<PAGE>
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 October 1, 1999
---------------
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 Identification
incorporation or organization) 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
13,255,111 at October 29, 1999.
- -------------------------------
<PAGE>
QMS, INC. AND SUBSIDIARIES
==========================
INDEX
-----
PART I - FINANCIAL INFORMATION PAGE NUMBER
--------------------- -----------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(unaudited) as of October 1, 1999, and
January 1, 1999 3 - 4
Condensed Consolidated Statements of Operations
(unaudited) for the three and nine months ended
October 1, 1999, and October 2, 1998 5 - 6
Condensed Consolidated Statements of Comprehensive
Income (Loss) (unaudited) for the three and nine
months ended October 1, 1999, and October 2, 1998 7
Condensed Consolidated Statements of Cash Flows
(unaudited) for the nine months ended
October 1, 1999, and October 2, 1998 8
Notes to Condensed Consolidated Financial Statements
(unaudited) 9 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 19
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 20
PART II - OTHER INFORMATION 21
-----------------
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 22
2
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QMS, INC. AND SUBSIDIARIES
==========================
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
as of October 1, 1999, and January 1, 1999
(Unaudited)
<TABLE>
<CAPTION>
October 1, January 1,
in thousands 1999 1999
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 5,189 $ 1,707
Trade Receivables (less allowance for doubtful
accounts of $641 at October 1, 1999, and $484
at January 1, 1999) 48,504 22,747
Note Receivable, Net 239 146
Inventories:
Raw Materials 11,955 6,419
Work in Process 1,849 2,132
Finished Goods 44,447 20,767
Inventory Reserves (9,825) (3,629)
-------- -------
Total Inventories, Net 48,426 25,689
Other Current Assets 8,080 2,944
-------- -------
Total Current Assets 110,438 53,233
-------- -------
PROPERTY, PLANT, AND EQUIPMENT 40,872 35,990
Less Accumulated Depreciation 34,900 31,255
-------- -------
Total Property, Plant, and Equipment, Net 5,972 4,735
CAPITALIZED AND DEFERRED SOFTWARE, NET 10,593 10,155
PREPAID RENT (Note 7) 1,300 1,300
GOODWILL, NET (Note 3) 21,034 0
OTHER ASSETS, NET 2,281 871
-------- -------
TOTAL ASSETS $151,618 $70,294
======== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
QMS, INC. AND SUBSIDIARIES
==========================
CONDENSED CONSOLIDATED BALANCE SHEETS
as of October 1, 1999, and January 1, 1999
(Unaudited)
<TABLE>
<CAPTION>
October 1, January 1,
in thousands 1999 1999
- ---------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 36,235 $14,363
Revolving Credit Loans (Note 8) 34,627 7,306
Short-Term Debt (Note 9) 7,240 0
Current Maturities of Capital Lease Obligations 432 218
Employment Costs 4,161 3,851
Deferred Revenue 5,000 0
Deferred Service Revenue 6,115 7,453
Other Current Liabilities:
Warranty Accrual 2,197 1,298
Restructuring Reserve (Note 11) 2,349 0
Accrued Management Transition Expenses 2,778 798
Income Tax Payable 609 0
Other 5,448 3,554
-------- -------
Total Other Current Liabilities 13,381 5,650
-------- -------
Total Current Liabilities 107,191 38,841
-------- -------
LONG-TERM DEBT (Note 10) 16,377 0
CAPITAL LEASE OBLIGATIONS 1,203 326
OTHER LIABILITIES:
Deferred Service Revenue 797 839
Deferred Compensation 2,407 2,638
Accrued Management Transition Expenses 419 421
Other Liabilities 680 790
-------- -------
Total Other Liabilities 4,303 4,688
-------- -------
STOCKHOLDERS' EQUITY 22,544 26,439
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $151,618 $70,294
======== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
QMS, INC. AND SUBSIDIARIES
==========================
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended October 1, 1999, and October 2, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
October 1, October 2, October 1, October 2,
in thousands, except per share amounts 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES
Printers and Supplies $ 53,768 $25,134 $132,872 $ 76,526
U.S. Service 8,962 9,795 24,157 28,387
-------- ------- -------- --------
Total Net Sales 62,730 34,929 157,029 104,913
-------- ------- -------- --------
COST OF GOODS SOLD
Printers and Supplies 46,740 18,947 109,437 56,269
U.S. Service 6,124 6,388 15,799 18,297
-------- ------- -------- --------
Total Cost of Goods Sold 52,864 25,335 125,236 74,566
-------- ------- -------- --------
GROSS PROFIT
Printers and Supplies 7,028 6,187 23,435 20,257
U.S. Service 2,838 3,407 8,358 10,090
-------- ------- -------- --------
Total Gross Profit 9,866 9,594 31,793 30,347
-------- ------- -------- --------
OPERATING EXPENSES 19,815 8,915 43,309 28,495
RESTRUCTURING EXPENSES 3,280 0 3,280 0
GOODWILL AMORTIZATION 546 0 711 0
-------- ------- -------- --------
OPERATING INCOME (LOSS) (13,775) 679 (15,507) 1,852
-------- ------- -------- --------
OTHER INCOME (EXPENSE)
Interest Income 24 80 74 283
Interest Expense (985) (125) (1,638) (405)
Miscellaneous Income (Expense) (1,111) (144) (821) (275)
-------- ------- -------- --------
Total Other Expense, Net (2,072) (189) (2,385) (397)
-------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS (15,847) 490 (17,892) 1,455
INCOME TAX PROVISION (BENEFIT)
(Note 12) 50 (36) 315 31
-------- ------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY
LOSS (15,897) 526 (18,207) 1,424
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT (Note 13) (393) 0 (393) 0
-------- ------- -------- --------
NET INCOME (LOSS) $(16,290) $ 526 $(18,600) $ 1,424
======== ======= ======== ========
</TABLE>
5
<PAGE>
QMS, INC. AND SUBSIDIARIES
==========================
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
For the Three and Nine Months Ended October 1, 1999, and October 2, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- -----------------------
October 1, October 2, October 1, October 2,
