SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 2, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9348
QMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0737870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE MAGNUM PASS, MOBILE, AL 36618
(Address of principal executive offices) (Zip Code)
(334) 633-4300
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of the issuer's common stock, as of the latest practicable date
10,697,065 AT JANUARY 30, 1998.
QMS, INC. AND SUBSIDIARIES
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INDEX
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PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(unaudited) as of January 2, 1998 and
October 3, 1997 3 - 4
Condensed Consolidated Statements of Income
(unaudited) for the three months ended
January 2, 1998 and December 27, 1996 5
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three months ended
January 2, 1998 and December 27, 1996 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
PART II - OTHER INFORMATION 12 - 13
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. (a) Exhibits
(b) Reports on Form 8 - K
SIGNATURES 14
</TABLE>
QMS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
as of January 2, 1998 and October 3, 1997
(Unaudited)
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January 2, October 3,
in thousands 1998 1997
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 697 $ 612
Trade Receivables (less allowance for doubtful
accounts of $615 at January 2, 1998 and $529
at October 3, 1997) 19,932 17,535
Note Receivable 610 443
Inventories:
Raw Materials 5,621 5,614
Work in Process 1,415 1,237
Finished Goods 15,218 18,251
Inventory Reserves (see Note 3) (4,612) (6,978)
------------ --------------
Total Inventories, Net 17,642 18,124
Other Current Assets 2,726 2,257
------------ --------------
Total Current Assets 41,607 38,971
------------ --------------
PROPERTY, PLANT, AND EQUIPMENT 36,081 38,290
Less Accumulated Depreciation 31,316 32,933
------------ --------------
Total Property, Plant, and Equipment, Net 4,765 5,357
CAPITALIZED AND DEFERRED SOFTWARE 8,431 8,897
NOTES RECEIVABLE, NET 3,267 3,433
PREPAID RENT (Note 4) 1,151 0
OTHER ASSETS, NET 1,971 1,931
------------ --------------
TOTAL ASSETS $ 61,192 $ 58,589
============ ==============
See Notes to Condensed Consolidated Financial Statements
</TABLE>
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of January 2, 1998 and October 3, 1997
(Unaudited)
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January 2, October 3,
in thousands 1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 10,475 $ 6,562
Revolving Credit Loan and Short-Term Debt (Note 5) 0 447
Current maturities of capital lease obligations 749 988
Other Current Liabilities :
Employment Costs 4,336 3,931
Deferred Service Revenue 9,400 9,536
Accrued Expenses 1,240 1,251
Restructuring Reserves 969 1,747
Accrued Management Transition Expenses 605 621
Other 1,288 1,601
------------ --------------
Total Other Current Liabilities 17,838 18,687
------------ --------------
Total Current Liabilities 29,062 26,684
------------ --------------
CAPITAL LEASE OBLIGATIONS 844 898
OTHER LIABILITIES:
Deferred Service Revenue 1,056 1,033
Deferred Compensation 2,896 2,969
Accrued Management Transition Expenses 394 472
Other Liabilities 2,209 2,209
------------ --------------
Total Other Liabilities 6,555 6,683
------------ --------------
STOCKHOLDERS' EQUITY 24,731 24,324
------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 61,192 $ 58,589
============ ==============
See Notes to Condensed Consolidated Financial Statements
</TABLE>
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended January 2, 1998 and December 27, 1996
(Unaudited)
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Three Months Ended
January 2, December 27,
in thousands, except per share amounts 1998 1996
NET SALES
Printers and Supplies $ 20,231 $ 23,115
U.S. Service 8,347 8,353
---------------- ---------------
Total Net Sales 28,578 31,468
---------------- ---------------
COST OF GOODS SOLD
Printers and Supplies 14,506 16,851
U.S. Service 4,999 4,896
---------------- ---------------
Total Cost of Goods Sold 19,505 21,747
---------------- ---------------
GROSS PROFIT
Printers and Supplies 5,725 6,264
U.S. Service 3,348 3,457
---------------- ---------------
Total Gross Profit 9,073 9,721
---------------- ---------------
OPERATING EXPENSES 8,844 9,273
---------------- ---------------
OPERATING INCOME 229 448
OTHER INCOME (EXPENSE)
Interest Income 98 100
Interest Expense (80) (325)
Miscellaneous Income (Expense) 158 (155)
---------------- ---------------
Total Other Income (Expense) 176 (380)
---------------- ---------------
INCOME BEFORE INCOME TAXES 405 68
INCOME TAX PROVISION 4 6
---------------- ---------------
NET INCOME $ 401 $ 62
================ ===============
EARNINGS PER COMMON SHARE (Note 2)
Basic & Diluted $ 0.04 $ 0.01
SHARES USED IN PER SHARE COMPUTATION (Note 2)
Basic 10,697 10,693
Diluted 10,701 10,757
See Notes to Condensed Consolidated Financial Statements
</TABLE>
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended January 2, 1998 and December 27, 1996
(Unaudited)
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Three Months Ended
January 2, December 27,
in thousands 1998 1996
Cash Flows from Operating Activities:
Net Income $ 401 $ 62
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation of Property, Plant and Equipment 529 1,282
Amortization of Capitalized and Deferred Software 1,839 1,476
Provision for Losses on Inventory 673 618
Other (125) (5)
Net Change in Assets and Liabilities that provided (used) cash (1,430) 879
--------------- --------------
Net Cash Provided by Operating Activities 1,887 4,312
--------------- --------------
Cash Flows from Investing Activities:
Collections of Notes Receivable 0 167
Purchase of Property, Plant and Equipment (95) (492)
Additions to Capitalized and Deferred Software Costs (1,372) (2,094)
Other 399 39
--------------- --------------
Net Cash Used in Investing Activities (1,068) (2,380)
--------------- --------------
Cash Flows from Financing Activities:
Proceeds from Debt and Capital Lease Obligations 0 185
Payments of Debt and Capital Lease Obligations (447) (2,345)
Other (287) 95
--------------- --------------
Net Cash Used in Financing Activities (734) (2,065)
--------------- --------------
Net Change in Cash and Cash Equivalents 85 (133)
Cash and Cash Equivalents at Beginning of Period 612 190
--------------- --------------
Cash and Cash Equivalents at End of Period $ 697 $ 57
============== ==============
See Notes to Condensed Consolidated Financial Statements
</TABLE>
QMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. MANAGEMENT OPINION
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments necessary to present fairly the financial position of
the Company as of January 2, 1998, the results of operations and changes in
cash flows for the three months ended January 2, 1998, and December 27, 1996.
