. 14/
10(q)(vi) Trademark and Trade Name License Agreement
dated October 16, 1995 between QMS Europe B.V.
and QMS, Inc. 14/
10(r) Loan and Security Agreement dated November 7, 1995
by and between QMS, Inc. and Foothill Capital
Corporation. 15/
10(r)(i) Stock Pledge Agreement dated November 7, 1995
by and between QMS, Inc. and Foothill Capital
Corporation. 15/
10(r)(ii) Term Note A dated November 7, 1995 in the original
principal amount of $1,750,000 from QMS, Inc. in favor
of Foothill Capital Corporation. 15/
10(r)(iii) Term Note B dated November 7, 1995 in the original
principal amount of $5,000,000 from QMS, Inc. in favor
of Foothill Capital Corporation. 15/
10(r)(iv) Trademark Security Agreement dated November 7,
1995 made by QMS, Inc. in favor of Foothill Capital
Corporation. 15/
10(r)(v) QMS, Inc. Warrant to Purchase 100,000 shares of
Common Stock, dated November 7, 1995. 15/
10(r)(vi) General Security Agreement dated November 7,
1995 by and between QMS Canada Inc. in
favor of Foothill Capital Corporation. 15/
10(r)(vii) General Continuing Guaranty dated November 7,
1995 by QMS Canada Inc. in favor of Foothill Capital
Corporation. 15/
10(r)(viii) Security Agreement dated November 7, 1995 by
and between Foothill Capital Corporation and QMS
Canada Inc. 15/
10(r)(ix) General Continuing Guaranty dated November 7,
1995 by QMS Circuits, Inc. in favor of Foothill Capital
Corporation. 15/
10(r)(x) Security Agreement dated November 7, 1995
between Foothill Capital Corporation and QMS
Circuits, Inc. 15/
10(s)(i) Asset Purchase Agreement dated September 30,
1995 between QMS Japan Kabushiki Kaisha
("QMS Japan KK") and QMS, Inc.
10(s)(ii) Assumption of Liabilities dated September 30,
1995 by QMS Japan, KK.
10(s)(iii) Inventory Johto-Tampo Agreement dated September 30,
1995 between QMS Japan, KK and QMS, Inc.
10(s)(iv) Master Distributor Agreement dated September 30,
1995 between QMS Japan, KK and QMS, Inc.
10(s)(v) Promissory Note dated September 30, 1995 in the
original principal amount of U.S. $3,000,000 from
Yoji Kawai in favor of QMS Japan, KK.
10(s)(vi) Promissory Note dated September 30, 1995 in
the original principal amount of U.S. $500,000
from Yoji Kawai in favor of QMS Japan, KK.
10(s)(vii) Trademark and Trade Name License Agreement
dated December 7, 1995 between QMS Japan, KK
and QMS, Inc.
10(s)(viii) Assumption Agreement dated December 7, 1995
between QMS Japan, KK and QMS, Inc.
11 Statement Regarding Computation of Earnings Per
Share.
21 Subsidiaries of the Registrant.
27 Financial Data Schedules
</TABLE>
* Indicates a management contract or compensatory plan or arrangement.
1/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
October 2, 1987 (Commission File No. 1-9348).
2/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 27, 1991 (Commission File No. 1-9348).
3/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 30, 1988 (Commission File No. 1-9348).
4/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
October 1, 1993 (Commission File No. 1-9348).
5/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
October 2, 1992 (Commission File No. 1-9348).
6/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the quarter ended April
1, 1988 (Commission File No. 1-9348).
7/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended July 2, 1993 (Commission File No. 1-9348).
8/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended April 1, 1994 (Commission File No. 1-9348).
9/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended July 1, 1994 (Commission File No. 1-9348).
10/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 29, 1989 (Commission File No. 1-9348).
11/ Incorporated herein by reference to exhibit of same number in
Registrant's Registration Statement on Form S-1, filed September 19,
1984 (Registration No. 2-93329).
12/ Incorporated herein by reference to Appendix B to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders held on January
25, 1994 (Commission File No. 1-9348).
13/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 30, 1994 (Commission File No. 1-9348).
14/ Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on October 16, 1995 (Commission File No. 1-9348).
15/ Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on November 21, 1995 (Commission File No. 1-9348).
(b) Reports on Forms 8-K:
The following reports were filed on Forms 8-K during the most recent fiscal
quarter:
. Form 8-K dated October 16, 1995 reporting the sale of QMS Europe B.V. and
QMS Australia PTY Ltd.
. Form 8-K dated November 21, 1995 reporting the new credit agreement with
Foothill Capital Corporation.
Exhibit 10(s)(i)
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into
as of September 30, 1995, by and between QMS, Inc., a Delaware corporation
("QMS"), QMS Japan Kabushiki Kaisha, a corporation formed under the laws of
Minato-Ku, Japan ("Seller") and a new Japanese company in the process of
being established, which is being represented for the purpose of this
Agreement by its promoters and shareholders-to-be, namely, Yoji Kawai, a
Japanese national and Kabushiki Kaisha Typebank, a Japanese corporation
("Purchaser"). Purchaser, QMS and Seller are sometimes referred to
collectively as the "Parties."
WITNESSETH:
WHEREAS QMS and Seller desire to sell substantially all of the
assets of Seller located in Japan where Seller engages in the business of
light assembly and integration of computer printers and the sale of such
printers under the QMS name in Japan and elsewhere (the "Business") and
Purchaser desires to purchase the Business;
NOW THEREFORE, in consideration of the recitals and the
conditions, representations, warranties, covenants and agreements set forth
herein, the Parties agree:
Begin auto paragraph numbering 1. DEFINITIONS. Unless otherwise
stated in this Agreement, the following terms used herein shall have the
following meanings:
"Assets" shall mean
all tangible personal property of Seller used
solely in connection with the Business as set forth on Schedule 1.01(a)
hereto;
all contracts, leases, warranties, commitments,
agreements, license agreements, purchase and sales orders and other
executory commitments of Seller related to the Business (the "Contracts");
copies of all books and records of Seller located
in Japan and related to the Business in any form, including without
limitation, data, data bases, tax records, business plans and projections,
records of sales, files, advertising materials and other similar documents
(the "Books and Records");
all work in progress;
all present and past customer lists of Seller
related to the Business ("Customer Lists"); and
all goodwill of Seller related to the Business;
provided, however, that Assets shall not include any of the assets of the
Business identified as excluded assets on Schedule 1.01(f) hereto
("Excluded Assets").
"Assumption Agreement" shall mean the Assumption
Agreement from Purchaser to Seller substantially in the form of Exhibit A
hereto.
"Bill of Sale and Assignment" shall mean the Bill of
Sale and Assignment from Seller to Purchaser substantially in the form set
forth on Exhibit B hereto.
"Closing" shall mean the completion of the transactions
contemplated by this Agreement.
"Closing Date" shall mean on September 30, 1995.
"Distributor Agreement" shall mean the Master
Distributor Agreement between QMS and Purchaser substantially in the form
of Exhibit C hereto.
"Financial Statements" shall mean the balance sheet of
Seller and the Business dated as of September 29, 1995 and its related
statements of income, retained earnings and changes in financial position
for the period then ended, the related notes to such financial statements.
"Liabilities" shall mean all of the liabilities of the
Business set forth on Schedule 1.08 hereto.
"License" shall mean the Trademark and Trade Name
License Agreement between Purchaser and QMS substantially in the form of
Exhibit D hereto.
1.10 "Liens" shall mean all liens, security interests,
pledges, leases, conditional sales contracts, claims, charges, and other
encumbrances of every kind and description however described or
denominated.
1.11 "Note A" shall mean the promissory note from Purchaser
to Seller and QMS in the original principal amount in Yen equivalent to
U.S.$3,000,000, substantially in the form of Exhibit E, attached hereto.
1.12 "Note B" shall mean the promissory note from Purchaser
to Seller and QMS in the original principal amount in Yen equivalent to
U.S.$500,000, substantially in the form of Exhibit F, attached hereto.
1.13 "Pledge and Security Agreement" shall mean the
Inventory Johto-Tampo Agreement between Purchaser, Seller and QMS
substantially in the form of Exhibit G, attached hereto.
1.14 "Purchase Price" shall mean the price as specified in
Subsection 3.01 hereof to be paid by Purchaser to Seller.
resume auto paragaph numbering 2. AGREEMENT TO SELL AND
PURCHASE.
Sale and Purchase of Assets. On the Closing Date and
subject to the terms and conditions of this Agreement, Purchaser shall
purchase from Seller and Seller shall sell, assign, convey, deliver and
transfer the Assets to Purchaser.
Assignment and Assumption of Liabilities. At the
Closing, Seller shall assign and Purchaser shall assume all of the
Liabilities.
PURCHASE PRICE.
Purchase Price. For and in consideration of the sale
of the Assets by Seller to Purchaser, Purchaser shall pay to Seller an
amount in Yen equivalent to U.S. Four Million Dollars (U.S.$4,000,000.00),
to be paid as follows:
an amount in Yen equivalent to U.S.$500,000 in cash or by wire
transfer of immediately available funds to Seller on or
before December 20, 1995;
by delivery at the Closing of Note A in the original principal
amount of an amount in Yen equivalent to U.S.$3,000,000 to
Seller; and
by delivery at the Closing of Note B in the original principal
amount of an amount in Yen equivalent to U.S.$500,000 to
Seller.
For purposes of calculating the Yen equivalent amounts of
the above stated U.S. Dollar amounts, T.T.S. rates to be quoted by a
reputable bank in Tokyo, Japan on the respective payment dates shall apply.
Allocation of Purchase Price. The Purchase Price shall
be allocated as set forth on Schedule 3.02 hereto.
PRE-CLOSING COVENANTS OF QMS AND SELLER. QMS and Seller
hereby covenant and agree with Purchaser that from the date hereof until
the Closing:
Access to Information. Seller will give Purchaser
access to the offices, properties, books, contracts, commitments and
records of Seller, and will furnish Purchaser with all information
(including financial and operating data) concerning the affairs of Seller
that Purchaser may reasonably request. Without limiting the foregoing,
Seller will permit any authorized representatives or agents of Purchaser to
visit and inspect the properties and assets and to investigate the Business
at such reasonable times and as often as may be reasonably requested.
Purchaser shall be entitled to make and retain copies of all documents and
instruments examined by, or otherwise made available to, it pursuant to
this Section 4.01.