in thousands, except per share amounts 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS (LOSS) PER
COMMON SHARE (Note 5)
Basic and Diluted Before Extraordinary Loss $ (1.20) $ 0.05 $ (1.55) $ 0.13
Extraordinary Item (0.03) 0.00 (0.03) 0.00
------- ------- ------- -------
Basic and Diluted After Extraordinary Loss $ (1.23) $ 0.05 $ (1.58) $ 0.13
======= ======= ======= =======
SHARES USED IN PER SHARE
COMPUTATION (Note 5)
Basic 13,243 10,697 11,784 10,697
Diluted 13,243 10,887 11,784 10,887
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
QMS, INC. AND SUBSIDIARIES
==========================
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three and Nine Months Ended October 1, 1999, and October 2, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ----------------------
October 1, October 2, October 1, October 2,
in thousands 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $(16,290) $ 526 $(18,600) $1,424
OTHER COMPREHENSIVE INCOME
(LOSS) (No income tax effect):
European Currency Translation
Adjustments (979) 0 (833) 0
Japanese Currency Translation
Adjustments 980 12 659 12
Canadian Currency Translation
Adjustments (36) (335) 248 (590)
-------- ----- -------- ------
Total Other Comprehensive Income (Loss) (35) (323) 74 (578)
-------- ----- -------- ------
COMPREHENSIVE INCOME (LOSS) $(16,325) $ 203 $(18,526) $ 846
======== ===== ======== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
7
<PAGE>
QMS, INC. AND SUBSIDIARIES
==========================
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended October 1, 1999, and October 2, 1998
(Unaudited)
<TABLE>
<CAPTION>
October 1, October 2,
in thousands 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $(18,600) $ 1,424
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by (Used in) Operating Activities:
Extraordinary Loss 393 0
Depreciation of Property, Plant and Equipment 2,026 1,716
Amortization of Goodwill 710 0
Amortization of Capitalized and Deferred Software 6,651 5,977
Provision for Losses on Inventory 8,206 2,280
Other (35) 101
Net Change in Assets and Liabilities that Provided (Used) Cash:
Trade Receivables (6,058) (1,779)
Inventories, Net (3,641) (7,728)
Accounts Payable (540) 2,524
Deferred Revenue 5,000 0
Other 5,254 875
-------- -------
Net Cash Provided by (Used in) Operating Activities (634) 5,390
-------- -------
Cash Flows from Investing Activities:
Purchase of Europe and Australian Subsidiaries (20,500) 0
Collections of Notes Receivable 404 387
Purchase of Property, Plant and Equipment (982) (2,020)
Proceeds from Disposal of Property, Plant and Equipment 842 29
Additions to Capitalized and Deferred Software Costs (8,057) (6,590)
-------- -------
Net Cash Used in Investing Activities (28,293) (8,194)
-------- -------
Cash Flows from Financing Activities:
Net Proceeds from Short-Term Debt and Revolving
Credit Facility 2,690 5,981
Proceeds from Long-Term Debt 16,377 0
Payments of Capital Lease Obligations (292) (1,164)
Proceeds from Issuance of Common Stock 12,248 0
Other 1,386 44
-------- -------
Net Cash Provided by Financing Activities 32,409 4,861
-------- -------
Net Increase in Cash and Cash Equivalents 3,482 2,057
Cash and Cash Equivalents at Beginning of Period 1,707 697
-------- -------
Cash and Cash Equivalents at End of Period $ 5,189 $ 2,754
======== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
8
<PAGE>
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 October 1, 1999, the results of operations and
changes in cash flows for the nine months ended October 1, 1999, and October
2, 1998. The results of operations for the nine months ended October 1,
1999, are not necessarily indicative of the results to be expected for the
fiscal year ending December 31, 1999. Certain reclassifications have been
made to 1998 amounts to conform to the 1999 presentation.
2. FISCAL YEAR CHANGE AND TRANSITION PERIOD
On October 28, 1998, the Company's Board of Directors modified its
accounting periods effective in 1999, from a fiscal year ending on the
Friday closest to September 30 to a fiscal year ending on the Friday closest
to December 31. In connection with this fiscal year change, the Company will
include audited financial statements for the three-month transition period
ended January 1, 1999, in its Annual Report on Form 10-K for its new fiscal
year ended December 31, 1999.
3. ACQUISITION AND MINOLTA CONVERGENCE
On June 7, 1999, the Company reacquired its European and Australian
subsidiaries ("QMS B.V.") for purchase prices of $24.7 million and $2.7
million, respectively, plus direct acquisition costs of $2.5 million. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the acquisition
date. The estimated fair value of assets acquired, net of liabilities
assumed, of $8.0 million was considered to be the best estimate as of the
acquisition date and may be adjusted as more information is obtained.
Goodwill of $21.9 million was recognized on the acquisition equal to the
excess of the price paid over the estimated fair value of the net assets
acquired. The consolidated statements of operations include the results of
Europe and Australia operations from their acquisition date forward. During
the third quarter of 1999, the Company recognized amortization expense of
$546,000 related to goodwill. Goodwill is being amortized over ten years.
To complete this acquisition, the Company raised $30.0 million through a
$12.8 million loan and $5.0 million advance on future Company production
from Minolta Co., Ltd. ("Minolta"), an offset to the Company's receivables
due from seller of $3.2 million, and a $12.2 million sale of 2,130,000
shares of common stock to Minolta Investments Company. In addition, the
Company financed $6.2 million of the purchase price through a note payable
with Alto Imaging Group, N.V., (the former parent of QMS B.V.) that will be
converted to a term loan with twenty quarterly payments of $311,746 starting
January 15, 2000, and ending on October 15, 2004. Surplus financing was used
to reduce revolving lines of credit.