All adjustments included in the condensed consolidated financial statements
are of a normal recurring nature except amounts related to the restructuring
reserves (see Note 7). The results of operations for the three months ended
January 2, 1998, are not necessarily indicative of the results to be expected
for the fiscal year ending October 2, 1998. Certain reclassifications have
been made to fiscal 1997 amounts to conform to the fiscal 1998 presentation.
2. EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Earnings per share computations are
based on the weighted average number of common shares outstanding during the
period and the dilutive effect of the assumed exercise of stock options.
This effect was not material for the three-month periods ending January 2,
1998, and December 27, 1996, and did not change the amounts of the basic and
diluted earnings per common share.
3. INVENTORY RESERVES
Inventory reserves at January 2, 1998, and October 3, 1997, are summarized as
follows (in thousands):
January 2, October 3,
1998 1997
Standards revisions $ 513 $ 1,635
Excess and obsolete reserves 3,351 4,555
Valuation reserves 748 788
--------- ---------
TOTAL $ 4,612 $ 6,978
========= =========
The inventory reserves at October 3, 1997, included $1.6 million for
standards revisions that occurred in the first quarter of fiscal 1998.
Inventory reserves at January 2, 1998, consist primarily of excess and
obsolete reserves and spare part valuation reserves. Excess and obsolete
reserves are calculated based on specific identification of items. In the
first quarter of fiscal 1998, the Company disposed of $1.9 million in excess
and obsolete inventory. Spare part valuation reserves reflect the reduced
value of unrepaired parts from the value of the repaired part.
4. PREPAID RENT
At October 3, 1997, the Company was not in compliance with Fixed Charge
Coverage and Net Worth covenants contained in the 1997 sale-leaseback
agreement for the Mobile headquarters. On December 8, 1998, the Company
obtained a one-year waiver of non-compliance through October 5, 1998, from
the lessor in exchange for $1.3 million in prepaid rent and an amendment to a
related warrant agreement. At the end of the waiver period, the Company may
be out of compliance with one or more covenants contained in the lease
agreement. Among the remedies available to the landlord is the acceleration
of all rent for the initial lease term, cancellation of the lease, or all
other remedies available at law. Management believes over the next year
through further negotiations an additional extension of the waiver or a
permanent revision of the covenant will be obtained.
The prepaid rent covers the period from December 1, 1998, to September 9,
1999. $149,000 of prepaid Mobile rent was included in other current assets
and $1,151,000 was reported as a non-current asset.
5. CLASSIFICATION OF REVOLVING CREDIT LOAN
The Company's revolving credit loan is classified as short-term debt in the
financial statements in compliance with FASB Emerging Issues Task Force Issue
No. 95-22, "Balance Sheet Classification of Borrowings Outstanding Under
Revolving Credit Arrangements That Include a Subjective Acceleration Clause
and a Lock-Box Arrangement." This revolving credit agreement expires in
November 1999. The Company was in compliance with the covenants of this
agreement as of January 2, 1998.
6. COMMITMENTS AND CONTINGENCIES
As of January 2, 1998, the Company had a commitment of approximately $17.1
million under contracts to purchase print engines and related components.
The Company was contingently liable for approximately $410,000 as of January
2, 1998, as a result of letters of credit issued in the normal course of
business for the purchase of inventory.
7. RESTRUCTURING AND MANAGEMENT TRANSITION EXPENSES
At October 3, 1997, the Company had reserves for restructuring expenses of
$1,747,000. During the first quarter of fiscal 1998 a total of $778,000 was
paid leaving a balance of $969,000 at January 2, 1998.
In addition, the Company had reserves totaling $4,174,000 at October 3, 1997,
for management transition and retirement benefit expenses for three
executives. The reserve balances are based on the net present value of
projected benefits. In the first quarter of fiscal 1998, the Company
incurred $113,000 in interest expense related to this reserve and paid
$130,000 in management transition and retirement benefits leaving a balance
of $4,157,000 at January 2, 1998.
QMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
________________________________________________________________________________
RESULTS OF OPERATIONS
- ---------------------
Net income for the first quarter of fiscal 1998 was $401,000 on net sales of
$28.6 million compared to net income of $62,000 for the first quarter of fiscal
1997 on net sales of $31.5 million. The gain in the first quarter of fiscal
1998 was achieved because of cost reduction efforts begun by management in the
fourth quarter of fiscal 1997. Part of the cost reduction effort included
closing QMS Circuits, Inc. an electronic board manufacturer located in
Florida. The closing of QMS Circuits improved QMS profitability while reducing
sales.
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Table of Net Sales Comparisons for Key Channels of Distribution
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First Quarter ended
January 2, December 27,
(000's) 1998 1996 Difference
-------------- -------------- --------------
U.S. Direct $ 11,396 $ 12,486 $ (1,090)
U.S. Service 8,347 8,353 (6)
U.S. Reseller 2,469 2,918 (449)
Europe 2,638 2,767 (129)
Japan 1,142 1,178 (36)
Canada 1,278 2,033 (755)
QMS Circuits 0 514 (514)
All Other 1,308 1,219 89
------------- ------------ ------------
Total $ 28,578 $ 31,468 $ (2,890)
============= ============ ============
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Net sales for the first quarter of fiscal 1998 declined by 9.2% from net sales
for the first quarter of fiscal 1997. Lower revenues from reduced operations in
Canada and the closing of the QMS Circuits facility in Florida caused 44% ($1.3
million) of the decline. U.S. direct and reseller sales were down $1.5 million
due to discontinuing bulk Canon toner cartridge sales and delays in the
introduction of magicolor 2(R). Magicolor 2 began customer shipments in mid-
December 1997.
The U.S. direct market net sales were down 8.7% for the first quarter of fiscal
1998 compared to the first quarter of fiscal 1997. This decrease occurred
primarily as a result of management's decision to cease handling bulk Canon
toner cartridge sales due to low margins. Direct sales of Canon toner
cartridges decreased $774,000 (49%) from $1,565,000 in the first quarter of
fiscal 1997 to $791,000 in the first quarter of fiscal 1998.
The U.S. reseller channel decline in net sales was primarily due to a delay in
introducing the magicolor 2. With new competitive first generation color
printers offered on the market, QMS needed the magicolor 2 to keep its position
as a market innovator. The magicolor 2 was not available for sale until mid-
December. In the second and third quarters of fiscal 1998, QMS expects to bring
magicolor 2 production into full force and expects reseller sales to increase.