Maintaining Assets. Seller will not undertake any
course of action inconsistent with the provisions of this Agreement, and
Seller will maintain the Assets in good operating condition, ordinary wear
and tear excepted. Additionally, and without limitation of any of the
foregoing provisions of this Section 4.02, Seller shall not, without the
prior written consent of Purchaser, mortgage, pledge, or subject to any
lien or encumbrance any of the Assets.
Maintenance of Business of Seller. Seller will carry
on its business and activities diligently and in substantially the same
manner as Seller currently carries on its business. Seller will use its
best efforts to preserve the business relationship established with each
customer listed on the Customer Lists. Seller will not amend or modify any
of the Contracts without the prior written authorization of Purchaser, and,
to the extent within its control, shall not do any act or omit to do any
act, or knowingly permit any act or omission to act, that would cause a
breach of any of Contract.
Approvals. Seller will use its best efforts to obtain,
and will cooperate with Purchaser in obtaining, as promptly as practicable,
all consents and approvals which are required to be obtained of others to
authorize and permit the assignment, transfer and conveyance to Purchaser
of the Contracts (the "Contract Consents").
Possession of Assets. Seller will take all action
necessary or required to deliver the Assets and assign the Contracts to
Purchaser at the Closing.
Insurance. From and after the date hereof and through
the Closing Date, Seller shall maintain all of its insurance policies in
effect as of the date hereof, and all of the Assets shall be used,
operated, maintained and repaired in a normal business manner and in
accordance with the provisions of the insurance policies relating hereto.
Conditions Precedent. Each of QMS and Seller shall use
its best efforts to satisfy the conditions precedent to Purchaser's
obligations hereunder.
No Solicitation of Offers. Neither Seller nor QMS
will, for so long as this Agreement shall remain in effect, solicit or
consider other proposals concerning the sale or other transfer of the
Business or provide information with respect to the Business to other
parties interested in acquiring, leasing or managing the Business, or
divulge or otherwise disclose any information to such entities regarding
any terms of this Agreement.
CLOSING DELIVERIES.
Obligations of QMS and Seller. On the Closing Date,
QMS and Seller shall deliver or cause to be delivered to Purchaser the
following:
The Assets free and clear of any and all liens or
encumbrances;
The executed Bill of Sale and Assignment;
The executed License;
The executed Distributor Agreement; and
Any other documents that Purchaser may reasonably
request at or prior to Closing.
Obligations of Purchaser. On the Closing Date,
Purchaser shall deliver to Seller the following:
Note A;
Note B;
The executed Distributor Agreement;
The executed Assumption Agreement;
The executed License;
The executed Pledge and Security Agreement; and
Any other documents that QMS or Seller may reasonably
request at or prior to Closing
Further Assurances. The Parties agree that they will
at any time and from time to time after the date of this Agreement, upon
request of another, execute, acknowledge and deliver all such instruments
of further assurance and will do any and all acts and things as may be
reasonably necessary or appropriate in order to better evidence or to
effectuate and carry out the purpose and intent of this Agreement.
CONDITIONS TO PURCHASER'S OBLIGATIONS TO CLOSE. The obliga
tions of Purchaser to consummate the transactions provided for herein are
subject to the satisfaction of each of the following conditions on or prior
to the Closing Date:
Representations and Warranties Correct. The
representations and warranties of QMS and Seller contained herein and in
the Schedules, statements and documents delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be true and
correct in all material respects on and as of the date of this Agreement
and on and as of the Closing Date as though made on and as of the Closing
Date.
Compliance by QMS and Seller. All of the terms,
covenants and conditions of this Agreement to be complied with and
performed by QMS and Seller, or any of them, on or before the Closing Date
shall have been fully complied with and performed.
Authorization. All corporate action necessary to
authorize the execution and delivery of the documents and performance of
the obligations by QMS and Seller as set forth herein shall have been duly
and validly taken and all required regulatory approvals or permits shall
have been obtained.
No Adverse Change or Proceedings. There shall not have
been any adverse change in the business, assets, liabilities or condition,
financial or otherwise, of Seller between the date of this Agreement and
the Closing Date, and no loss, casualty or other adverse change shall have
occurred between the date of this Agreement and the Closing Date with
respect to the Assets or the Business of Seller which would have an adverse
effect upon the value or use of the Assets or the Business of Seller. No
actions or proceedings shall be pending or threatened which might, in the
opinion of counsel for Purchaser, materially adversely effect any of the
transactions contemplated herein, the value or use of the Assets or the
Business of Seller.
CONDITIONS TO QMS' AND SELLER'S OBLIGATIONS TO CLOSE. The
obligation of QMS and Seller to consummate the transactions provided for
herein is subject to the satisfaction of the following conditions on or
prior to the Closing Date:
Representations and Warranties of Purchaser. The
representations and warranties of Purchaser contained herein shall be true
and correct in all material respects, on and as of the date of this
Agreement and on and as of the Closing as though made on and as of the
Closing Date.
Compliance by Purchaser. All of the terms, covenants
and conditions of this Agreement to be complied with and performed by
Purchaser on or before the Closing Date shall have been fully complied with
and performed in all material respects.
Approvals and Permits. All required regulatory
approvals or permits necessary for the execution and delivery of the
documents, and the performance of the obligations by Purchaser as set forth
herein shall have been obtained.
REPRESENTATIONS AND WARRANTIES OF QMS AND SELLER. In order
to induce Purchaser to enter into this Agreement and to purchase the
Assets, and with the knowledge and understanding that Purchaser will rely
thereon, QMS and Seller, jointly and severally, do hereby represent and
warrant to Purchaser on the date hereof, and at all times through the
Closing Date, and, to the extent such representation and warranties relate
to an earlier time, as of such earlier time, as follows:
Organization and Authority. Seller is a corporation
duly formed, validly existing and in good standing under the laws of Japan.
Seller possesses all requisite corporate power and authority to own the
Assets and operate the Business, and to enter into and perform this
Agreement.
Ownership. QMS owns all right, title and interest in
Seller.
Authority and Corporate Action. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of each of QMS and Seller. The officers of
Seller and QMS executing this Agreement have the authority to enter into
this Agreement on behalf of Purchaser.
Title to Assets. Seller has good and marketable title
to all of the Assets free and clear of any and all Liens. Seller has
complete and unrestricted power and the unqualified right to sell, convey,
assign, transfer and deliver the Assets to Purchaser and to vest in
Purchaser good, valid and marketable title to the Assets. There are no
existing agreements, commitments or rights with, of or to any person to
acquire any of the Assets. All of the Property is in good operating
condition and is in a state of good maintenance and repair, and there does
not exist any condition which interferes or which may interfere with the
economic value or use thereof.
REPRESENTATIONS AND WARRANTIES OF PURCHASER. In order to
induce QMS and Seller to enter into this Agreement and to sell the Assets
and with the knowledge and understanding that QMS and Seller will rely
thereon, Purchaser does hereby represent and warrant to QMS and Seller on
the date hereof, and at all times through the Closing Date, and, to the
extent such representations and warranties relate to an earlier time, as of
such earlier time, as follows:
Organization and Authority. Purchaser is a new company
in the process of being established under the laws of Japan, and is being
represented for the purposes of this Agreement by Yoji Kawai and Kabushiki
Kaisha Typebank, its promoters and shareholders-to-be.
Authority and Corporate Action. Yoji Kawai and
Kabushiki Kaisha Typebank have the authority to enter into this Agreement
on behalf of Purchaser, and as soon as practicable after the establishment
of Purchaser under the laws of Japan, its board of directors shall confirm
by appropriate procedure the binding effect of this Agreement upon
Purchaser, and shall enter into an assumption agreement with QMS and Seller
confirming the assumption of all obligations of Purchaser under this
Agreement, the Distributor Agreement, the Assumption Agreement, the
License, Note A, Note B, and the Pledge and Security Agreement.
Compliance with Laws and Instruments. The execution,
delivery and performance by Purchaser of this Agreement and the other
agreements to be executed and delivered by Purchaser hereto will not result
in any violation of or be in conflict with or constitute a default under
any applicable statute, regulation, order, rule, writ, injunction or decree
of any court or governmental instrumentality or of the Articles of
Incorporation or Bylaws of Purchaser or of any material agreement or other
instrument to which Purchaser is a party or is subject, or constitute a
default thereunder. This representation is made by Purchaser as of
December 1, 1995.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in this Agreement shall be
continuing and shall be true and correct on and as of the Closing Date with
the same force and effect as if made at that time, and all such
representations and warranties shall survive the Closing and not be merged
into the Closing and shall remain in full force and effect, and except as
otherwise specified herein shall not be affected by any investigation,
verification or approval by any party hereto or by anyone on behalf of any
party hereto.
ARBITRATION. All disputes under this Agreement shall be
settled by arbitration in Honolulu, Hawaii, USA, before a single arbitrator
pursuant to the rules of the American Arbitration Association (the "AAA").
Arbitration may be commenced at any time by either party giving written
notice to the other that such dispute has been referred to arbitration
under this Section 11. Any award rendered by the arbitrator shall be
final, conclusive, non-appealable and binding upon the parties hereto and
shall be accompanied by a written opinion of the arbitrator giving the
reasons for the awards; provided, however, that the arbitrator shall have
no authority to award any special, indirect, incidental, consequential,
punitive or other damages not measured by the prevailing party's actual
damages and the arbitrator may not make any ruling, finding or award that
does not conform with the terms and conditions of the Agreement. Each
party shall pay its own expenses of arbitration and the expenses of the
arbitrator shall be equally shared; provided, however, that the arbitrator
may assess, as part of his award, all or any part of the arbitrator's
expenses of the other party (including reasonable attorneys' fees) and of
the arbitrator against the party raising such unreasonable claim, defense
or objection.
POST-CLOSING COVENANTS OF QMS AND SELLER.
Building Renovations. QMS and Seller shall, as soon as
is reasonably practicable following the Closing Date, cause the building
renovations which are required under that certain lease agreement for the
property located at Towa Hamamatu-cho Building, 2-6-2 Hamamatsu-cho, Minato-
Ku Tokyo to be performed, provided, however, that the total cost incurred
by QMS and Seller for such renovations shall not exceed 8,000,000 yen.
Tax Indemnification. QMS and Seller shall, jointly and
severally, indemnify and hold harmless Purchaser from and against any and
all claims, demands, losses, damages, liabilities and attorney's fees, and
other costs and expenses which may be incurred by Purchaser which relate
directly to tax liabilities of Seller.
MISCELLANEOUS PROVISIONS.