9
<PAGE>
The estimated fair value of assets acquired and liabilities assumed in the
acquisition is summarized as follows (in thousands):
Fair value of assets acquired $49,789
Goodwill 21,900
Liabilities assumed (41,779)
-------
$29,910
=======
Consideration consisted of:
Cash $20,500
Note to Seller 6,234
Portion offset by payable due to QMS, Inc. 3,176
-------
Total purchase price $29,910
=======
The following unaudited pro forma consolidated results of operations for the
nine months ended October 1, 1999, and October 2, 1998, have been prepared
as though the acquisition occurred as of the beginning of the periods
presented:
October 1, October 2,
1999 1998
----------- ----------
Net sales $158,271 $171,868
Net income (loss) before extraordinary loss (16,452) 4,311
Net income (loss) (16,845) 4,311
Basic and diluted net income (loss) per share
before extraordinary loss (1.28) 0.34
Basic and diluted net income (loss) per share (1.31) 0.32
The unaudited pro forma consolidated results of operations have been
prepared for comparative purposes only and do not purport to be indicative
of the actual results that would have been achieved had the acquisition
taken place as of January 1, 1998, or in the future.
4. SUBSEQUENT EVENT
On November 10, 1999, the Company received a $15 million loan from Minolta.
This loan is payable over four years. The stated interest rate is LIBOR plus
2.5% payable monthly in arrears. Proceeds of this loan will be used to repay
the $5.0 million unsecured advance from Minolta, to fund a loan to QMS B.V.
for its working capital purposes, and the remainder will be used for
corporate working capital purposes.
5. EARNINGS (LOSS) PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." Basic and diluted earnings
(loss) per share computations are based on the weighted average number of
common shares outstanding during the period and diluted earnings (loss) per
share also includes any dilutive effect of the assumed exercise of stock
options.
10
<PAGE>
6. COMPREHENSIVE INCOME (LOSS)
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" which establishes new rules for the reporting of
comprehensive income (loss) and its components. Comprehensive income (loss)
consists of net income (loss) and foreign currency translation adjustments
and is reflected in the Condensed Consolidated Statements of Comprehensive
Income (Loss). Due to the Company's available operating loss carryforwards,
there was no income tax effect related to the components of other
comprehensive income (loss) for any of the periods presented.
7. PREPAID RENT
At October 3, 1997, and October 2, 1998, the Company was not in compliance
with the Net Worth covenant contained in the 1997 sale-leaseback transaction
for the Mobile headquarters. On December 8, 1997, 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. On November 17, 1998, the Company obtained a continuation
of the waiver of non-compliance from the lessor through December 31, 1999,
in exchange for continuing the $1.3 million in prepaid rent. On June 7,
1999, the Company obtained a waiver agreement and lease amendment for the
transactions related to the Minolta convergence and reacquisition of the
European and Australian subsidiaries.
At October 1, 1999, the Company was not in compliance with several of the
sale-leaseback agreement covenants; however, the agreement provides for a
six-month cure period. The Company does not expect to achieve compliance
with the current covenants during the cure period. Among the remedies
available to the landlord are the acceleration of all remaining rent for the
initial lease term (approximately $21.1 million), cancellation of the lease,
or all other remedies available at law. Management believes waivers or
permanent revisions of the covenants may be obtained through further
negotiations over the next several months.
8. REVOLVING CREDIT AGREEMENT
On August 19, 1999, the Company entered into an agreement with Harris Trust
and Savings Bank ("Harris") which allowed the Company to retire the existing
secured revolving credit agreement. This new credit facility provides for a
three-year revolving line of credit with maximum availability of $20.0
million, secured by the Company's domestic and Canadian accounts receivable,
inventory, and machinery and equipment. At October 1, 1999, total
availability was $19.1 million and $13.7 million was outstanding. The stated
rate of interest for any borrowings under the agreement is one-quarter of
one percent (0.25) over prime (8.5% at October 1, 1999) or London Interbank
Offered Rate ("LIBOR") plus three percent.
In compliance with Financial Accounting Standards Board ("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," the Harris
credit facility is classified as short-term debt in the financial
statements.
The Harris credit facility includes limit requirements for unamortized
capital software development costs and capital expenditures, and minimum
levels of tangible net worth and fixed charge coverage. At October 1, 1999,
the Company was in compliance with these financial covenants; however, the
Company's non-compliance under the sale-leaseback agreement would constitute
a default of the credit facility if such non-compliance is not remedied
during the six-month cure period provided for in the sale-leaseback
agreement.
11
<PAGE>
At October 1, 1999, the Company's wholly owned subsidiary, QMS B.V., had
borrowings of $20.9 million under the revolving credit facilities with
Heller National Bank ("HNB"). Total borrowing capacity under this agreement
is based on a percentage of eligible accounts receivable and inventory and
is secured by these assets. The stated rate of interest for any borrowings
under this agreement is prime plus 1.25%. At October 1, 1999, the Company
was out of compliance with the HNB required minimum stockholders' equity
covenant. Management has obtained an informal waiver from HNB for this non-
compliance. If necessary, the Company is prepared to provide additional
capital investment to QMS B.V. to remedy the non-compliance.
9. SHORT-TERM DEBT
On June 7, 1999, the Company signed a promissory note to pay Alto Imaging
Group, N.V., (the former parent of QMS Europe B.V.) $6.2 million. The
interest is paid monthly and the applicable interest rate for this note is
an adjustable rate per year equal to five-tenths of one percent in excess of
LIBOR through January 14, 2000. The principal amount due in November 1999
will be converted to a term loan with twenty quarterly payments of $311,746
starting January 15, 2000, and ending on October 15, 2004.