The Company also expects to expand its distribution network with the national
distribution and value added reseller channels to be the thrust of QMS marketing
effort in the future.
Overall, the Company's gross profit decreased $648,000 from $9,721,000 to
$9,073,000 due to lower sales, increased inbound freight and higher software
amortization. Inbound freight increased 61% or $141,000 in a quarter-to-quarter
comparison because of QMS's decision to air transport magicolor 2 engines and
other product consumables to meet customer demand. Software amortization was
also 32% higher in the first quarter of fiscal 1998 over the first quarter of
fiscal 1997 due to higher product development costs and shorter projected
product life spans. While the gross profit decreased the gross profit margin
increased from 30.9% to 31.7%. This is reflective of management's decision to
focus on higher margin core businesses.
The selling, general, and administrative expenses ("SG&A") decreased $429,000
from $9,723,000 in the first quarter of fiscal 1997 to $8,844,000 in the first
quarter of fiscal 1998. This decrease reflects the significant progress QMS has
made in reducing overhead costs resulting primarily from cost reduction efforts
begun in the fourth quarter of fiscal 1997.
Total other income less other expense was a positive $176,000 for the first
quarter of fiscal 1998 compared to a net expense of $380,000 in the first
quarter of fiscal 1997. This $556,000 increase to net profit was due to a
$193,000 gain on the sale of capital equipment and a $240,000 swing from net
interest expenses of $225,000 to net interest income of $15,000. This change in
net interest income was caused primarily from the sale-leaseback proceeds from
February 1997 being applied to Company debt and increased cash flow from
improved inventory controls. Short-term and long-term debt has been eliminated,
a zero balance at January 2, 1998, compared to $11.6 million at December 27,
1996.
The Company has not provided for any income tax expense during fiscal 1997 or
1998 due to current losses and available operating loss carryforwards and income
tax credits.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first quarter of fiscal 1998, the Company's working capital and
capital expenditure requirements came principally from operations. The
Company's net working capital as of January 2, 1998, was $12.5 million compared
to $12.3 million at December 27, 1996.
Accounts receivable increased $2.4 million due to slower payment by key
customers during the December 1997 holidays. The company expects accounts
receivable to remain at a higher level than the October 3, 1997, balance because
of anticipated sales for magicolor 2. Accounts payable increased $3.9 million
due to increases in outstanding checks and an increase in inventory in transit
at month end. Outstanding checks are included in accounts payable until cashed.
At January 2, 1998, there were no borrowings under the revolving credit facility
and cash on hand totaled $697,000. Total borrowing capacity under this credit
facility is $30.0 million although availability at any given point in time is a
function of eligible accounts receivable and inventory levels. At January 2,
1998, total availability was approximately $11.8 million.
Management expects that existing cash reserves and available credit under the
credit facility will be sufficient to meet cash flow requirements during the
coming year.
FOREIGN CURRENCY EXCHANGE RATES
- -------------------------------
The Company purchases print engine mechanisms and memory components from several
Japanese suppliers. Fluctuations in Japanese yen currency exchange rates will
affect the prices of these products. The Company attempts to mitigate possible
negative impacts through yen-sharing arrangements with suppliers; however,
material price increases resulting from exchange rate fluctuations could develop
which would adversely affect operating results. Decreasing Japanese yen values
against the U.S. dollar have resulted in favorable purchase price variances
during the first quarter which have been offset by reductions in inventory
value. As inventory is sold in the coming months, profit margins will increase
temporarily until competitive pressure reduces product pricing.
At January 2, 1998, QMS has Japanese accounts receivable of $1.5 million related
to normal ongoing business with the Company's Japanese distributor, and notes
receivable of $1.8 million due to the sale of the Company's Japanese operations
in 1995. The Company is currently renegotiating the Japanese note terms and
minimum commission agreements. The alternatives being considered include
potentially lowering monthly payments from Japan to the Company by extending the
terms of the agreement. The revised Japanese terms are not expected to have a
significant effect on Company liquidity.
SALE-LEASEBACK AGREEMENT
- ------------------------
At October 3, 1997, the Company was not in compliance with Fixed Charge Coverage
and Net Worth covenants contained in the 1997 sale-leaseback agreement for the
Mobile headquarters. On December 8, 1998, the Company obtained a one-year
waiver of non-compliance through October 5, 1998, from the lessor in exchange
for $1.3 million in prepaid rent and an amendment to a related warrant
agreement. At the end of the waiver period, the Company may be out of
compliance with one or more covenants contained in the lease agreement. Among
the remedies available to the landlord is the acceleration of all rent for the
initial lease term, cancellation of the lease, or all other remedies available
at law. Management believes over the next year through further negotiations an
additional extension of the waiver or a permanent revision of the covenant will
be obtained, if necessary.
Management believes that the Company's fiscal 1998 working capital and capital
expenditure needs, as well as funding for research and development, will be met
by existing cash balances, cash flow from operations and by the revolving credit
facility.
YEAR 2000 COMPLIANCE
- --------------------
The Company has developed and begun implementing plans to review its purchased
and developed software for Year 2000 compliance. Systems that require
modification or replacement have been identified and a plan for resolving Year
2000 issues has been established. Printer and print system products currently
sold by the Company are designed to preclude the possibility of Year 2000
errors.
QMS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is a defendant in various litigation and claims 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 litigation and
claims will not materially affect the Company's financial position, results of
operations, or cash flows.
ITEM 2 - CHANGES IN SECURITIES - None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders (the "Meeting") was held on January
20, 1998. The results of the voting on the election of directors were as
follows:
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Nominee For Withheld Total Votes Cast
James L. Busby 8,631,005 584,764 9,215,769
Lucius E. Burch, III 8,666,658 549,111 9,215,769
Jack Edwards 8,655,884 559,885 9,215,769
Accordingly, all nominees for the Board of Directors were elected.
The results of the voting on the amendment to the Company's 1997 Stock Incentive
Plan described in the Proxy Statement delivered in connection with the Meeting
were as follows:
For Against Abstain Non-Votes
3,209,981 1,324,006 91,028 4,590,754
Accordingly, the amendment to the Company's 1997 Stock Incentive Plan was
adopted.
The results of the voting on the amendment to the Stock Option Plan for
Directors described in the Proxy Statement delivered in connection with the
Meeting were as follows:
For Against Abstain Non-Votes
3,508,711 1,025,276 91,028 4,590,754
</TABLE>
Accordingly, the amendment to the Stock Option Plan for Directors was approved.