Notices. Any notice or other communication required or
permitted to be given under the terms of this Agreement shall be telecopied
or delivered via Federal Express or other similar overnight courier service
and shall be deemed effective on the date delivered to the addressee at the
address set forth below:
If to Seller, to:
QMS Japan Kabushiki Kaisha
c/o QMS, Inc.
One Magnum Pass
Post Office Box 81250
Mobile, Alabama U.S.A. 36689-1250
Attn: Legal Department
with a required copy to:
Powell, Goldstein, Frazer & Murphy
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia U.S.A. 30303
Attention: G. William Speer
If to QMS, to:
QMS, Inc.
One Magnum Pass
Post Office Box 81250
Mobile, Alabama U.S.A. 36689-1250
Attention: Legal Department
with a required copy to:
Powell, Goldstein, Frazer & Murphy
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia U.S.A. 30303
Attention: G. William Speer
If to Purchaser, to:
QMS Japan Kabushiki Kaisha
Gotanda Metalion Bldg. 2F
5-21-15 Higashi-Gotanda
Shinagawa-Ku, Tokyo 141, Japan
Attn.: Yoji Kawai
with a required copy to:
SHOWA Law Office
Tsuruya Hachiman Bldg. 5F
2-4 Kojimachi
Chiyoda-Ku, Tokyo 102, Japan
Attn: Masatomo Suzuki
Expenses. The Parties shall each bear their own legal
fees and all other costs, expenses and fees incurred by them in connection
with this Agreement and the transactions contemplated hereby whether or not
the purchase and sale of the Assets and the Business herein provided for
are effected.
Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors and
assigns. Neither Party, however, shall have the right to assign this
Agreement or such Party's rights and obligations hereunder without the
prior written consent of the other Party.
Entire Agreement. This Agreement, together with all
Exhibits, Schedules and other documents attached hereto or referenced
herein, constitutes the entire agreement between the Parties with respect
to the transactions contemplated hereby and supersedes and is in full
substitution for any and all prior agreements and understandings between
the Parties relating to such transactions.
Descriptive Headings. The descriptive headings of the
several Sections and subsections of this Agreement are inserted for
convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
Severability. In any case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, except in those instances
where removal or elimination of such invalid, illegal, or unenforceable
provision or provisions would result in a failure of consideration under
this Agreement, such invalidity, illegality or unenforceability shall not
affect any other provision hereof, and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been
contained herein.
Interpretation. Should any provision of this Agreement
require judicial interpretation, mediation or arbitration, it is agreed
that the court, mediator or arbitrator interpreting or construing the same
shall not apply a presumption that the terms hereof shall be more strictly
construed against one party by reason of the rule of construction that a
document is to be construed more strictly against the party who itself or
through its agent prepared the same, it being agreed that all parties,
directly or through their agents, have participated in the preparation
hereof.
Amendments and Waivers. No modification, termination,
extension, renewal or waiver of any provisions of this Agreement shall be
binding upon either party unless made in writing and signed by an
authorized officer of each of the Parties.
Temporarily suspend auto paragraph numbering 13.10 Governing
Law. This Agreement shall be governed and construed as to both substantive
and procedural matters in accordance with the laws of the State of Georgia.
13.11 Governing Language. Regardless of whether a copy
of this Agreement is translated into another language, the official version
hereof shall be the English version, which shall prevail in all cases. All
correspondence and communications between the parties, all reports, orders,
instructions, literature, records and other written material pertaining to
this Agreement shall be maintained and delivered in the English language.
IN WITNESS WHEREOF, the Parties each have executed this Agreement
under seal as of the day and year first above written.
QMS:
QMS, INC.
By: /s/ Gregory R. Jones
Title: Vice President
SELLER:
QMS JAPAN KABUSHIKI KAISHA
By: Philip R. Cahoon
Title: Representative Director
PURCHASER:
/s/ Yoji Kawai
Yoji Kawai
KABUSHIKI KAISHA TYPEBANK
By:
Title:
Exhibit 10(s)(ii)
ASSUMPTION OF LIABILITIES
THIS ASSUMPTION (the "Assumption") is executed and delivered as of
September 30, 1995, by Yoji Kawai, a Japanese national and Kabushiki Kaisha
Typebank, a Japanese corporation, on behalf of a new Japanese corporation
in the process of being formed ("Purchaser") to and in favor of QMS Japan
Kabushiki Kaisha, a corporation formed under the laws of Minato-Ku, Japan
("Seller"), pursuant to that certain Asset Purchase Agreement dated as of
September 30, 1995, by and among Purchaser, Seller and QMS, Inc. (the
"Agreement").
IN CONSIDERATION of the mutual covenants and agreements set forth in
the Agreement, the receipt and sufficiency of which are hereby
acknowledged, Purchaser does hereby assume and agree to pay, discharge or
perform, as appropriate, all of the liabilities and obligations of Seller,
including without limitation, those listed on Exhibit 1 hereto.
IN WITNESS WHEREOF, Yoji Kawai and a duly authorized officer of
Kabushiki Kaisha Typebank have executed this Assumption on behalf of
Purchaser as of the day and year first above written.
PURCHASER:
/s/ Yoji Kawai
Yoji Kawai
Kabushiki Kaisha Typebank
By:
Title:
22681994.W51
Exhibit 1
Liabilities
In thousands of U.S. Dollars
Liabilities to be Assumed: $831
Accounts Payable 2,457
Bank Notes 179
Accrued Royalty 137
Accrued Warranty 295
Accrued Expense 56
Deferred Service 215
Other Liabilities $4,170
Exhibit 10(s)(iii)
INVENTORY JOHTO-TAMPO AGREEMENT
THIS INVENTORY JOHTO-TAMPO AGREEMENT, made and entered into as of
September 30, 1995, by Yoji Kawai, a Japanese national and Kabushiki Kaisha
Typebank, a Japanese corporation, on behalf of a new Japanese corporation
in the process of being formed (hereinafter referred to as the "Pledgor"),
and QMS Japan Kabushiki Kaisha, a corporation formed under the laws of
Minato-Ku, Japan having its place of business at 6-2, Hamamatsucho 2-chome,
Minato-ku, Tokyo, Japan, (hereinafter referred to as the "Pledgee"):
WITNESSETH:
WHEREAS, the Pledgor and the Pledgee have entered into an Asset
Purchase Agreement, dated as of September 30, 1995 (hereinafter referred to
as the "Asset Purchase Agreement");
WHEREAS, pursuant to the Asset Purchase Agreement, Note A and Note B
(as defined in the Asset Purchase Agreement) issued by Pledgor thereunder,
the Pledgor is obliged to create a security interest for the due and
punctual performance and payment of all the obligations under Note A and
Note B in the inventory of the Pledgor; and
WHEREAS, the Pledgee requires the Pledgor to create a security
interest, called Johto-Tampo under the laws of Japan, in the inventory of
merchandise, semi-finished merchandise, materials and maintenance parts in
a certain warehouse as specified below in accordance with terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants as provided herein and in the Asset Purchase Agreement,
the parties hereto hereby agree as follows:
. Creation of the Johto-Tampo Security Interest
In order to secure the full and punctual payment of the Secured
Obligations as defined in the following Article, the Pledgor hereby
transfers the ownership of such merchandise, semi-finished merchandise,
materials and maintenance parts owned by the Pledgor as identified in
EXHIBIT A attached hereto and made a part hereof (hereinafter referred to
as the "Collateral") to the Pledgee for the purpose to create the Johto-
Tampo security interest in and to the Collateral under the Japanese law.
Such Johto-Tampo security interest is hereby created for the benefit of the
Pledgee.
It is acknowledged hereby by the parties hereto that any good of
the Pledgor maintained at the warehouse set forth in EXHIBIT A (hereinafter
referred to as the "Warehouse") shall constitute the Collateral hereunder
and shall be subject to the Johto-Tampo security interest created
hereunder, whether or not it falls into the descriptions of the types of
goods expressly set forth in EXHIBIT A.
. Secured Obligations
The obligations to be secured by the Johto-Tampo security interest
created hereunder (herein referred to as the "Secured Obligations") shall
be all the obligations under Note A and Note B.
. Transfer of Possession
It is acknowledged by the parties hereto that the possession
(Senyu-Ken) of the Collateral is hereby transferred to the Pledgee in the
form of Senyu-Kaitei as provided in Article 183 of the Civil Code of Japan
(Law No. 89 of 1896, as amended) (hereinafter referred to as the "Civil
Code").
The Pledgor hereby acknowledges that when any good of the Pledgor
is transferred to the Warehouse, then such good shall automatically
constitute a part of the Collateral. Upon the transfer to the Warehouse,
the ownership of the good which newly constitutes a part of the Collateral
shall be deemed to be transferred to the Pledgee, and the possession (Senyu-
Ken) thereof shall be deemed to be transferred to the Pledgee, in the form
of Senyu-Kaitei as provided in the preceding section.
. Maintenance of the Collateral
The Pledgor shall keep and maintain the Collateral for the
benefit of the Pledgee during the effective term of this Agreement.
The Pledgor shall be entitled to move out any goods constituting
the Collateral from the Warehouse for the purpose of assembling, selling,
distributing, marketing or otherwise disposing of such goods in the normal
course of business; provided, however, that if a Default under either Note
A or Note B (as defined in Note A and Note B, respectively) occurs, then
the Pledgor shall not move any of the Collateral out of the Warehouse
without a prior written approval of the Pledgee.
. Representations and Warranties
The Pledgor hereby represents and warrants as follows:
The Pledgor does not own, lease or otherwise hold nor does have
any plan to own, lease or otherwise hold, any warehouse other than the
Warehouse to maintain its merchandise, semi-finished merchandise, materials
or maintenance parts as of the date of this Agreement.
The merchandise, semi-finished merchandise, materials or
maintenance parts maintained at the Warehouse as of the date of this
Agreement shall consist solely of the types of the goods as expressly set
forth in EXHIBIT A.
The Collateral is owned by the Pledgor as of the date of this
Agreement free from any Teito-ken, Shichi-ken, Johto-Tampo-ken, Uriwatashi-
Tampo-Ken or any other lien or security interest, except for such Ryuchi-
ken or Sakidori-Tokken as may have been created under Part 2, Sections 7
and 8 (Articles 295-341) of the Civil Code or other laws of Japan.
. Covenants of the Pledgor
The Pledgor covenants and agrees as follows:
The Pledgor shall not maintain its merchandise, semi-finished
merchandise, materials or maintenance parts in a warehouse other than the
Warehouse without first obtaining a prior written consent from the Pledgee,
which consent shall not be unreasonably withheld.