10. LONG-TERM DEBT
Long-term debt at October 1, 1999, of $11.8 million represents a promissory
note to Minolta. The note matures in May 2003, payable in thirty-six equal
monthly installments of $356,000 beginning in July 2000. The interest rate
is determined monthly by the lender based upon two and one-half percent over
LIBOR and shall not exceed the maximum rate permitted by applicable law. At
October 1, 1999, the interest rate was 7.9375%. There was no long-term debt
at October 2, 1998.
11. RESTRUCTURING CHARGES
During the third quarter of 1999, the Company recognized restructuring
charges totaling approximately $3.3 million as actions were taken to reduce
redundant expenses and head-count as a result of the Minolta convergence.
These costs included $2.3 million associated with salary continuation and
outplacement services for a group of 63 employees from all levels and
functional areas of the Company and $931,000 for expenses related to the
cancellation of an enterprise business software project that will now be
replaced with systems consistent with those of Minolta. No amounts were
charged against the liability during the third quarter of 1999.
12. PROVISION FOR STATE INCOME TAX
In the three-month period ended October 1, 1999, the Company recorded a
$700,000 provision for state income tax related to audit assessments for
prior years. The assessments arose from the tax treatment of certain income,
which the Company has contested through the appeal process. On September 23,
1999, a preliminary ruling by the present level appeal officer indicated
that the Company might be liable on some of the disputed issues. The Company
is exploring continued appeal and settlement options with regard to the
final determination of this assessment.
12
<PAGE>
13. EXTRAORDINARY LOSS
During the third quarter of 1999, the Company retired debt with a face value
of $7.3 million and incurred an extraordinary loss of $393,000. Due to the
Company's available operating loss carryforwards, the Company has not
recognized a related tax benefit.
14. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which will be effective for the
Company's annual 1999 financial statements. Management is presently
evaluating the effect of SFAS No. 131 on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective, as amended by
SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133,"
for the Company in fiscal 2001. Management has not yet determined the effect
of SFAS No. 133 on its financial statements.
15. COMMITMENTS AND CONTINGENCIES
As of October 1, 1999, the Company had a commitment of approximately $11.3
million under contracts to purchase print engines and related components and
approximately $7.4 million under contracts to purchase spares and
consumables.
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.
13
<PAGE>
QMS, INC. AND SUBSIDIARIES
==========================
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Purchase of QMS B.V. and the Change of Control to Minolta Corporation
- ---------------------------------------------------------------------
On June 7, 1999, the Company reacquired the stock of its former subsidiaries,
QMS Europe B.V. and QMS Australia PTY, Ltd. (collectively referred to as "QMS
B.V."), for purchase prices of $24.7 million and $2.7 million, respectively,
plus direct acquisition costs of $2.5 million. The Company paid $20.5 million
of the purchase price in cash, received a $3.2 million offset to receivables,
and gave its promissory note to the seller (Alto Imaging Group, N.V., the former
parent of QMS B.V.) for the remaining $6.2 million. This note will be converted
to a term loan with twenty quarterly payments of $311,746 starting January 15,
2000, and ending on October 15, 2004. The remainder of the purchase was funded
out of a $12.8 million loan and a $5.0 million advance on future Company
production from Minolta Co., Ltd. and the sale of 2,130,000 shares of the
Company's common stock to Minolta Investments Company, a subsidiary of Minolta
Co., Ltd., ("Minolta") for a total price of $12.2 million.
In addition to the purchase from the Company of 2,130,000 shares of common
stock, on June 7, Minolta acquired 5,440,000 shares of the company's common
stock through a tender offer consummated on July 19, 1999. As a result, Minolta
is now the holder of 7,570,000 shares, or 57.4%, of the Company's outstanding
common stock.
Results of Operations
- ---------------------
Net loss for the third quarter of fiscal 1999 was $16.3 million ($1.23 per
share) on net sales of $62.7 million. For the nine months ended October 1,
1999, net loss was $18.6 million ($1.58 per share) on net sales of $157.0
million. These 1999 results compare to net income of $526,000 ($0.05 per share)
on net sales of $34.9 million for the third quarter of calendar 1998 and net
income of $1.4 million ($0.13 per share) on net sales of $104.9 million for the
nine months ended October 2, 1998.
Table 1 - Net Sales Comparisons for Key Product Groups
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
October 1, October 2, October 1, October 2,
(000's) 1999 1998 Difference 1999 1998 Difference
- ------------------ ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Hardware $ 8,324 $ 9,523 $(1,199) $ 25,279 $ 31,445 $(6,166)
Consumables 6,697 7,915 (1,218) 22,565 23,752 (1,187)
Service 8,962 9,304 (342) 24,157 27,896 (3,739)
Europe/Australia 28,865 6,101 22,764 60,445 17,978 42,467
Japan 9,839 1,878 7,961 24,101 3,082 21,019
All Other 43 208 (165) 482 760 (278)
------- ------- ------- -------- -------- -------
Total Net Sales $62,730 $34,929 $27,801 $157,029 $104,913 $52,116
======= ======= ======= ======== ======== =======
</TABLE>
14
<PAGE>
Table 2 - Hardware and International Sales Comparisons
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
October 1, October 2, October 1, October 2,
(000's) 1999 1998 Difference 1999 1998 Difference
- ------- ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Hardware Sales
- --------------------------
U.S./Canada - Direct $ 694 $ 982 $ (288) $ 2,470 $ 7,035 $(4,565)
U.S./Canada - Reseller 6,297 6,458 (161) 18,744 19,230 (486)
Latin America & Other 369 260 109 1,137 1,222 (85)
OEM 964 1,823 (859) 2,928 3,958 (1,030)
------- ------ ------- ------- ------- -------
Total Hardware $ 8,324 $9,523 $(1,199) $25,279 $31,445 $(6,166)
======= ====== ======= ======= ======= =======
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
October 1, October 2, October 1, October 2,
(000's) 1999 1998 Difference 1999 1998 Difference
- ------- ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Europe Sales
- ------------------------
Controller Boards $ 0 $3,135 $(3,135) $ 8,341 $10,133 $(1,792)
Commissions 0 2,966 (2,966) 6,136 7,845 (1,709)
QMS BV Sales 28,865 0 28,865 45,968 0 45,968
------- ------ ------- ------- ------- -------
Total Europe $28,865 $6,101 $22,764 $60,445 $17,978 $42,467
======= ====== ======= ======= ======= =======
</TABLE>
Net sales for the three months ended October 1, 1999, increased 79.6% from net
sales for the three months ended October 2, 1998. This increase in net sales
reflects the reacquisition of the Company's former European and Australian
subsidiaries. While hardware and consumables revenues were down by $1.2 million
(12.6%) and $1.2 million (15.4%), respectively, revenues in Europe and Japan
increased $22.8 million (373.1%) and $8.0 million (423.9%), respectively. For
the nine-month period ended October 1, 1999, net sales increased $52.1 million
(49.7%) from the comparable period of 1998, again reflecting the reacquisition
of the Company's former European and Australian subsidiaries.