ITEM 5 - OTHER INFORMATION - None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
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<CAPTION>
(a) Exhibits:
Exhibit
Number Description
<S> <C>
10(h)(i) Form of Executive Agreement entered into with Edward E.
Lucente on January 5, 1998.
10(h)(ii) Form of Executive Services Agreement entered into with
Edward E. Lucente on January 5, 1998.
27 Financial Data Schedule
</TABLE>
(b) Reports: None.
QMS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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<CAPTION>
QMS, INC.
(Registrant)
<S> <C>
Date: February 6, 1998 /s/ Edward E. Lucente
Edward E. Lucente
President and Chief Executive Officer
Date: February 6, 1998 /s/ Richard A. Wiggins
Richard A. Wiggins
Senior Vice President and Chief
Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-02-1998
<PERIOD-START> OCT-04-1997
<PERIOD-END> JAN-02-1998
<EXCHANGE-RATE> .00001
<CASH> 697
<SECURITIES> 0
<RECEIVABLES> 20547
<ALLOWANCES> 615
<INVENTORY> 17642
<CURRENT-ASSETS> 41607
<PP&E> 36081
<DEPRECIATION> 31316
<TOTAL-ASSETS> 61192
<CURRENT-LIABILITIES> 29062
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 24613
<TOTAL-LIABILITY-AND-EQUITY> 61192
<SALES> 28578
<TOTAL-REVENUES> 28578
<CGS> 19505
<TOTAL-COSTS> 19505
<OTHER-EXPENSES> 8844
<LOSS-PROVISION> 673
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 405
<INCOME-TAX> 4
<INCOME-CONTINUING> 401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 401
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
EXHIBIT 10(h)(i)
EXECUTIVE SERVICES AGREEMENT
THIS EXECUTIVE SERVICES AGREEMENT (the "Agreement"), made
effective January 5, 1998, by and between QMS, Inc., a Delaware
corporation, and Edward E. Lucente ("Lucente" ), an individual
presently residing at Sanibel Island, Florida. QMS and Lucente
are collectively referred to in this Agreement as the "Parties".
In consideration of the mutual covenants and promises of the
parties to this Agreement, the sufficiency of which is hereby
acknowledged, the Parties agree as follows:
1. Employment. QMS employs Lucente as president and chief
executive officer to serve at the pleasure of the QMS Board of
Directors (the "Board"), and Lucente accepts such employment,
subject to the terms and conditions of this Agreement. Lucente
will serve QMS faithfully and to the best of his ability under
the direction of the Board, and Lucente will devote all of his
time, energy, and skill during regular business hours to such
employment.
2. Term of Employment. This Agreement and the employment
under this Agreement shall commence on the effective date stated
above, and continue until terminated by the Board or Lucente's
resignation from QMS.
3. Directorships.
(a) Lucente hereby consents to serve as director of QMS as
of the effective date of this Agreement, serving as a Class II
director pursuant to his appointment by the Board in accordance
with the By-Laws of QMS. The Parties acknowledge it is the
expressed intent of the Board to elect Lucente to serve as the
chairman of the Board as of October 3, 1998.
(b) Lucente shall resign from the Board of Directors of
Genicom Corporation prior to January 5, 1998.
4. Compensation.
(a) Lucente's initial base salary shall be at a rate of
$350,000 per year and will be reviewed at least annually by the
Compensation Committee of the Board. QMS shall pay Lucente's
base salary on a pro rata basis every two weeks pursuant to QMS'
normal payroll practices.
(b) Lucente shall be eligible for incentive bonus
compensation in the amount of $350,000 annualized for QMS' Fiscal
1998, payable as follows:
(i) $29,167 per month for the months of
January through June, 1998. This
monthly amount is guaranteed by QMS
regardless of QMS' performance
during that period.
(ii) $87,501 contingent upon QMS
realizing a pre-tax profit
(calculated after incentive
compensation payments to Lucente
are accounted for) of $3,800,000
("Profit Target") for QMS Fiscal
1998. This payment, if earned,
shall be made to Lucente by October
30, 1998.
(iii) $20,000 for each $100,000 of
pre-tax profit (calculated after
incentive compensation payments to
Lucente are accounted for) earned
by QMS above the Profit Target, up
to maximum of $200,000.
(c) Lucente shall be granted options for the purchase of QMS
common stock as follows:
(i) 300,000 total shares, as of January
5, 1998, at an exercise price
representing the closing price of
QMS' stock on January 5, 1998 for
100,000 shares ("ISO") and at the
closing price of QMS' common stock
on December 12, 1997 for 200,000
shares of non-qualified. 100,000
shares shall be "Incentive Stock
Options" ("ISO") as that term is
defined in the Internal Revenue
Code, and the balance shall be non-
qualified options. The grant of
100,000 shares of such non-
qualified options shall be
contingent upon the approval on
January 20, 1998 by the QMS
Shareholders of management's
request for additional shares for
the 1997 Stock Incentive Plan (the
"Plan"). Vesting shall be 33,333.3
shares per year for three years for
the ISO grant, and 66,666.6 shares
per year for the non-qualified
grant.
(ii) Contingent upon the approval on
January 20, 1998 by the QMS
shareholders of management's
request for additional shares for
the 1997 Stock Incentive Plan,
100,000 shares (non-qualified) as
of January 5, 1998 at an exercise
price equal to the closing price of
QMS' common stock on December 12,
1997, exercisable when and if the
value of QMS' common stock averages
$7.00 per share for two consecutive
weeks. Vesting for such shares
shall be immediate.
(iii) Contingent upon the approval
on January 20, 1998 by the QMS
shareholders of management's
request for additional shares for
the 1997 Stock Incentive Plan,
100,000 shares (non-qualified) as
of January 5, 1998 at an exercise
price equal to the closing price of
QMS' common stock on December 12,
1997, exercisable when and if the
value of QMS' common stock averages
$12.00 per share for two
consecutive weeks. Vesting for such
shares shall be immediate.
(d) Lucente shall be paid a monthly automobile allowance in
the amount of $750, payable on the first day of each month
(except for the initial payment which shall be made by January 9,
1998.
(e) Lucente shall be reimbursed for any initiation fees,
bonds and membership dues incurred by him for his membership in a
social club in the Mobile, Alabama area.
5. Relocation Bonus. Lucente shall be paid a $150,000 gross
payment in lump sum upon his request following his permanent
relocation to the Mobile, Alabama area for the purpose of
performing his obligations under this Agreement. This payment is
in lieu of all other obligations of QMS regarding Lucente's
expenses incurred in his relocation except for QMS's obligation
to reimburse Lucente for the reasonable costs of packing,
transporting, storage and unpacking his household effects from
Nashville, Tennessee to the Mobile, Alabama area.