The Pledgor shall notify the Pledgee of any new types of the
goods to be maintained at the Warehouse and shall agree to amend EXHIBIT A,
so that EXHIBIT A shall expressly set forth all the types of goods of the
Pledgor maintained at the Warehouse at any time during the term of this
Agreement; provided, however, that a failure to amend EXHIBIT A shall not
exclude the types of goods which are not expressly set forth in EXHIBIT A
from the Johto-Tampo security interest created hereby.
If the Pledgor should receive any notice from the court of
Sashiosae (attachment), Kari-Sashiosae (provisional attachment), Kari-
Shobun (provisional injunction), or commencement of Kei-Bai (public sale)
on or in connection with any of the Collateral, the Pledgor shall forthwith
notify the Pledgee of any of such events.
The Pledgor shall not during the effective term of this Agreement
create any Teito-Ken, Shichi-Ken, Johto-Tampo-Ken, Uriwatashi-Tampo-Ken or
any other lien or security interest on any of the Collateral for any other
third party.
The Pledgor shall bear and pay to the Japanese tax authorities
any taxes imposed or levied on the Collateral while the Collateral is
subject to the Johto-Tampo security interest pursuant hereto.
. Pledgee's Examination Right
The Pledgee or its duly authorized representative, agent or attorney
shall have the right to examine at reasonable business hours the Collateral
maintained at the Warehouse, and any books or records relating to the
Collateral, and to inquire of officers, employees or agents of the Pledgor
about the Collateral. The Pledgor shall cooperate with the Pledgee's
examination as provided in this Article.
. Pledgee's Right of Disposition
After a five (5) day notice to the Pledgor after any Default takes
place, the Pledgee shall be entitled to (i) sell or otherwise dispose of
any of the Collateral and apply any proceeds of the sale or disposition of
the Collateral to the payment of the Secured Obligations, or (ii) to take
any remedy generally available for a secured party of a Johto-Tampo
security interest under the laws of Japan.
. Termination of the Johto-Tampo Security Interest
When all the Secured Obligations are fully paid, the Johto-Tampo
security interest created hereunder shall cease to be in effect and the
ownership of the Collateral shall be returned from the Pledgee to the
Pledgor, and thereupon this Agreement shall terminate and cease to be in
effect.
. Miscellaneous
The Asset Purchase Agreement, Note A and Note B shall constitute
an integral part of this Agreement, and shall apply to the subject matter
hereof in all aspects, unless any conflicting or different terms are
expressly provided for in this Agreement.
This Agreement is the Pledge and Security Agreement (as defined
in the Asset Purchase Agreement).
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute this Agreement on the day and year
first above written.
Pledgor:
/s/ Yoji Kawai
Yoji Kawai
Kabushiki Kaisha Typebank
By:
Title:
Pledgee:
QMS Japan Kabushiki Kaisha
By: /s/ Philip R. Cahoon
Title: Representative Director
22682010.W51
EXHIBIT A
LIST OF COLLATERAL
All merchandise, semi-finished merchandise, materials, and maintenance
parts of the types set forth below or of any other types which are owned by
the Pledgor and maintained at the warehouse leased by the Pledgor as set
forth below:
1. Types of Collateral
Merchandise:
Printers, and consumables and optional accessaries related thereto.
Semi-finished merchandise and materials:
Printer boards, network boards, engines, memories and ICs, hard disks,
manuals and any and all other component parts of printers.
Maintenance parts:
Printer engine parts and any and all other maintenance parts
maintained for the purpose of maintenance of the above.
2. Warehouse
Location: Utsunomiya Kokusai Terminal, Suite #2-12
1200-20, Nishihara, shimokuwashima-cho, Utsunomiya,
Tochigi, Japan
Owner: Utsunomiya-Kokusai-Kamotsu-Butsuryu-Jigyo-Kyodo-Kumiai
Size: 1,000 m2
Exhibit 10(s)(iv)
MASTER DISTRIBUTOR AGREEMENT
THIS MASTER DISTRIBUTOR AGREEMENT (the "Agreement") is made as of
September 30, 1995, between QMS, INC., a Delaware corporation ("QMS"), and
a new Japanese company in the process of being established, which is being
represented for the purpose of this Agreement by its promoters and
shareholders-to-be, namely, Yoji Kawai, a Japanese national and Kabushiki
Kaisha Typebank a Japanese corporation ("Distributor").
RECITALS:
QMS manufactures and sells QMS Products (as hereinafter defined).
QMS desires to appoint Distributor as a distributor to sell,
individually or as a component of another product, printer and printer
related products currently manufactured or sold by QMS and such related
products as may be developed, manufactured or sold by QMS from time to time
during the term of this Agreement, either individually or as a component of
another product ("QMS Products"), and Distributor desires to accept such
appointment in accordance with the terms and conditions contained herein.
In consideration of the above premises and the covenants hereinafter
set forth, the parties hereby agree:
. APPOINTMENT AS DISTRIBUTOR
Appointment. Distributor is appointed as QMS' authorized
distributor to resell QMS Products during the term of this Agreement to
customers located in Japan, South Korea, China, Taiwan, Cambodia, Hong
Kong, Macao, Vietnam, Laos, Myanmar, The Philippines, Malaysia, Singapore,
Mongolia and Thailand (the "Territory") and Distributor accepts such
appointment and agrees to conduct its business as a distributor of QMS
Products in accordance with the terms of this Agreement.
Exclusivity.
(a) Subject to the provisions of this Section 1.2, Distributor
shall be QMS' sole and exclusive distributor of QMS Products in the
Territory; provided, however, that if at any time during the term of
this Agreement, QMS wishes to sell any QMS Product in the Territory
which is not being purchased at such time by Distributor, QMS shall
provide Distributor with a written request to market and sell such QMS
Product in the Territory. If Distributor does not provide QMS with
written notice of its intent to market and sell such QMS Product in
the Territory within thirty (30) days of receipt of QMS' request, QMS
may market and sell such QMS Product to end users in the Territory,
either directly or through a third party.
(b) If, during the period commencing October 1, 1997 and ending
September 30, 1998, Distributor fails to generate at least U.S.
$2,000,000 in revenue in China, Distributor may lose, in the sole
discretion of QMS, its right under Section 1.2(a) hereof to be the
sole and exclusive distributor of QMS Products within China.
(c) Commencing with the 1996 calendar year, if in any calendar
year Distributor shall not comply with the Minimum Resales
Requirements (as hereinafter defined), after written notice followed
by a cure period of ninety (90) days during which period the parties
will attempt to negotiate in good faith a solution for the reasons of
the shortcomings, QMS may terminate the exclusivity rights granted
herein and may sell QMS Products or appoint additional authorized
distributors of QMS Products in the Territory in lieu of exercising
its right to terminate this Agreement pursuant to Section 5.1(b)
hereof. "Minimum Resales Requirements" shall mean U.S. $18,000,000 in
Sales (as defined herein) of QMS Products per full calendar year
during the term of this Agreement. As used in this Agreement, "Sales"
shall mean the total price of QMS Products sold by Distributor to its
customers as shown on Distributor's invoices, excluding value added
tax, freight and other related charges, with appropriate adjustments
made for any QMS Products returned to Distributor by its customers.
Products of Others. Distributor shall have the right to sell and
distribute the products of others within the Territory provided that such
right shall not conflict with the interest of QMS in maximizing sales of
QMS Products in the Territory. The existence of a conflict with the
interest of QMS shall, among other reasons, be deemed to exist by the
selling of other products that are functionally equivalent to QMS Products
and by the improper disclosure or use of proprietary information of QMS
made available to Distributor. Distributor shall promptly give notice to
QMS in such detail as QMS reasonably requests, of new lines of products and
firms at such times as Distributor undertakes to distribute and sell such
products and/or represent such companies.
. PURCHASE OF QMS PRODUCTS
Purchase of QMS Products. Distributor will purchase from QMS and
QMS will sell to Distributor the QMS Products in such quantities as
Distributor may determine from time to time during the term of this
Agreement. All purchases of QMS Products by Distributor shall be made
solely pursuant to this Agreement; provided, however, that Distributor may
purchase engines, spare parts and keyed consumables directly from third
parties.
Restriction on Sale of QMS Products. Distributor shall not,
without the prior written consent of QMS, sell or market any QMS controller
boards in the Territory; provided, however, that Distributor may sell or
market printers which contain QMS controller boards as a component part.
Price, Payment and Delivery. The purchase prices ("Purchase
Price") for QMS Products purchased by Distributor (i) between October 1,
1995 and December 8, 1995 shall be equal to QMS' inventory carrying cost
minus a twenty-five percent (25%) discount, and (ii) after December 8,
1995, shall be equal to the standard cost of production of such QMS
Products as determined by the chief financial officer of QMS (including,
but not limited to, overhead costs and royalty payments made by QMS) in
accordance with QMS' accounting policies and United States Generally
Accepted Accounting Principles ("U.S. GAAP") ("Standard Cost").
Distributor shall pay QMS the Purchase Price for QMS Products no later than
sixty (60) days following the date of the invoice for such QMS Products for
purchases made from October 1, 1995 through March 31, 1996, and no later
than forty-five (45) days following the date the invoice for such QMS
Products thereafter. QMS Products shall be sold hereunder F.O.B. QMS'
facility in Mobile, Alabama. Delivery shall take place when QMS Products
are placed in the possession of a common carrier, packed and ready for
shipment to Distributor, or when QMS Products are stored at QMS' facility
in accordance with instructions from Distributor. The risk of loss or
damage with respect to the QMS Products shall pass to Distributor when the
QMS Products are duly delivered to the carrier or are stored at Seller's
facility in accordance with instructions from Distributor. In the event of
a loss subsequent to delivery, Distributor shall pay for the QMS Products
so delivered and shall (notwithstanding the loss) assume responsibility for
promptly advising the carrier and insurer of the loss, for filing a claim
and for prosecuting the recovery of any sums owed by such parties to
Distributor. QMS shall, upon request, cooperate with Distributor in
establishing any such claim. Any arrangement made and expenses incurred by
QMS for carriage or insurance of the QMS Products after the QMS Products
are delivered to Distributor shall be for the account of Distributor and
promptly paid or reimbursed to QMS by Distributor. At least ten (10) days
prior to the confirmed shipment date, Distributor shall give QMS written
instructions regarding the destination at which the QMS Products are to be
shipped and the choice of carrier and type of conveyance. In the absence
of such instructions, QMS shall select the carrier and type of conveyance
in conformity with QMS' standard commercial practices for such shipments.