For the nine-month period ended October 1, 1999, hardware revenue decreased $6.2
million (19.6%) from the comparable period in 1998. The direct market net sales
were down $288,000 (29.3%) for the three-month comparison to 1998 and down $4.6
million for the nine-month comparison. This decrease is due primarily to the
Company's decision to shift away from direct distribution using a direct sales
force and to a two-tiered reseller distribution system. The Original Equipment
Manufacturers ("OEM") net sales decreased by $859,000 and $1.0 million for the
three-month and nine-month periods, respectively. This decline is due primarily
to fewer placements of color and high-speed products with OEM customers.
Consumables revenue decreased $1.2 million (5.0%) for this nine-month comparison
due primarily to lower sales of consumables for end-of-life printer products.
Consumables revenues for current products increased by 15.0% for this same
period.
Service revenue also decreased, by $3.7 million (13.4%) during the nine-month
comparison. The decline in service revenue is due to the Company's decision to
discontinue the active pursuit of non-QMS product service contracts and the
overall tendency of users to forego the repair of printers by replacing older
equipment as new print system costs continue to decrease.
Until the reacquisition of the Company's former European and Australian
subsidiaries, European revenue included only sales of controller boards at cost
to the Company's European distributor, QMS B.V., and commissions earned on QMS
B.V. product sales. After June 7, 1999, revenues included sales to third-party
customers at QMS B.V. and board sales. Net sales for Europe increased $42.5
million for the nine-month period ended October 1, 1999, from the comparable
1998 period due to this reacquisition.
15
<PAGE>
During the third quarter of fiscal 1999, controller board sales and commissions
for Europe decreased $3.1 million and $3.0 million, respectively, compared to
the third quarter of 1998. This decrease is due to the elimination of sales to
QMS B.V. after June 7, 1999. For the nine-month comparison, board sales and
commissions decreased 17.7% and 21.8%, respectively, due to the higher board and
commission sales in the first three months of 1999, prior to the reacquisition
of QMS B.V.
During the nine months ended October 2, 1998, Japanese revenue included product
and commission revenue for Japan, Korea, and other Pacific Rim countries. This
revenue was generated through an independent company, QMS Japan KK, which, until
September 1998, had exclusive rights to distribute QMS products throughout these
countries. In September 1998, the Company reestablished its wholly owned
subsidiary in Japan. Sales that had occurred through a master distributor in
Japan are now being made through the Company's Japanese subsidiary, thereby
eliminating the receipt of commissions on distributor sales.
The Company recognized special, restructuring, and extraordinary charges
totaling approximately $6.2 million in the third quarter of 1999, essentially
all related to North America. Special charges of $2.5 million were included in
cost of goods sold and consist of a $790,000 write-off of spare parts inventory
for a third-party service inventory that will no longer be utilized due to the
Minolta convergence, $770,000 on write-downs of color laser printers for price
promotions to reflect net realizable value, and $967,000 in write-downs for
capitalized software related to product base redundancy as a result of the
Minolta convergence. Restructuring charges of $3.3 million consist of $2.3
million in charges for workforce reduction and $931,000 for expenses related to
the cancellation of an enterprise business software project that will be
replaced with systems consistent with those of Minolta.
The Company also had $700,000 in provisional income tax charges from certain
income tax assessments and an extraordinary item of approximately $393,000 for
the early extinguishment of debt.
The Company's gross profit increased approximately $272,000 and $1.4 million for
the three-month and nine-month comparisons, respectively, but decreased as a
percentage of net sales from 27.5% to 15.7% for the three-month period and from
28.9% to 20.2% for the nine-month comparison. Excluding special charges, the
Company's gross profit increased approximately $2.8 million and $4.0 million for
the three-month and nine-month comparisons, respectively, but decreased as a
percentage of net sales from 27.5% to 19.8% of sales for the three-month period
and from 28.9% to 21.9% for the nine-month period. This decrease is primarily
due to pricing actions taken on the 8-1/2 x 11 color hardware products in
relation to competitive market pressure.
Operating expenses and goodwill amortization increased approximately $11.4
million and $15.5 million for the three-month and nine-month comparisons,
respectively. As a percentage of net sales, operating expenses and goodwill
amortization increased from 25.5% to 32.5% for the three-month comparison and
from 27.2% to 28.0% for the nine-month comparison. The increase in operating
expenses reflects the addition of the European and Australian subsidiaries and
includes approximately $2.3 million for convergence related expenses for key
executives due to Minolta's investment and related change of control.