6. Termination.
(a) Except as provided in Section 6(b) of this Agreement,
this Agreement may be immediately terminated on written notice to
Lucente by the QMS Secretary on behalf of the Board if Lucente
fails to perform or to comply with any material term or condition
of this Agreement.
(b) If Lucente shall fail or be unable to perform the
services required under this Agreement because of any physical or
mental infirmity, and such failure or inability shall continue
for three (3) consecutive months, or for six (6) months during
any consecutive twelve-month period, QMS shall have the right to
terminate this Agreement 90 days after delivering written notice
of such termination to Lucente; provided, however, that Lucente
shall continue to receive his full compensation under this
Agreement to the date of termination, in spite of any such
infirmity. The non-competition provisions of Sections 7 and 8
shall continue in effect in spite of such termination of this
Agreement, but if, after recovery from such infirmity as
evidenced by a medical certificate of a physician retained by
QMS, QMS does not choose to retain Lucente in some executive
capacity, the noncompetition provisions of Sections 7 and 8, if
still in effect, shall cease to be operative.
7. Non-Competition. Lucente agrees that, in addition to any
other limitation, for a period of two (2) years after the
termination of his employment under this Agreement, except for a
termination caused by QMS in violation of the terms of this
Agreement, Lucente will not directly or indirectly engage in, or
in any manner be connected with or employed by any person, firm,
corporation, or other entity in competition with QMS or engaged
in the development, manufacture or sale of document imaging
solutions or related technologies in the United States.
8. Solicitation After Termination. Lucente agrees that, in
addition to any other limitation, for a period of two (2) years
after the termination of this Agreement, except for a termination
caused by QMS in violation of this Agreement, Lucente will not,
on behalf of himself or any other person, firm, corporation, or
other entity, solicit, recruit, or divert any employee of QMS, or
any candidate for employment by QMS, for employment elsewhere.
9. Use of Confidential Information. Lucente agrees that, in
addition to any other limitation contained in this Agreement,
regardless of the circumstances of the termination of employment,
he will not communicate to any person, firm, corporation, or
other entity any information relating to customers lists,
unpublished costs and prices, designs, and proprietary
technology, or any other confidential knowledge or secrets that
Lucente might from time to time acquire with respect to the
business of QMS, or any of its subsidiaries.
10. Injunctive Relief. Lucente hereby acknowledges that the
services to be rendered under this Agreement are of a unique,
special, and extraordinary character that would be difficult or
impossible for QMS to replace, and by reason of such difficulty,
employee hereby agrees that for a violation of any of the
provisions of this Agreement, QMS shall, in addition to any other
rights and remedies available under this Agreement, at law or
otherwise, be entitled to an injunction to be issued by any court
of competent jurisdiction enjoining and restraining Lucente from
committing any violation of this Agreement, and Lucente hereby
consents to the issuance of such injunction.
11. Termination by Lucente. If QMS shall cease conducting its
business, take any action looking toward its dissolution or
liquidation, admit in writing its inability to pay its debts as
they become due, file a voluntary or be the subject of an
involuntary petition in bankruptcy, or be the subject of any
state or federal insolvency proceeding of any kind, then Lucente
may, in his sole discretion, by written notice to QMS, terminate
his employment and QMS hereby consents to the release of Lucente
under such circumstances and agrees if QMS ceases to operate or
to exist as a result of such event, the provisions of Sections 7
and 8 shall terminate.
12. Binding Effect. This Agreement shall be binding on and
shall inure to the benefit of any successor or successors of QMS
and the personal representatives of Lucente.
13. Governing Law. This Agreement shall be governed by,
construed, and enforced in accordance with the laws of the State
of Alabama.
14. Entire Agreement. This Agreement shall constitute the entire
agreement between the Parties and any prior understanding or
representation of any kind preceding the effective date of this
Agreement shall not be binding upon either party except to the
extent incorporated in this Agreement.
15. Modification of Agreement. Any modification of this
Agreement or additional obligation assumed by either party in
connection with this Agreement shall be binding only if evidenced
in writing by each party or an authorized representative of each
party.
16. No Waiver. The failure of either party to this Agreement to
insist upon the performance of any of the terms and conditions of
this Agreement, or the waiver of any breach of any of the terms
of this Agreement, shall not be construed as thereafter waiving
any such terms and conditions, but the same shall be continue and
remain in full force and effect as if no such forbearance or
waiver had occurred.
17. Attorney Fees. In the event any action is filed in relation
to this Agreement, the unsuccessful party in the action shall pay
to the successful party, in addition to all sums that either
party may be called on to pay, a reasonable sum for the
successful party's attorney's fees.
18. Notices. Any notice provided for or concerning this
Agreement shall be in writing and shall be deemed sufficiently
given when given in person, by telecopy or when sent by certified
or registered mail, postage prepaid, if sent to the respective
address of each party as set forth below:
If to QMS: With a simultaneous copy to:
Secretary Gregory R. Jones, Esq.
QMS, Inc. Hand Arendall, L.L.C.
One Magnum Pass Suite 3000
Mobile,Alabama 36618 First National Bank Building
Post Office Box 123
Mobile, Alabama 36601
If to Lucente: Mr. Edward E. Lucente
at QMS,Inc.
One Magnum Pass
Mobile, Alabama 36618
(Or such other address as Lucente may
designate in writing to the addressees
set forth above)
IN WITNESS WHEREOF, the Parties have executed and delivered
this Executive Services Agreement as of the day and year
indicated above.
QMS, Inc. Edward E. Lucente
By: /s/ Charles D. Daley /s/ Edward E. Lucente
Charles D. Daley
Executive Vice President and
Chief Operating Officer
ATTEST: /s/ Richard A. Wiggins
Richard A. Wiggins
Secretary
QMS, Inc.
EXHIBIT 10(h)(ii)
EXECUTIVE AGREEMENT
THIS EXECUTIVE AGREEMENT (this "Agreement") entered into as
of January 5, 1998, by and between QMS, INC. (the "Company"), a
corporation organized under the laws of the State of Delaware,
and EDWARD E. LUCENTE (the "Executive").