If no ship-to location is given, then QMS will ship the QMS Products to
Distributor's office location. To the extent not inconsistent with the
terms hereof, the terms and conditions of the invoice used by QMS in
connection with the shipment of QMS Products hereunder are incorporated by
reference herein and shall apply as if fully recited herein.
Commission. Distributor will pay a commission in an amount equal
to ten and one-half percent (10.5%) of Sales to QMS on all sales of QMS
Products, provided, however, that Distributor shall pay a commission of
seven percent (7%) on Canon toner cartridges ("Commission" or
"Commissions"), which Commission shall be payable quarterly in arrears,
within thirty (30) days of the end of each calendar quarter. No
commissions shall be payable on sales to QMS or QMS Europe B.V.
Distributor guarantees that Commissions will average at least U.S.
$495,000 each calendar quarter, commencing with calendar year 1996 (the
"Minimum Quarterly Commission"). If in any particular calendar quarter,
Commissions do not equal the Minimum Quarterly Commission, Distributor
shall make up for any shortfall; provided, however, that Distributor may
calculate the Commission owed each calendar quarter on a cumulative annual
basis, according to the formula set forth below:
CE - CP = QP; provided CP + QP 3 MQC
where
CE = the total annual Commission earned to date
CP = the total annual Commission paid to date
QP = the quarterly Commission payment owed by Distributor to
QMS
MQC = the accumulated Minimum Quarterly Commission from the
beginning
of the concerned calendar quarter to date.
Failure of Distributor to Meet Obligations. QMS will have the
right to refuse to supply Distributor with QMS Products in the event that
Distributor fails to comply with any of its obligations under this
Agreement, or fails to pay QMS for any purchase of QMS Products or to make
any Commission payments when such payments are due.
Discontinuation or Modification of QMS Products. QMS reserves
the right, in its sole discretion at any time to discontinue, add, adopt or
change any QMS Product, any QMS trademark or trade name, and any design or
specification of any QMS Product.
. OBLIGATIONS OF DISTRIBUTOR
Confidentiality. From time to time, QMS may make available to
Distributor certain information, including but not limited to, information
set forth in programming, operations and service manuals, engineering and
technical data, test and analysis data, marketing, application and customer
information, and will provide Distributor schematics for new QMS Products
pursuant to Section 4.4 hereof. In the event this information is
considered by QMS to be proprietary and/or confidential ("Confidential
Information"), it will be so marked when transmitted to Distributor. All
Confidential Information shall remain the sole and exclusive property of
QMS, and Distributor shall have no right to use, practice or disclose the
Confidential Information except for the purpose for which it was disclosed
to Distributor. Distributor agrees to maintain the Confidential
Information in confidence during the term of this Agreement and for a
period of three (3) years thereafter and further agrees not to divulge the
same to anyone except to directors, officers, employees or agents who
require access thereto to carry out the purpose for which the Confidential
Information was disclosed and who shall have been informed of and who have
agreed to be bound by the obligation of confidentiality set forth herein.
Distributor shall be responsible for any breach of this provision by its
directors, officers, employees or agents. Upon termination or cancellation
of this Agreement, all Confidential Information, and any copies thereof,
shall be immediately delivered to QMS at the address set forth in Section
7.4 hereof.
Financial Statements.
Within ninety (90) days after the end of each fiscal year of
Distributor, Distributor shall furnish QMS with an audited balance
sheet of Distributor as of the end of such fiscal year and the related
statements of income, stockholders' equity and cash flows, prepared in
accordance with Japanese Generally Accepted Accounting Principles
("Japanese GAAP") and certified by a firm of independent public
accountants of recognized national standing selected by the Board of
Directors of Distributor.
Within forty-five (45) days after the end of each fiscal
quarter of Distributor (other than the last quarter in each fiscal
year), Distributor shall furnish QMS with an unaudited balance sheet
of Distributor for such fiscal quarter and related statements of
income, stockholders' equity and cash flows, prepared in accordance
with Japanese GAAP and certified by Distributor's Managing Director.
Indemnification for Third-Party Claims. Distributor will
indemnify, defend and hold QMS harmless from and against all liabilities,
losses, damages, claims, actions, causes of action, costs and expenses
(including without limitation attorney's fees) arising out of or with
respect to the activities of Distributor in performing its obligations
under this Agreement except for Losses arising out of product liability
claims.
. OBLIGATIONS OF QMS
Confidentiality. From time to time, Distributor may make
available to QMS certain information, including but not limited to, certain
financial information. In the event this information is considered by
Distributor to be proprietary and/or confidential ("Confidential
Information"), it will be so marked when transmitted to QMS. All
Confidential Information shall remain the sole and exclusive property of
Distributor, and QMS shall have no right to use, practice or disclose the
Confidential Information except for the purpose for which it was disclosed
to QMS. QMS agrees to maintain the Confidential Information in confidence
during the term of this Agreement and for a period of three (3) years
thereafter and further agrees not to divulge the same to anyone except to
directors, officers, employees or agents who require access thereto to
carry out the purpose for which the Confidential Information was disclosed
and who shall have been informed of and who have agreed to be bound by the
obligation of confidentiality set forth herein. QMS shall be responsible
for any breach of this provision by its directors, officers, employees or
agents.
Advertising Materials. QMS will provide Distributor with a
reasonable quantity of QMS Product manuals, brochures and other materials
in the English language to assist Distributor in the promotion and sale of
QMS Products. QMS will make additional copies of these materials available
to Distributor at a reasonable cost. QMS shall not be responsible for any
translation expense or for providing QMS Product manuals, brochures and
other materials in any language other than English.
Technical Assistance. QMS will provide Distributor with
reasonable technical assistance and information regarding QMS Products and
keep Distributor apprised of material information regarding QMS Products.
Product Customization. At the request of Distributor, QMS will
provide Distributor with a price quote, based on normal hourly rates for
product customization services, to customize any of the QMS Products;
provided, however, that QMS may decline to provide Distributor with a price
quote if QMS deems, in its sole discretion, that providing the requested
customization would interfere with QMS conducting its business as then
conducted. If Distributor then wishes to have a QMS Product customized for
the quoted price, it shall request such customization in writing to QMS.
QMS will submit to Distributor a statement for customization services
provided which will be payable by Distributor within thirty (30) days of
the date of statement.
Schematics. QMS will provide Distributor, without charge, one
copy of schematics of all future QMS Products and enhancements of current
QMS Products sold by Distributor.
Product Warranties.
Each sale of QMS Products to Distributor shall be warranted
to provide that if there exists a product failure due to a specific
defect in workmanship or materials of the same cause and in the same
part, repetitively occurring during ninety (90) days from delivery of
the QMS Products to Distributor in more than five percent (5%) of a
shipment lot of the QMS Products, such failure shall be deemed an
"Epidemic Failure." Distributor will advise QMS in writing if
Distributor believes an Epidemic Failure condition exists and shall
provide evidence satisfactory to QMS, including Distributor's service
log. If both parties agree an Epidemic Failure condition exists QMS
shall, at its discretion, repair or replace the defective QMS
Products.
THE WARRANTIES CONTAINED IN THIS AGREEMENT ARE MADE IN LIEU
OF AND TO THE EXCLUSION OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE.
Indemnification. QMS shall, during the term of this Agreement,
indemnify Distributor from and against any and all claims, demands, suits,
actions, causes of action, loss, liability, attorneys' fees and any other
costs and expenses incurred by Distributor for third party infringement
claims with respect to trademarks, patents or copyright rights as a result
of the sale of QMS Products by Distributor as permitted hereunder, or for
or with respect to the operation of the distributorship contemplated
hereunder.
. TERM AND TERMINATION
Term. The initial term of this Agreement will commence on the
date hereof and end on September 30, 2000, and will be automatically
renewed for separate but successive one-year terms, unless terminated by
the parties hereto as follows:
At the end of the initial term or any subsequent one-year
term hereof by either party upon written notice to the other party
received not less than six (6) months prior to the expiration of any
such term; or
By either party at any time after the occurrence of any one
or more of the following events of default: (i) failure of the other
party to perform any material obligation or covenant of the other
party under this Agreement; (ii) the material breach of any warranty
or representation made by the other party in this Agreement that is
not remedied as provided herein; (iii) the entering into or filing by
or against the other party of a petition, arrangement or proceeding
seeking an order for relief under the bankruptcy laws of the United
States, a receivership for any of the assets of the other party, a
composition with or assignment for the benefit of its creditors, a
readjustment of debt, or the dissolution or liquidation of the other
party; or (iv) the insolvency of the other party; or
By QMS, in the event of (i) the sale, assignment or
conveyance by Distributor of a substantial portion of its assets
without the prior written consent of QMS, which consent shall not be
unreasonably withheld, or (ii) a stock transfer or combination of
stock transfers which result in Mr. Yoji Kawai owning, directly or
indirectly, less than 51% of the aggregate voting power of all
outstanding voting securities of Distributor; or
By QMS in the event Distributor does not meet the Minimum
Resales Requirements set forth in Section 1.2 hereof, which
termination shall be effective immediately upon written notice given
by QMS within ninety (90) days after the expiration of a ninety (90)
days cure period set forth in Section 1.2 hereof.
Effect of Termination.
(a) Upon termination of this Agreement, all rights granted under
this Agreement will immediately cease and terminate. Further,
Distributor will cease all sales and distribution of QMS Products and
remove from each of its location(s) and return to QMS or destroy all
promotional and other material identifying Distributor as an
authorized distributor of QMS Products; provided, however, that
Distributor will have the right to sell its remaining inventory of QMS
Products in accordance with the terms and conditions of this
Agreement, unless QMS elects, shall by written notice to Distributor
on or before the effective date of such termination, to repurchase
Distributor's remaining inventory at the price(s) paid by Distributor
to QMS for such inventory (it being understood that no Commission will
be payable by Distributor on repurchases of inventory by QMS under
this Section 5.2).
(b) Upon termination of this Agreement, Distributor and any
subsidiary of Distributor that has a corporate name containing the
term "QMS" shall, as soon as is reasonably practicable, take all
necessary steps, including without limitation making any necessary
filings and registrations with the appropriate governmental
authorities, to change their corporate names to remove the term "QMS,"
and shall choose new corporate names which do not contain an acronym
which is confusingly similar to "QMS."