Total other income and expense for the three months ended October 1, 1999, was a
net expense of $2.1 million. This net expense includes a $387,000 gain on the
sale of QMS Circuits, Inc.'s ("QCI") land and building. Excluding the gain on
the QCI property, other income and expense would have been a net expense of $2.5
million for the three months ending October 1, 1999, compared to a net expense
of
16
<PAGE>
$189,000 for the three months ended October 2, 1998. The increase is the result
of higher debt levels in the United States, additional financing from Minolta
and the seller for the acquisition of QMS B.V., and the impact of foreign
currency exchange related to the QMS B.V. operations. In the nine-month
comparison, net other expense in fiscal 1999 was $2.4 million, an increase of
$2.0 million over the prior year. This increase reflects greater interest
expense due to higher debt levels.
Income taxes reflect estimated foreign income taxes of QMS foreign subsidiaries,
U.S. tax liabilities for foreign commissions earned, and provisional income tax
charges from certain income tax assessments.
Financial Condition
- -------------------
The revolving credit balance with Foothill Capital Corporation ("Foothill") was
paid in full during the third quarter of 1999. On August 19, 1999, the Company
entered into a new financing arrangement with Harris Trust and Savings Bank
("Harris") which allowed the Company to retire the existing secured revolving
credit agreement. This new credit facility provides for a three-year revolving
line of credit with maximum availability of $20.0 million, secured by the
Company's domestic and Canadian accounts receivable, inventory, and machinery
and equipment. The stated rate of interest for any borrowings under the
agreement is one-quarter of one percent (0.25) over prime (8.5% at October 1,
1999) or London Interbank Offered Rate ("LIBOR") plus three percent. The Harris
credit facility includes limit requirements for unamortized capital software
development costs and capital expenditures, and minimum levels of tangible net
worth and fixed charge coverage.
Accounts receivable, accounts payable and inventory grew by $25.8 million, $21.9
million and $22.7 million, respectively, due to the addition of QMS B.V. on June
7, 1999. The Company expects its assets and liabilities to remain at higher
levels due to higher sales and production volumes from acquisitions.
Liquidity and Capital Resources
- -------------------------------
During the three months ended October 1, 1999, the Company's working capital and
capital expenditure requirements came principally from operations. The
Company's net working capital as of October 1, 1999, was $3.2 million compared
to $14.4 million at January 1, 1999.
At October 1, 1999, the Company had cash on hand of $5.2 million and borrowings
of $13.7 million and $20.9 million under the revolving credit facilities with
Harris Trust and Savings Bank ("Harris") and Heller National Bank ("HNB"),
respectively. Total borrowing capacity under the credit facilities is a
function of eligible accounts receivable and inventory. At October 1, 1999,
total availability was $40.0 million, consisting of $19.1 million with Harris
and $20.9 million with HNB. The Company believes its current working capital
availability, including the effect of the acquisition, is adequate for its
operating needs.
At October 1, 1999, the Company was in compliance with the Harris financial
covenants; however, the Company's non-compliance under the sale-leaseback
agreement would constitute a default of the Harris credit facility if such non-
compliance is not remedied during the six-month cure period provided for in the
sale-leaseback agreement. At October 1, 1999, the Company was out of compliance
with the HNB required minimum stockholders' equity covenant. Management has
obtained an informal waiver from HNB for this non-compliance. If necessary, the
Company is prepared to provide additional capital investment to QMS B.V. to
remedy the non-compliance.
On November 10, 1999, the Company received a $15 million loan from Minolta.
This loan is payable over four years. The stated interest rate is LIBOR plus
2.5% payable monthly in arrears. Proceeds of this loan will be used to repay the
$5.0 million unsecured advance from Minolta, to fund a loan to QMS B.V. for its
working capital purposes, and the remainder will be used for corporate working
capital purposes.
17
<PAGE>
Sale-Leaseback Agreement
- ------------------------
At October 3, 1997, and October 2, 1998, the Company was not in compliance with
the Net Worth covenant contained in the 1997 sale-leaseback transaction for the
Mobile headquarters. On December 8, 1997, 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. On November 17, 1998, the Company obtained a continuation of the
waiver of non-compliance from the lessor through December 31, 1999, in exchange
for continuing the $1.3 million in prepaid rent. On June 7, 1999, the Company
obtained a waiver agreement and lease amendment for the transactions related to
the Minolta convergence and reacquisition of the European and Australian
subsidiaries.
At October 1, 1999, the Company was not in compliance with several of the sale-
leaseback agreement covenants; however, the agreement provides for a six-month
cure period. The Company does not expect to achieve compliance with the current
covenants during the cure period. Among the remedies available to the landlord
are the acceleration of all rent for the initial lease term (approximately $21.1
million), cancellation of the lease, or all other remedies available at law.
Management believes waivers or permanent revisions of the covenants may be
obtained through further negotiations over the next several months.
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 may attempt to mitigate some
negative impacts through yen-sharing arrangements with suppliers; however,
material price increases resulting from unfavorable exchange rate fluctuations
could adversely affect operating results.
The effect of yen fluctuations on material prices is also offset in part by yen-
based Japanese sales. Roughly 15% of all Company sales are in Japanese yen,
which causes sales and profit margins to increase when yen values increase.
Year 2000 Compliance
- --------------------
State of Readiness - In March 1997, the Company developed and began implementing
- ------------------
plans to review its purchased and developed software for Year 2000 compliance.
The plan addresses the major areas listed below.
1. IT Systems and Applications
The Company has identified 218 internal systems and applications
components; of these, 52 were identified as critical. As of October 1,
1999, all critical systems have been verified as Year 2000 compliant.
The Company has contacted all critical IT (information technology) systems
and applications vendors and has received letters of compliance from them
and system upgrades as required. The Year 2000 review for IT systems and
applications was completed in November 1998. The last of the upgrades was
completed by September 1999. The Company has performed basic component
testing following the guidelines defined by the BSI Year 2000 compliance
definition. Because of the testing results to date, the Company does not
currently foresee the need for additional contingency plans for these IT
components.