W I T N E S S E T H
WHEREAS, to assure that the Company will continue to have
the Executive's services available to the Company, the Company
desires to provide the Executive with benefits upon certain
contingencies;
NOW, THEREFORE, in consideration of the foregoing, the
continued employment of the Executive and for other good and
valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, the parties hereto agree as follows:
1. DEFINITIONS
(a) "Affiliate" shall mean a person that directly or
indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, a specified
person.
(b) "Associate" shall mean: (i) any corporation,
partnership or other organization of which a specified person is
an officer or partner, or is, directly or indirectly, the
beneficial owner of ten percent (10%) or more of any class of
equity securities thereof, (ii) any trust or other estate in
which the specified person has a substantial beneficial interest
or as to which the specified person serves as trustee or in a
similar fiduciary capacity, (iii) any relative or spouse of such
specified person, or any relative of such spouse, who has the
same home as such specified person and (iv) any person who is a
trustee, officer or partner of such specified person or of any
corporation, partnership or other entity which is an Affiliate of
such specified person.
(c) "Beneficial Owner" shall be defined by reference to
Rule 13d-3 under Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as such Rule is in effect on the date hereof;
provided, however, that any individual, corporation, partnership,
Group (as hereinafter defined), association or other person or
entity which, directly or indirectly, owns or has the right to
acquire any of the Company's outstanding securities entitled to
vote generally in the election of directors at any time in the
future, whether such right is contingent, absolute, direct or
indirect, pursuant to any agreement, arrangement or understanding
or upon exercise of conversion rights, warrants or options, or
otherwise, shall be deemed the Beneficial Owner of such
securities.
(d) "Benefits" shall mean the immediate vesting of all
options granted to Executive to purchase the common stock of the
"Company" as authorized by the Compensation Committee of the
Board.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Cause" shall mean conduct of the Executive amounting
to fraud, dishonesty, conviction of felony, gross negligence or
willful misconduct.
(g) "Change of Control" of the Company shall be deemed to
have occurred if and when, (1) any individual, corporation,
partnership, Group, association or other person or entity,
together with his, its or their Affiliates or Associates (other
than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company) is or becomes the
Beneficial Owner of securities of the Company representing twenty
percent (20%) or more of the combined voting power of the
Company's then outstanding securities entitled to vote generally
in the election of directors or (2) the Continuing Directors (as
hereinafter defined) shall at any time fail to constitute a
majority of the members of the Board.
(h) "Continuing Directors" shall mean the directors who
either are members of the Board on the date hereof, or who become
members of the Board subsequent to such date and whose election,
or nomination for election by the Company's stockholders, was
Duly Approved by the Continuing Directors at the time of such
nomination or election, either by a specific vote or by approval
of the proxy statement issued by the Company on behalf of the
Board in which such person is named as nominee for director,
without due objection to such nomination.
(i) "Duly Approved by the Continuing Directors" shall mean
an action approved by the vote of at least a majority of the
Continuing Directors then on the Board, except, if the votes of
such Continuing Directors in favor of such action would be
insufficient to constitute an act of the Board if a vote by all
of its members were to have been taken, then such term shall mean
an action approved by the unanimous vote of the Continuing
Directors then on the Board so long as there are at least three
Continuing Directors on the Board at the time of such unanimous
vote.
(j) "Group" shall mean persons who act in concert as
described in Section 13(d)(3) of the Exchange Act as in effect on
the date hereof.
(k) "Trust" shall mean the Trust specifically established
for purposes of receipt and payment of the payment provided for
in Section 2(c) hereof.
2. EXECUTIVE'S RIGHTS UPON CHANGE OF CONTROL
(a) This Agreement shall be effective immediately upon
execution of this Agreement by the parties hereto and shall
remain in effect so long as the Executive remains employed by the
Company and thereafter until all Benefits to which the Executive
is entitled under this Agreement have been provided.
(b) If a Change of Control occurs while the Executive is
employed by the Company and if, within eighteen (18) months after
the date of a Change of Control, the Executive's employment is
terminated involuntarily, or voluntarily by the Executive based
on material changes in the nature or scope of the Executive's
duties or employment or a reduction of compensation of the
Executive made without the Executive's consent, the Executive
may, in his sole discretion, give written notice within thirty
(30) days after the date of termination of employment to the
Secretary of the Company that he intends to exercise his rights
hereunder and to receive the Benefits and payments provided for
hereunder (the "Notice of Exercise").
(c) If the Executive gives a Notice of Exercise to receive
the Benefits and the payments provided for hereunder:
(i) The Compensation Committee's authorization of the immediate
vesting of all options granted to Executive shall be effective;
and
(ii) The Company shall pay to the Trust for the benefit of
the Executive, a single cash payment (the "Executive Payment") in
the amount equal to 200% of the base salary plus cash incentive
compensation paid or scheduled to be paid by the Company to the
Executive for the year in which the Change of Control occurred
the amount which, if paid to the Executive in thirty-six (36)
consecutive equal monthly installments commencing on the date set
forth in Section 2(i) hereof, will have a present value equal to
the amount by which 299% of the Executive's "base amount" (as
defined by Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code")) exceeds the aggregate present value of all
other parachute payments (as defined by Section 280G of the Code)
received by the Executive. "Present value" shall be determined
in accordance with Section 280G(d)(4) of the Code.
(d) Within thirty (30) days after the date of giving of the
Notice of Exercise by the Executive, the Company shall provide
written notice to the Executive setting forth the Company's
computation of the amount that would be payable pursuant to the
Executive's election hereunder, accompanied by the written
opinion of the Company's independent certified public accountants
confirming the Company's computation. If the Executive takes
exception to the Company's computation of such amount, the
Executive shall have forty-five (45) days from the date of the
giving of the Notice of Exercise to give a further written notice
to the Company (the "Notice of Exception") setting forth in
reasonable detail the Executive's exceptions to the Company's
computation, accompanied by the written opinion of the
Executive's tax advisor confirming the basis for such exceptions.
(e) Forty-five (45) days after the date of giving the
Notice of Exercise by the Executive, the Company shall make the
payment provided for in Section 2(c) hereof unless the Executive
has given a Notice of Exception to the Secretary of the Company,
in which event, the Company and the Executive shall submit their
respective computations and tax opinions to a third tax advisor,
mutually agreeable to each, whose determination of the matter
shall be final and binding on the Company and the Executive.
After such final determination, the Company shall have five (5)
business days to make the payment provided for in Section 2(c).