Liability upon Termination. Neither party hereto will be liable
to the other party hereto for damages, losses, costs or expenses of any
kind or character whatsoever arising from the termination or expiration of
this Agreement, whether such damages, losses, costs or expenses arise from
the loss of prospective sales or expenses incurred or investments made in
connection with the establishment, development or maintenance of
Distributor's business, or any other reason whatsoever; provided, however,
that such termination or expiration will not affect any claim, demand,
liability or right of either party hereto arising pursuant to this
Agreement prior to the termination or expiration, or arising after
termination or expiration in connection with sale by Distributor of its
remaining inventory of QMS Products or Distributor's obligations under
Section 3.1 of this Agreement.
. DISPUTE RESOLUTION
Disputes Relating to Cost of QMS Products.
QMS shall provide Distributor, within forty-five (45) days
of the end of each fiscal quarter, a statement signed by its Chief
Financial Officer (the "Cost Statement") detailing the calculation of
the Standard Cost of QMS Products as charged by QMS to Distributor
during the most recent fiscal quarter.
Distributor shall have the right, upon written notice to QMS
within fifteen (15) days of receipt of the Cost Statement, to request
a review of the Cost Statement. The Cost Statement shall be reviewed
by an accounting firm that is nationally recognized in the United
States and that is not engaged by either party ("Cost Auditor"). The
Cost Auditor shall be chosen by agreement of the parties hereto. If
the parties hereto cannot agree on a Cost Auditor in a 15-day period
following Distributor's request for review, each party shall designate
a nationally recognized United States accounting firm (which may be a
firm engaged by a party), and the two firms shall, jointly, designate
the Cost Auditor.
The Cost Auditor shall review the Cost Statement and shall
issue a report with respect to the calculation of Standard Cost of QMS
Products under U.S. GAAP and QMS' accounting policies and the
applicable provisions of this Agreement.
If the Cost Auditor's report determines that the prices
charged by QMS to Distributor for QMS Products sold to Distributor
during the quarterly period under examination were, in the aggregate,
greater than 103% of the aggregate Standard Cost of QMS Products as
determined by the Cost Auditor, then QMS (i) shall within forty-five
(45) days of Cost Auditor's final report, repay the actual amount of
the overcharge, and (ii) shall pay all costs and expenses of selecting
the Cost Auditor and all costs and expenses and other fees charged by
the Cost Auditor in connection with its review and the issuance of its
report (the "Cost Audit Expenses"). Distributor shall pay the Cost
Audit Expenses in all other circumstances.
The Cost Auditor's determination shall be final, non-
appealable and binding upon the parties hereof.
Disputes Relating to Sales of QMS Products.
Distributor shall provide QMS, within forty-five (45) days
of the end of each fiscal quarter, a statement signed by its managing
director (the "Sales Statement") detailing the calculation of the unit
volume and dollar value of sales of QMS Products made by Distributor
during the most recent quarterly period.
QMS shall have the right upon written notice to Distributor
within fifteen (15) days of receipt of the Sales Statement to request
a review of the Sales Statement. The Sales Statement shall be
reviewed by an accounting firm that is nationally recognized in Japan
and that is not engaged by with either party ("Sales Auditor"). The
Sales Auditor shall be chosen by agreement of the parties hereto. If
the parties hereto cannot agree on a Sales Auditor in a 15-day period
following QMS' request for review, each party shall designate a
nationally recognized Japanese accounting firm (which may be a firm
engaged by a party) which shall, jointly, designate the Sales Auditor.
The Sales Auditor shall review the Sales Statement and shall
issue a report with respect to the calculation of Commissions paid on
sales of QMS Products during the fiscal quarter under the terms of
this Agreement.
If the Sales Auditor's report determines that the
Commissions paid by Distributor for QMS Products sold during the
quarterly period under examination were, in the aggregate, less than
97% of the aggregate Commissions payable as determined by the Sales
Auditor, then Distributor (i) shall, within forty-five (45) days of
Sales Auditor's final report, pay the additional Commissions, and (ii)
shall pay all costs and expenses of selecting the Sales Auditor and
certain expenses and other fees charged by the Sales Auditor in
connection with the Sales Audit (the "Sales Audit Expenses"). QMS
shall pay the Sales Audit Expenses in all other circumstances.
The Sales Auditor's determination shall be final, non-
appealable and binding upon the parties hereof.
Arbitration. All disputes under this Agreement other than those
under Section 6.1 and Section 6.2 hereof shall be settled by arbitration in
Honolulu, Hawaii, U.S.A. before a single arbitrator pursuant to the
American Arbitration Association Commercial Arbitration Rules which rules
are deemed to be incorporated by reference herein, and judgment on the
award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. Arbitration may be commenced at any time by either
QMS or Distributor giving written notice to the other that such dispute has
been referred to arbitration under this Section 6.3. Any award rendered by
the arbitrator shall be final, conclusive, non-appealable and binding upon
the parties hereto and shall be accompanied by a written opinion of the
arbitrator giving the reasons for the awards; provided, however, that the
arbitrator shall have no authority to award any special, indirect,
incidental, consequential, punitive or other damages not measured by the
prevailing party's actual damages and the arbitrator may not make any
ruling, finding or award that does not conform with the terms and
conditions of this Agreement. Each party shall pay its own expenses of
arbitration and the expenses of the arbitrator shall be equally shared;
provided, however, that the arbitrator may assess, as part of his award,
all or any part of the arbitration expenses of the other party (including
reasonable attorneys' fees) and of the arbitrator against the party raising
such unreasonable claim, defense or objection.
Specific Performance. The provisions for review of Cost
Statements, Sales Statements and arbitration may be specifically
enforceable by the parties.
. MISCELLANEOUS PROVISIONS
Entire Agreement; Amendments. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter
hereof, and supersede all prior oral or written agreements. This Agreement
may not be amended or modified, except by a further written agreement
signed by the parties hereto.
Waiver. No failure or delay on the part of a party hereto in
exercising any right or remedy hereunder will operate as a waiver thereof;
nor will any single or partial exercise of any such right or remedy
preclude any other or further exercise thereof or of any other right or
remedy. No provision of this Agreement may be waived except in a writing
signed by the party granting such waiver.
Assignment.
In the event of a sale or transfer by QMS of its business
(by merger, sale of stock, sale of substantially all of its assets or
otherwise)("Sale of the Business"), QMS may, without the consent of
Distributor, assign its rights and obligations under this Agreement to
the ultimate successor in interest to the business of QMS (the
"Successor"), provided that the Successor agrees, in writing, to abide
by the terms of this Agreement.
Except as set forth in paragraph (a) above, neither QMS nor
Distributor shall have the right to assign its rights and obligations
under this Agreement without the prior written consent of the other.
Notice. Except as otherwise specified herein, all notices,
communications and reports required or permitted pursuant to this Agreement
will be in writing and will be mailed, telecopied, or delivered to the
other party at the address shown below (or at such other address as may be
specified hereafter in writing by either party hereto to the other party in
accordance with this Section 7.4) and will be effective and deemed received
upon the earlier of (i) delivery or (ii) fifteen (15) days after placed in
the mail.
If to QMS: QMS, Inc.
One Magnum Pass
Post Office Box 81250
Mobile, Alabama USA 36689-1250
Attn: Legal Department
with a required Powell, Goldstein, Frazer & Murphy
copy to: Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: G. William Speer, Esq.
If to Distributor: QMS Japan Kabushiki Kaisha
Gotanda Metalion Bldg. 2F
5-21-15 Higashi-Gotanda
Shinagawa-Ku, Tokyo 141, Japan
Attn: Yoji Kawai
with a required SHOWA Law Office
copy to: Tsuruya Hachiman Bldg. 5F
2-4 Kojimachi
Chiyoda-Ku, Tokyo 102, Japan
Attn: Masatomo Suzuki
Severability. In the event that any one or more of the
provisions, or parts of any provisions, contained in this Agreement will
for any reason be held to be invalid, illegal or unenforceable in any
respect by a court of competent jurisdiction, the same will not invalidate
or otherwise affect any other provision hereof, and this Agreement will be
construed as if such invalid, illegal or unenforceable provision, or part
of any provision, had never been contained herein.
Force Majeure. Except for the obligation of Distributor to pay
for any and all QMS Products purchased pursuant to this Agreement, neither
party hereto shall be liable for the failure to perform any of its
obligations under this Agreement if such failure is caused by the
occurrence of any contingency beyond the reasonable control of such party,
including without limitation, fire, flood, strikes and other industrial
disturbances, failure of raw material suppliers, failure of transport,
accidents, wars, riots, insurrections, acts of God or orders of
governmental agencies. In the event that any such contingency occurs which
affects QMS's performance, QMS may allocate production and delivery among
its customers as it sees fit in its sole discretion and without liability
to Distributor.
Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Georgia.
Governing Language. Regardless of whether a copy of this
Agreement is translated into another language, the official version hereof
shall be the English version, which shall prevail in all cases. All
correspondence and communication between the parties, all reports, orders,
instructions, literature, financial statements and financial records, other
records and other written materials pertaining to this Agreement shall be
maintained and delivered in the English language. All monetary amounts
shall be in U.S. Dollars.
Independent Contractor. This Agreement does not constitute or
appoint Distributor as an agent of QMS and Distributor acknowledges and
agrees that Distributor has no authority to obligate QMS and that
Distributor shall make no representation, express or implied, to the
contrary. Distributor is an independent contractor hereunder, and QMS will
not be liable for the debts, accounts, obligations or other liabilities of
Distributor or of its agents, employees or independent contractors,
including without limitation any costs for salaries, overhead,
transportation or communication.
The parties hereto have executed this Agreement, effective as of the
day and year first above written.
QMS: DISTRIBUTOR:
QMS, Inc. /s/ Yoji Kawai
Yoji Kawai
By: /s/ Gregory R. Jones Kabushiki Kaisha Typebank
Title: Vice President By:
Title:
Exhibit 10(s)(v)
PROMISSORY NOTE
Yen equivalent of U.S. $3,000,000.00 September 30, 1995
FOR VALUE RECEIVED, the undersigned, a new Japanese company in the
process of being established, which is being represented for the purpose of
this promissory note by its promoters and shareholders-to-be, namely Yoji
Kawai, a Japanese national and Kabushiki Kaisha Typebank, a Japanese
corporation ("Maker"), promises to pay to the order of QMS Japan Kabushiki
Kaisha, a corporation organized under the laws of Minato-Ku, Japan (along
with each subsequent holder of this Note, referred to as "Holder"), the
principal sum of amount in Yen equivalent to U.S. Three Million Dollars
(U.S. $3,000,000.00) to be determined as set forth herein, with interest on
the outstanding principal balance at a simple interest rate of eight
percent (8%) per annum beginning December 7, 1995 (the "Effective Date").