18
<PAGE>
2. Critical Non-IT Suppliers and Vendors
The Company has sent Year 2000 compliance questionnaires to all critical
non-IT suppliers and vendors. The Company is not aware of any anticipated
Year 2000 non-compliance issues by its vendors or customers that could
materially affect its business operations; however, the Company does not
control the systems of other companies and cannot assure that such systems
will be converted in a timely fashion and, if not converted, would not have
an adverse effect on the Company's business operations.
The Company is dependent upon a variety of local suppliers and vendors for
such items as electrical power, telephone service, water, banking services
and other necessary commodities. The Company is not currently aware of any
non-compliance by these vendors that will materially affect its business
operations; however, the Company does not control these systems and cannot
assure that they will be converted in a timely fashion and, if not
converted, would not have an adverse effect on the Company's business
operations.
3. QMS Products
The design of the Company's products precludes the possibility of Year 2000
errors. Date and time information is passed to the QMS printer by the host
computer in real time. The real-time clock used to apply the time stamp to
the accounting files stores the year as four digits and is designed to
correctly handle leap year calculations, including the Year 2000. All QMS
hardware and software are designed to function properly at the turn of the
century and beyond without any interruption in business.
Costs - The Company has concluded all necessary purchases and has spent
- -----
approximately $150,000 to date. No additional external expenditures are
anticipated in connection with the Year 2000 remediation.
Risks and Reasonably Likely Worst Case Scenarios - Although the Company has not
- ------------------------------------------------
identified any specific areas of risk, general market Year 2000 problems outside
of the Company's control could have an adverse effect on the Company's operating
results.
Contingency and Business Continuation Plan - The Company will evaluate the need
- ------------------------------------------
for a formal Year 2000 contingency plan by December 1999.
Recently Issued Accounting Standards
- ------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information,"
which will be effective for the Company's annual 1999 financial statements.
Management is presently evaluating the effect of SFAS No. 131 on its financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective, as amended by SFAS
No. 137, "Deferral of the Effective Date of FASB Statement No. 133," for the
Company in fiscal 2001. Management has not yet determined the effect of SFAS
No. 131 on its financial statements.
19
<PAGE>
QMS, INC. AND SUBSIDIARIES
==========================
PART I - FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
- --------------------------------------------------------------------------------
The Company is exposed to market risk primarily from changes in foreign currency
exchange rates and to a lesser extent interest rates. The following describes
the nature of the risks and demonstrates that, in general, such market risk is
not material to the Company.
Foreign Currency Exchange Risk
- ------------------------------
At October 2, 1998, the Company had sales in over 28 countries worldwide. These
sales outside the United States accounted for approximately 25 percent of
worldwide sales. In 1999, the Company expects this percentage to increase due
to foreign acquisitions, primarily in Europe and Japan. Over ninety-five
percent of foreign sales are denominated in currencies of the local country. As
such, the Company's reported profits and cash flows are exposed to changing
exchange rates.
To date, management has not deemed it cost-effective to engage in a formula-
based program of hedging the profits and cash flows of foreign operations using
derivative financial instruments. Because the Company's foreign subsidiaries
purchase significant quantities of inventory payable in U.S. dollars, managing
the level of inventory and related payables and the rate of inventory turnover
provides a level of protection against adverse changes in exchange rates.
In addition, at any point in time the Company's foreign subsidiaries hold
financial assets and liabilities that are denominated in currencies other than
U.S. dollars. These financial assets and liabilities consist primarily of
short-term, third-party receivables and payables. Changes in exchange rates
affect these financial assets and liabilities. For the most part, however,
these gains or losses arise from translation and, as such, do not significantly
affect net income.
Prior to 1998, the Company on occasion has used derivatives to hedge specific
risk situations involving foreign currency exposures. No such derivatives were
held at October 1, 1999.
Interest Rate Risk
- ------------------
The financial liabilities of the Company that are exposed to changes in interest
rates are limited to short-term borrowings. The stated rate of interest for
borrowings under the Harris revolving credit agreement is one-quarter of one
percent (0.25) over prime or London Interbank Offered Rate ("LIBOR") plus three
percent, and the stated rate of interest for borrowings under the HNB revolving
credit agreement is one and one-quarter percent (1.25) over prime. Management
believes interest rate risk for the Company is not significant because a one
percent annual increase in prime or LIBOR would result in only approximately
$341,000 additional annual interest expense.
20
<PAGE>
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 - None.
- ------------------------------------------------------------
ITEM 5. OTHER INFORMATION - None.
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit
Number Description
------ -----------
10(f) Executive Services Agreement dated August 1, 1999, between
QMS, Inc. and Edward E. Lucente
10(f)(i) Amendment to the Executive Services Agreement between QMS,
Inc. and Edward E. Lucente dated October 25, 1999
10(f)(ii) Agreement between QMS, Inc. and Edward E. Lucente dated
October 25, 1999, in which QMS, Inc. adopts a nonqualified
compensation agreement
10(f)(iii) Amendment to Trust Agreement between QMS, Inc. and South
Alabama Trust Company, Inc. dated October 25, 1999
10(j) Credit Agreement dated August 19, 1999, by and between
QMS, Inc. and Harris Trust and Savings Bank
10(t)(iv) Waiver Agreement and Lease Amendment dated June 7, 1999,
between INK (AL) QRS 12-21, INC., and QMS, Inc
10(x)(v) Promissory Note between QMS, Inc. and Minolta Co., Ltd. for
$15,000,000 dated November 10, 1999
10(x)(vi) Promissory Note between QMS, Inc. and QMS Europe B.V. for
$4,000,000 dated November 10, 1999
27 Financial Data Schedule
(b) Reports:
* Form 8-K dated October 8, 1999, reporting the change in fiscal year end.
21
<PAGE>
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.