(f) The Company shall, within the time periods described in
Section 2(e), deliver to the Trust for the benefit of the
Executive, its certified or cashier's check in the amount payable
pursuant to Section 2(c) and payment of such Executive Payment
shall not terminate the Executive's rights to receive any and all
other payments, rights or benefits arising pursuant to this
Agreement or from any other agreement, plan or policy which by
its terms or by operation of law provides for the continuation of
such payments, rights or benefits after the termination of the
Executive's relationship with the Company.
(g) The Executive Payment shall be in addition to and shall
not be offset or reduced by (1) any other amounts that have
accrued or have otherwise become payable to the Executive or his
beneficiaries, but have not been paid by the Company at the time
the Executive gives the Notice of Exercise including, but not
limited to, salary, severance pay, consulting fees, disability
benefits, termination benefits, retirement benefits, life and
health insurance benefits or any other compensation or benefit
payment that is part of any valid previous, current or future
contract, plan or agreement, written or oral, and (2) any
indemnification payments that may have accrued but not paid or
that may thereafter become payable to the Executive pursuant to
the provisions of the Company's Certificate of Incorporation, By-
laws or similar policy, plan or agreement relating to the
indemnification of directors and officers of the Company under
certain circumstances.
(h) The Executive Payment, when paid into the Trust is
intended to be tax-deferred until actual receipt of such monies
by the Executive. All cost of establishing the Trust, including
but not limited to legal fees and trustee fees, shall be the
responsibility of and paid by the Company.
(i) The trustees of the Trust shall hold such monies
constituting the Executive Payment and pay installments thereof
to the Executive as required hereunder pursuant to the terms of
the trust agreement governing the Trust. Beginning on the first
day of the first full month after the payment of the Executive
Payment to the Trust and for each month thereafter that the
Executive remains unemployed, the trustee of the Trust will pay,
in cash, to the Executive, at the address set forth for the
Executive at the end of this Agreement, a portion of the
Executive Payment equal to one-thirty-sixth (1/36) of the total
Executive Payment, so that the Executive shall receive equal
monthly installments of the Executive Payment on the first day of
each month of the period he remains so unemployed.
(j) In the event that the Executive shall accept employment
with a person, firm or corporation other than the Company
(including becoming self-employed), following the exercise by the
Executive of his right to receive the Executive Payment, the
Executive shall, within five(5) business days of this acceptance
of such new employment, notify the Company and the trustee of the
Trust of such re-employment and the amount of compensation to be
paid in connection therewith. From and after the date that
compensation begins to accrue to the Executive in connection with
such new employment, if the Executive's new monthly compensation
is less than the amount of the installment of the Executive
Payment that would otherwise be due and payable, the Executive
shall be entitled to a partial payment of such installment of
Executive Payment in an amount equal to the difference between
said installment of Executive Payment and the new monthly
compensation (the "Compensation Differential"). In the event the
Executive's new monthly compensation shall exceed the amount of
the installment of Executive Payment due and payable, the
difference shall be carried over by the trustee and deducted from
any Compensation Differential to be paid in any subsequent month.
The Executive shall deliver to the trustee within fifteen (15)
days after the first of each month during the term of this
Agreement certification, in the form attached hereto, as to the
amount of new monthly compensation received or to which the
Executive is entitled for the preceding month. In the event such
certification shows a Compensation Differential, within five (5)
business days of receipt of such certification, the trustee of
the Trust will make the partial payment of the installment of
Executive Payment (adjusted as herein provided) to the Executive.
The trustee shall return and pay to the Company any portion of an
Executive Payment installment for each month not paid to the
Executive as provided herein.
In the event that during the term of this Agreement the
Executive dies, the Executive's legal representative shall be
entitled to receive the entire Executive Payment provided for
hereunder in the manner and as if the Executive had not died.
3. EXECUTIVE'S EXPENSES
All costs and expenses (including reasonable legal,
accounting and other advisory fees) incurred by the Executive to
(a) defend the validity of this Agreement, (b) contest any
determinations by the Company concerning the amounts payable by
the Company to the Executive under this Agreement, (c) determine
in any tax year of the Executive the tax consequences to the
Executive of any amounts payable (or reimbursable) hereunder or
(d) prepare responses to an Internal Revenue Service audit of,
and otherwise defend, his personal income tax return for any year
which is the subject of any such audit or an adverse
determination, administrative proceeding or civil litigation
arising therefrom that is occasioned by or related to an audit by
the Internal Revenue Service of the Company's income tax returns
to the extent such audit, adverse determination, administrative
proceeding or civil litigation relate to the Benefits and
Executive Payments provided for herein, upon written demand by
the Executive, to be promptly advanced or reimbursed to the
Executive or paid directly, on a current basis, by the Company or
its successors.
If at any time during the term of this Agreement or
afterwards there should arise any dispute as to the validity,
interpretation or application of any term or condition of this
Agreement, the Company agrees, upon written demand by the
Executive (and the Executive shall be entitled, upon application
to any court of competent jurisdiction, to the entry of a
mandatory injunction, without the necessity of posting any bond
with respect thereto), compelling the Company promptly to provide
sums sufficient to pay on a current basis (either directly or by
reimbursing the Executive) the Executive's costs and reasonable
attorneys' fees (including expenses of investigation and
disbursements for the fees and expenses of experts, etc.)
incurred by the Executive in connection with any such dispute or
any litigation, regardless of whether the Executive is the
prevailing party in such dispute or litigation; provided, that,
the court in which such litigation is first initiated determined,
with respect to this obligation, upon application of either party
hereto, that the Executive did not initiate such litigation
frivolously. Under no circumstances shall the Executive be
obligated to pay or reimburse the Company for any attorneys'
fees, costs or expenses incurred by the Company. The provisions
of this subsection shall survive the expiration or termination of
this Agreement.
4. TAX INDEMNITY
Should any of the payments or reimbursements under this
Agreement or any other plan, agreement or arrangement between the
Executive and the Company, be determined or alleged to be subject
to an excise or similar purpose tax pursuant to Code Section 4999
or any successor other comparable federal, state or local tax
laws, the Company shall pay to the Executive such additional
compensation as is necessary (after taking into account all
federal, state and local income taxes payable by the Executive as
a result of the receipt of such additional compensation) to place
the Executive in the same after-tax position (including federal,
state and local taxes) he would have been in had no such excise
or similar purpose tax (or any interest or penalties thereon)
been paid or incurred by the Executive.