This Note constitutes partial payment of the purchase price for the
assets of QMS Japan which were purchased by Maker pursuant to that certain
Asset Purchase Agreement between Maker, QMS Japan and QMS, dated as of
September 30, 1995 (the "Agreement") and is secured by the pledge by Maker
of all of its inventory pursuant to that certain Inventory Johto-Tampo
Agreement dated the date hereof.
This Note shall be paid as follows:
(a) On each of the first six (6) monthly anniversaries of the
Effective Date, Maker shall pay to Holder all interest accrued during
the previous month on the outstanding principal balance of this Note;
and
(b) On each of the fifty-four (54) monthly anniversaries of the
Effective Date following the sixth monthly anniversary of the
Effective Date, Maker shall pay to Holder an amount in Yen equivalent
to U.S. fifty-five thousand five hundred fifty-five dollars and fifty-
six cents (U.S.$55,555.56), plus all interest accrued on the
outstanding principal balance of this Note at such time, until this
Note has been paid in full.
For purposes of calculating the Yen equivalent amounts of the U.S.
Dollar amounts set forth above, T.T.S. rates to be quoted by a reputable
bank in Tokyo, Japan on the respective payment dates shall apply.
Should the principal or any interest hereunder not be paid when due,
the Holder shall have the right to declare the unpaid principal and all
accrued interest of this Note to be forthwith due and payable. Any payment
of principal which is not paid when due shall bear interest until paid at a
simple interest rate equal to twelve percent (12.0%) per annum.
The principal hereof and any interest hereon shall be payable in
lawful money of the United States of America, at such place as the Holder
hereof may designate in writing to Maker. The Maker may prepay this Note
in full or in part at any time without notice, penalty or prepayment fee.
Maker agrees to pay the Holder hereof reasonable attorneys' fees for
the services of counsel employed to collect this Note, whether or not suit
be brought, and whether incurred in connection with collection, trial,
appeal, or otherwise, and to indemnify and hold the Holder harmless against
liability for the payment of state intangible, documentary and recording
taxes, and other taxes (including interest and penalties, if any) which may
be determined to be payable with respect to this transaction.
In no event shall the amount of interest due or payable hereunder
exceed the maximum rate of interest allowed by applicable law, and in the
event any such payment is inadvertently paid by Maker or inadvertently
received by the Holder, then such excess sum shall be credited as a payment
of principal, unless Maker shall notify the Holder, in writing, that Maker
elects to have such excess sum returned to it forthwith. It is the express
intent hereof that Maker not pay and the Holder not receive, directly or
indirectly, in any manner whatsoever, interest in excess of that which may
be lawfully paid by the Maker under applicable law.
The remedies of Holder as provided herein and in any other documents
governing or securing repayment hereof shall be cumulative and concurrent
and may be pursued singly, successively, or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor
shall arise.
No act of omission or commission of Holder, including specifically any
failure to exercise any right, remedy, or recourse, shall be effective
unless set forth in a written document executed by Holder, and then only to
the extent specifically recited therein. A waiver or release with
reference to one event shall not be construed as continuing, as a bar to,
or as a waiver or release of any subsequent right, remedy, or recourse as
to any subsequent event.
Maker hereby (a) waives demand, presentment of payment, notice of
nonpayment, protest, notice of protest and all other notice, filing of
suit, and diligence in collecting this Note; (b) agrees to any
substitution, addition, or release of any collateral or any party or person
primarily or secondarily liable hereon; (c) agrees that the Holder shall
not be required first to institute any suit, or to exhaust its remedies
against Maker or any other person or party to become liable hereunder, or
against any collateral in order to enforce payment of this Note; and
(d) consents to any extension, rearrangement, renewal, or postponement of
time of payment of this Note and to any other indulgence with respect
hereto without notice, consent, or consideration.
Whenever used in this Note, the words "Maker" and "Holder" shall be
deemed to include Maker and the Holder named in the opening paragraph of
this Note, and their respective legal representatives, successors, and
assigns. It is expressly understood and agreed that the Holder shall never
be construed for any purpose as a partner, joint venturer, co-principal, or
associate of Maker, or of any person or party claiming by, through, or
under Maker in the conduct of their respective businesses.
Time is of the essence of this Note.
This Note shall be construed and enforced in accordance with the laws
of the State of Georgia.
All references herein to any document, instrument, or agreement shall
be deemed to refer to such document, instrument, or agreement as the same
may be amended, modified, restated, supplemented, or replaced from time to
time.
IN WITNESS WHEREOF, the undersigned Maker has executed this instrument
under seal as of the day and year first above written.
MAKER:
/s/ Yoji Kawai
YOJI KAWAI
KABUSHIKI KAISHA TYPEBANK
By:
Title:
HOLDER:
QMS JAPAN KABUSHIKI
KAISHA
By: /s/ Philip R. Cahoon
Title: Representative Director
Exhibit 10(s)(vi)
PROMISSORY NOTE
Yen equivalent of U.S. $500,000.00 September 30, 1995
FOR VALUE RECEIVED, the undersigned, a new Japanese company in process
of being established, which is being represented for the purpose of this
promissory note by its promoters and shareholders-to-be, namely Yoji Kawai,
a Japanese national and Kabushiki Kaisha Typebank, a Japanese corporation
("Maker"), promises to pay to the order of QMS Japan Kabushiki Kaisha, a
corporation organized under the laws of Minato-Ku, Japan (along with each
subsequent holder of this Note, referred to as "Holder"), the principal sum
of an amount in Yen equivalent to U.S. Five Hundred Thousand Dollars (U.S.
$500,000.00) to be determined as set forth herein.
This Note constitutes partial payment of the purchase price for the
assets of Holder which were purchased by Maker pursuant to that certain
Asset Purchase Agreement between Maker, QMS Japan and QMS, dated as of
September 30, 1995 (the "Agreement") and is secured by the pledge by Maker
of all of its inventory pursuant to that certain Inventory Johto-Tampo
Agreement dated the date hereof.
This Note shall be paid in full on March 31, 1996.
For purposes of calculating the Yen equivalent amount of the U.S.
Dollar amount set forth above, the T.T.S. rate to be quoted by a reputable
bank in Tokyo, Japan on the payment date shall apply.
Should the principal or any interest hereunder not be paid when due,
the Holder shall have the right to declare the unpaid principal and all
accrued interest of this Note to be forthwith due and payable. Any payment
of principal which is not paid when due shall bear interest until paid at a
simple interest rate equal to twelve percent (12.0%) per annum.
The principal hereof and any interest hereon shall be payable in
lawful money of the United States of America, at such place as the Holder
hereof may designate in writing to Maker. The Maker may prepay this Note
in full or in part at any time without notice, penalty or prepayment fee.
Maker agrees to pay the Holder hereof reasonable attorneys' fees for
the services of counsel employed to collect this Note, whether or not suit
be brought, and whether incurred in connection with collection, trial,
appeal, or otherwise, and to indemnify and hold the Holder harmless against
liability for the payment of state intangible, documentary and recording
taxes, and other taxes (including interest and penalties, if any) which may
be determined to be payable with respect to this transaction.
In no event shall the amount of interest due or payable hereunder
exceed the maximum rate of interest allowed by applicable law, and in the
event any such payment is inadvertently paid by Maker or inadvertently
received by the Holder, then such excess sum shall be credited as a payment
of principal, unless Maker shall notify the Holder, in writing, that Maker
elects to have such excess sum returned to it forthwith. It is the express
intent hereof that Maker not pay and the Holder not receive, directly or
indirectly, in any manner whatsoever, interest in excess of that which may
be lawfully paid by the Maker under applicable law.
The remedies of Holder as provided herein and in any other documents
governing or securing repayment hereof shall be cumulative and concurrent
and may be pursued singly, successively, or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor
shall arise.
No act of omission or commission of Holder, including specifically any
failure to exercise any right, remedy, or recourse, shall be effective
unless set forth in a written document executed by Holder, and then only to
the extent specifically recited therein. A waiver or release with
reference to one event shall not be construed as continuing, as a bar to,
or as a waiver or release of any subsequent right, remedy, or recourse as
to any subsequent event.
Maker hereby (a) waives demand, presentment of payment, notice of
nonpayment, protest, notice of protest and all other notice, filing of
suit, and diligence in collecting this Note; (b) agrees to any
substitution, addition, or release of any collateral or any party or person
primarily or secondarily liable hereon; (c) agrees that the Holder shall
not be required first to institute any suit, or to exhaust its remedies
against Maker or any other person or party to become liable hereunder, or
against any collateral in order to enforce payment of this Note; and
(d) consents to any extension, rearrangement, renewal, or postponement of
time of payment of this Note and to any other indulgence with respect
hereto without notice, consent, or consideration.
Whenever used in this Note, the words "Maker" and "Holder" shall be
deemed to include Maker and the Holder named in the opening paragraph of
this Note, and their respective legal representatives, successors, and
assigns. It is expressly understood and agreed that the Holder shall never
be construed for any purpose as a partner, joint venturer, co-principal, or
associate of Maker, or of any person or party claiming by, through, or
under Maker in the conduct of their respective businesses.
Time is of the essence of this Note.
This Note shall be construed and enforced in accordance with the laws
of the State of Georgia.
All references herein to any document, instrument, or agreement shall
be deemed to refer to such document, instrument, or agreement as the same
may be amended, modified, restated, supplemented, or replaced from time to
time.
IN WITNESS WHEREOF, the undersigned Maker has executed this instrument
under seal as of the day and year first above written.
MAKER:
/s/ Yoji Kawai
YOJI KAWAI
KABUSHIKI KAISHA TYPEBANK
By:
Title:
HOLDER:
QMS JAPAN KABUSHIKI
KAISHA
By: /s/ Philip R. Cahoon
Title: Representative Director
Exhibit 10(s)(vii)
TRADEMARK AND TRADE NAME LICENSE AGREEMENT
THIS TRADEMARK AND TRADE NAME LICENSE AGREEMENT (the "Agreement") is
made as of December 7, 1995, by and between QMS, Inc., a corporation formed
under the laws
of Delaware, U.S.A. ("QMS"), and QMS Japan Kabushiki Kaisha, a corporation
formed under the laws of Shinagawa-Ku, Japan (the "Company").
RECITALS:
WHEREAS, QMS is the owner of certain trademarks and trade names (the
"Marks") used in connection with the manufacture and sale of its products
(the "QMS Products"); and
WHEREAS, QMS and Licensee have entered into that certain Master
Distributor Agreement of even date herewith (the "Distributor Agreement"),
under which Licensee will act as a distributor for the QMS Products within
the Territory (as defined herein); and
WHEREAS, Licensee desires to use the Marks in connection with its
distribution of the QMS Products under the Distributor Agreement, and QMS
desires to provide a license for such use under the terms and conditions
set forth herein (the "License")
NOW, THEREFORE, the parties have agreed as follows:
Grant of License. QMS hereby grants to Licensee and Licensee's
subsidiaries an exclusive, royalty-free right to utilize the now or
hereafter existing trademarks, trade names, copyrighted materials,
logos, slogans, designs and distinctive advertising of QMS in
connection with the sale and distribution of the QMS Products by
Licensee in the following territories: Japan, South Korea, China,
Taiwan, Cambodia, Hong Kong, Macao, Vietnam, Laos, Myanma,
Philippines, Malaysia, Singapore, Mongolia, and Thailand.
Conditions of Grant. The License is subject to the following conditions:
Licensee may only use the Marks for the purpose of advertisement,
promotion and sale of the QMS Products and for no other purposes;
Licensee may only use the Marks in the form in which they are used by
QMS and may not alter or modify them or add material to them so
as to diminish their distinctiveness;
Licensee will not use the Marks in any manner likely to confuse,
mislead or deceive the public, or to be injurious or inimical to
the best interests of QMS; and
Licensee will not allow use of the Marks by its subsidiaries unless
and until they agree in writing to be bound by the terms of this
Agreement.
Rights of QMS as a Licensor. QMS retains the right to monitor Licensee's
usage of the Marks and to inspect any advertising or marketing
materials developed by Licensee which use the Marks, and Licensee may
not distribute, display or otherwise utilize any such materials which
QMS determines to be unacceptable. Licensee agrees that it will not
acquire any right or interest in any of the Marks, whether by use,
operation of law, or otherwise.
Term and Termination. This Agreement and the License granted hereunder
shall be effective upon the date hereof, and shall continue in effect
until either of the following shall occur:
The Distributor Agreement is terminated by either party for any
reason; or
Licensee fails to use the Marks in accordance with the terms of this
Agreement.
General Provisions.
All notices, requests, consents or other communication hereunder shall
be in writing and shall be mailed, telecopied or delivered to the
other party at the address shown below (or at such address as may
be specified hereafter in writing by either party hereto to the
other party in accordance with this Section) and will be
effective and deemed received upon the earlier of (i) receipt or
(ii) fifteen days after placed in the mail:
If to QMS: With a required copy to:
QMS, Inc. Powell, Goldstein, Frazer & Murphy
One Magnum Pass Sixteenth Floor
Post Office Box 81250 191 Peachtree Street, N.E.
Mobile, Alabama USA 36689-1250 Atlanta, Georgia USA 30303
Attn: Legal Department Attn: G. William Speer, Esq.
If to Licensee: With a required copy to:
QMS Japan Kabushiki Kaisha SHOWA Law Office
Gotanda Metalion Bld. 2F Tsuruya Hachiman Bld. 5F
5-21-15 Higashi-Gotanda 2-4 Kojimachi
Shinagawa-Ku, Tokyo 141, Japan Chiyaoda-Ku, Tokyo 102,
Japan
Attn: Yoji Kawai Attn: Masatomo Suzuki
This Agreement shall be governed by the laws of the State of Georgia.
Regardless of whether a copy of this Agreement is translated into
another language, the official version hereof shall be the
English version, which shall prevail in all cases. All
correspondence and communication between the parties shall be in
the English language.
The License may not be assignable by Licensee without the express
written consent of QMS.
This Agreement may only be amended by written agreement by the parties
hereto.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, and all of which together shall constitute
one and the same institute.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
QMS:
QMS, Inc.
By: /s/ Gregory R. Jones
Name: Gregory R. Jones
Title: Vice President
LICENSEE:
QMS Kabushiki Kaisha
By: /s/ Yoji Kawai
Name: Yoji Kawai
Title: President
Exhibit 10(s)(viii)
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT (the "Agreement") is e xecuted and delivered
as of December 7, 1995, by QMS Japan Kabushiki Kaisha, a corporation formed
under the laws of Shinagawa-Ku, Japan (the "Company") to and in favor of
QMS Japan Kabushiki Kaisha, a corporation formed under the laws of Minato-
Ku, Japan ("Seller"), and QMS, Inc., a corporation formed under the laws of
the state of Delaware, U.S.A. ("QMS").
W I T N E S S E T H:
WHEREAS, on September 30, 1995, prior to the formation of the Company,
Yoji Kawai, a Japanese national and Kabushiki Kaisha Typebank, a Japanese
corporation (the "Promoters"), entered into that certain Asset Purchase
Agreement (the "Purchase Agreement") with Seller and QMS on behalf of the
Company;
WHEREAS, on September 30, 1995, prior to the formation of the Company,
the Promoters entered into each of the Assumption Agreement, the
Distributor Agreement, Note A, Note B, and the Pledge and Security
Agreement (each as defined in the Purchase Agreement) on behalf of the
Company (the "Collateral Documents");
WHEREAS, the Company has been duly organized under the laws of Japan;
WHEREAS, the execution and delivery of the Purchase Agreement and each
of the Collateral Documents by the Promoters on behalf of the Company has
been ratified and approved by the Company by all necessary corporate
action; and
WHEREAS, in connection with the Purchase Agreement, the Promoters
agreed that upon the formation of the Company, the Company would enter into
an Assumption Agreement with Seller and QMS whereby the Company would agree
to assume all of the obligations originally consented to by the Promoters
on behalf of the Company under the Transaction Documents.
NOW, THEREFORE, in consideration of the premises and the mutual
covenant and agreements set forth in this Agreement, the Purchase Agreement
and the Collateral Documents, and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:
Assumption of Obligations. The Company does hereby assume, and
it shall pay, discharge or perform, as appropriate, any and all obligations
and liabilities of the Company set forth in the Purchase Agreement and in
the Collateral Documents, which obligations and liabilities were consented
to by the Promoters on behalf of the Company prior to the Company's
formation, as evidenced by the signatures of the Promoters on such
documents.
Corporate Existence. The Company does hereby represent and
warrant to Seller and QMS that it is a corporation duly organized, validly
existing and in good standing under the laws of Japan.
Corporate Power; Authorization. The Company does hereby
represent and warrant to Seller and QMS that (i) it has the power,
authority, and legal right to execute, deliver and perform this Agreement;
(ii) the execution, delivery and performance of this Agreement by the
Company has been duly authorized by all necessary corporate action;
(iii) this Agreement has been duly executed and delivered on behalf of the
Company by a duly authorized officer; and (iv) this Agreement constitutes
the legal, valid and binding obligation of the Company, enforceable against
it in accordance with its terms.
Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the state of Georgia, U.S.A.
IN WITNESS WHEREOF, the Company has executed this Agreement as of the
day and year first above written.
THE COMPANY:
QMS Japan Kabushi Kaisha, a corporation
organized under the laws of Shinagawa-Ku,
Japan
By: /s/ Yoji Kawai
Name: Yoji Kawai
Title: President
Agreed and accepted this __7__ day
of December, 1995.
QMS, Inc., a Delaware corporation
By: /s/ Gregory R. Jones
Name: Gregory R. Jones
Title: Vice President
QMS Japan Kabushiki Kaisha, a corporation
organized under the laws of Minato-Ku,
Japan
By: /s/ Philip R. Cahoon
Name: Philip R. Cahoon
Title: Representative Director
<TABLE>
EXHIBIT 11
QMS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (LOSS)
<CAPTION>
(in thousands, except per
share amounts) September 29, September 30, October 1,
1995 1994 1993
<S> <C> <C> <C>
Net Income (Loss) $ (44,946) $ 2,960 $ (2,933)
Shares used in this computation:
Weighted average common shares
outstanding 10,677 10,699 10,690
Shares applicable to stock options,
net of shares assumed to be
purchased from proceeds at average
market 0 24 102
------------ ----------- ----------
Total shares for earnings per
common share computation
(primary) 10,677 10,723 10,792
Shares applicable to stock options
in addition to those used in primary
computation due to the use of
periodend market price when higher
than average 0 38 29
------------ ----------- ----------
Total fully diluted shares 10,677 10,761 10,821
============ =========== ==========
Earnings (loss) per common share
Primary:
Net income (loss) ($4.15) $0.28 ($0.31)
Fully Diluted:
Net income (loss) ($4.15) $0.28 ($0.31)
Weighted average number of shares
used in computing earnings per share:
Primary 10,677 10,723 10,792
Fully diluted 10,677 10,761 10,821
</TABLE>
EXHIBIT 21
QMS, INC.
SUBSIDIARIES AND TRADE NAMES
Unless indicated otherwise, each of the following is a
wholly owned subsidiary of QMS, Inc.
State or Other
Jurisdiction of Other Names Under Which
Legal Name of Subsidiary Incorporation Subsidiary Does Business
- --------------------------- ---------------- -------------------------
QMS Circuits, Inc. Delaware QCI
QMS Foreign Sales, Inc. U.S. Virgin Islands
QMS Canada, Inc. Canada
*QMS Japan, Inc. Japan
QMS Asia-Pacific, Inc. Delaware
As of December 20, 1995
* In the process of dissolution as of September 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-29-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-29-1995
<EXCHANGE-RATE> 0.00001
<CASH> 7431
<SECURITIES> 0
<RECEIVABLES> 38267
<ALLOWANCES> 546
<INVENTORY> 47482
<CURRENT-ASSETS> 99700
<PP&E> 69205
<DEPRECIATION> 42484
<TOTAL-ASSETS> 135538
<CURRENT-LIABILITIES> 64189
<BONDS> 0
<COMMON> 118
0
0
<OTHER-SE> 43095
<TOTAL-LIABILITY-AND-EQUITY> 135538
<SALES> 259740
<TOTAL-REVENUES> 259740
<CGS> 210032
<TOTAL-COSTS> 210032
<OTHER-EXPENSES> 94574
<LOSS-PROVISION> 282
<INTEREST-EXPENSE> 4113
<INCOME-PRETAX> (44286)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44286)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44286)
<EPS-PRIMARY> (4.15)
<EPS-DILUTED> (4.15)
</TABLE>