If the Executive intends to make any payments with respect
to any such excise or similar purpose tax as a result of an
adjustment to the Executive's tax liability by any federal, state
or local tax authority, the Company will pay such additional
compensation by delivering its certified or cashier's check
payable in such amount of the Executive within fifteen (15)
business days after the Executive notifies the Company of his
intention to make such payment. Without limiting the obligation
of the Company hereunder, the Executive agrees, in the event the
Executive makes any payment pursuant to the preceding sentence,
to negotiate with the Company in good faith with respect to
procedures reasonably requested by the Company which would afford
the Company the ability to contest the imposition of such excise
tax; provided however, that the Executive will not be required to
afford the Company any right to contest the applicability of any
such excise tax to the extent that the Executive reasonably
determines (based upon the opinion of his tax counsel) that such
contest is inconsistent with the overall tax interests of the
Executive.
In the event that the Executive intends to file a tax return
which takes the position that such excise or similar purpose tax
is due and payable, in reliance upon a written opinion of the
Executive's tax counsel that it is more likely than not that such
excise tax is due and payable, the Executive shall, at least
forty-five (45) days in advance of the due date (including
extensions) of filing of his tax return, notify and submit to the
Company his computations and tax counsel's opinion to such
effect. The Company shall have thirty (30) days from its receipt
of such notice to examine, along with its tax advisors, the
computations and advise the Executive of its recommendation
(evidenced by the written opinion of its tax advisors) as to the
merits of such a position. The Executive hereby agrees to then
file his tax return on the basis of such recommendation. No
payment shall be made by the Company pursuant to the
indemnification provided for herein unless and until, in the case
of the non-audited return circumstance discussed in the
immediately preceding two sentences, the notice and computations
provided for therein have been timely delivered to the Company.
5. GENERAL PROVISIONS
(a) Severability. In case any one or more of the
provisions of this Agreement shall, for any reason, be held or
found by final judgment of a court of competent jurisdiction to
be invalid, illegal or unenforceable in any respect (1) such
invalidity, illegality or unenforceability shall not affect any
other provisions of this Agreement, (2) this Agreement shall be
construed as if such invalid, illegal or unenforceable provision
had never been contained herein, and (3) if the effect of a
holding or finding that any such provision is either invalid,
illegal or unenforceable is to modify to the Executive's
detriment, reduce or eliminate any compensation, reimbursement,
payment, allowance or other benefit to the Executive intended by
the Company and Executive in entering into this Agreement, the
Company shall promptly negotiate and enter into an agreement with
the Executive containing alternative provisions (reasonably
acceptable to the Executive), that will restore to the Executive
(to the extent legally permissible) substantially the same
economic, substantive and income tax benefits the Executive would
have enjoyed had any such provision of this Agreement been upheld
as legal, valid and enforceable. Failure to insist upon strict
compliance with any provision of this Agreement shall not be
deemed a waiver of such provision or of any other provision of
this Agreement.
(b) Entire Agreement. The Executive acknowledges receipt
of a copy of this Agreement, which has been executed in duplicate
and agrees that, with respect to the subject matter hereof, this
is the entire agreement with the Company relating to the
Executive Payment with the Company. Any other oral or any
written representations, understandings or agreements with the
Company or any of its officers or representatives covering the
same subject matter which are in conflict with this Agreement
hereby are merged into and superseded by the provisions of this
Agreement.
(c) No Set-off. The Company shall have no right of set-off
or counterclaim in respect of any debt or other obligation of the
Executive to the Company against any payment or other obligation
of the Company to the Executive provided for in this Agreement.
(d) Modification and Waiver. No provision of this
Agreement may be amended, modified or waived unless such
amendment, modification or waiver shall be agreed to in writing
and signed by the Executive and by a person duly authorized by
the Board.
(e) No Assignment of Compensation. No right or interest in
any compensation or reimbursement payable hereunder shall be
assignable or divisible by the Executive; provided, however, that
this provision shall not preclude the Executive from designating
one or more beneficiaries to receive any amount that may be
payable after his death and shall not preclude his executor or
administrator from assigning any right hereunder to the person or
persons entitled thereto.
(f) No Attachment. Except as required by law, no right to
receive payments under this Agreement shall be subject to
anticipation, commutation, alienation, sale, assignment,
encumbrances, charge, pledge or hypothecation, or to execution,
attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to affect any
such action shall be null, void and of no effect.
(g) Headings. The headings of Sections and subsections
hereof are included solely for convenience of reference and shall
not control the meaning or interpretation of any of the
provisions of this Agreement.
(h) Governing Law. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the
State of Alabama.
(i) No Assignment of Agreement. This Agreement may not be
assigned, partitioned, subdivided pledged, or hypothecated in
whole or in part without the express prior written consent of the
Executive and the Company. This Agreement shall not be
terminated either by the voluntary or involuntary dissolution or
the winding up of the affairs of the Company, or by any merger or
consolidation wherein the Company is not the surviving entity, or
by any transfer of all or substantially all of the Company's
assets on a consolidated basis. In the event of any such merger,
consolidation or transfer of assets, the provisions of this
Agreement shall be binding upon the surviving entity or to the
entity to which such assets shall be transferred.
(j) Interest on Amounts Payable. If any amounts which are
required or determined to be paid or payable or reimbursed or
reimbursable to the Executive under this Agreement (or after a
Change of Control, under any other plan, agreement, policy or
arrangement with the Company) are not so paid promptly at the
times provided herein or therein, such amounts shall accrue
interest at an annual percentage rate of ten percent (10%) from
the date such amounts were required or determined to have been
paid or payable or reimbursed or reimbursable to the Executive
until such amounts and any interest accrued thereon are finally
and fully paid; provided, however, that in no event shall the
amount of interest contracted for, charged or received hereunder
exceed the maximum non-usurious amount of interest allowed by
applicable law.
(k) Notices. Any notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed to
have been given when delivered in person, by telecopy or when
deposited in the U.S. mail, postage prepaid, to the respective
addresses set forth on the signature pages of this Agreement,
unless a party changes his or its address for receiving notices
by giving notice in accordance with this subsection, in which
case, to the address specified in such notice.
(l) Federal Income Tax Withholding. The Company may
withhold from any benefits payable under this Agreement all
federal, state, city or other taxes as shall be required pursuant
to any law or governmental regulation or ruling.
IN WITNESS WHEREOF, the parties have executed and delivered
this Executive Agreement as of the day and year indicated above.
QMS, INC. EDWARD E. LUCENTE
One Magnum Pass
Mobile, Alabama 36618 /s/ Edward E. Lucente
(Signature)
By: /s/ Charles D. Daley c/o QMS, Inc.
Name: Charles D. Daley One Magnum Pass
Title: Executive VP & COO Mobile, Alabama 36618