QMS, INC.
(Registrant)
Date: November 12, 1999 /s/ Edward E. Lucente
---------------------- --------------------------------------
Edward E. Lucente
President and Chief Executive Officer
Date: November 12, 1999 /s/ Albert A. Butler
---------------------- --------------------------------------
Albert A. Butler
Chief Financial Officer
22
<PAGE>
Exhibit 10(f)
EXECUTIVE SERVICES AGREEMENT
THIS EXECUTIVE SERVICES AGREEMENT (the "Agreement"), effective as of August
1, 1999, by and between QMS, Inc., a Delaware corporation, and EDWARD E. LUCENTE
("Lucente"), an individual. 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 agrees to continue the employment of Lucente as
president and chief executive officer, and Lucente agrees to continue to serve
in 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 of Directors of QMS (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
through March 31, 2003 (or, at Lucente's option, exercisable by notice in
writing given by Lucente to QMS no later than March 1, 2003, through March 31,
2004).
3. Directorships. Lucente hereby consents to continue to serve as
director of QMS pursuant to his election and re-election as such in accordance
with the By-Laws of QMS, for the term he is employed hereunder.
4. Compensation.
(a) Lucente's initial base salary hereunder 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, beginning as of July 1, 1999, for annual
incentive bonus compensation in the amount of $550,000 per year, payable
quarterly on such basis and criteria and at such times as the QMS' Compensation
Committee may determine.
(c) Subject to the approval of the Board's Compensation Committee and
contingent upon the approval of the QMS stockholders to amend the 1997 Stock
Incentive Plan to increase the number of shares issuable under the Plan by at
least 500,000 shares, Lucente shall be granted non-qualified stock options for
the purchase of 500,000 total shares of QMS common stock on August 10, 1999
("Grant Date") at an exercise price representing the fair market value of QMS'
common stock on the Grant Date.
<PAGE>
(d) Lucente shall be paid a monthly automobile allowance in the amount of
$1,250, payable on the first day of each month beginning as of August 1, 1999.
(e) During the term of this Agreement, Lucente shall be reimbursed for any
fees, bonds, membership dues, and other expenses, including meals, drinks, and
golf expenses incurred by him for his membership in and use of the Mobile
Country Club (Mobile, Alabama) and the Sanctuary Country Club (Sanibel Island,
Florida).
(f) Lucente shall be furnished or provided at QMS' expense, or reimbursed
for, such reasonable financial and estate planning services, tax return
preparation services, and tax counseling services as he may need or as may be
appropriate for a person with his income and assets.
(g) Lucente shall be entitled to all legal and religious holidays, sick
days and vacation in accordance with the Company's policy generally applicable
to senior executives.
(h) Lucente shall continue to be eligible for participation in any
pension, profit sharing, incentive, savings and retirement plans, as adopted
from time to time by the Board, that are tax-qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and all plans that
are supplemental to any such tax-qualified plans, in each case to the extent
that such plans are applicable generally to other senior executives of QMS.
Lucente shall also be eligible to participate in any health, life, disability or
other group insurance plan which is now or may be established by QMS or which
QMS is required to maintain by law.
5. Additional Compensation and "Rabbi" Trust.
(a) In addition to the foregoing, Lucente shall become entitled to
additional compensation in the sum of $1,800,000 (plus all interest earned on
the trust provided for in Subparagraph 5(c) below) at the earliest to occur of
the following:
(i) August 1, 2002,
(ii) Lucente's death,
(iii) his involuntary termination other than for Cause (as defined in
Paragraph 6 below), or
(iv) a substantial diminishment of his working conditions,
authority, compensation, benefits, "perks", or status to which
he has not previously consented, including, without limitation,
a substantial reduction in the scope of his duties or
authority, his removal from the Board of Directors of QMS (the
"Board") or his failure to be re-elected as Chairman of the
Board and/or as a member of the Board, his removal as president
or chief executive officer or his failure to be re-elected as
such, or an unreasonable and continuing refusal by the Board to
support him on a material and/or strategic issue confronting
QMS.
(b) The $1,800,000 additional compensation provided in Subparagraph 5(a)
above shall be paid in four equal annual installments of $450,000 each, the
first of which installments
<PAGE>
shall be due and payable upon Lucente becoming entitled to said additional
compensation under said Subparagraph 5(a) and subsequent installments being due
and payable on the first, second, and third annual anniversaries of the said
first installment. In addition, an amount equal to one-fourth of the interest
then on hand in the trust provided for in Subparagraph 5(c) shall be paid with
the first of such installments, an amount equal to one-third of the interest on
hand in such trust at the payment of such second installment shall be paid with
such second installment, an amount equal to one-half of the interest on hand in
such trust at the payment of such third installment shall be paid with such
third installment, and all interest on hand in such trust at the payment of the
fourth of such installments shall be paid with such fourth installment.
(c) QMS shall fund its obligations under this Paragraph 5 by creating a
"rabbi" trust with South Alabama Trust Company or a bank acceptable to Lucente
(which shall not be useable or reachable by QMS for any purpose other than the
payment of its obligations under this Paragraph 5 as long as any such
obligations remain and are unpaid, but which trust shall be subject to judicial
levy by creditors of QMS) and depositing therein the sum of $50,000 on the first
day of September, 1999, and a like amount on the first day of each of the next
thirty-five months thereafter. QMS shall pay all expenses of establishing and
maintaining such trust. Lucente shall have no right to reach the assets in such
trust except to the extent QMS fails to pay him the amounts due hereunder. The
assets in the trust shall be invested in United States Treasury obligations due
in not more than one year from the date of investment or in other interest
bearing investments suitable to Lucente.
(d) Any payments due under this Agreement to Lucente shall be paid to
Lucente if he is then living; or if not, to his then living widow, if any; or if
none, to the executors or administrators of his estate.
(e) If Lucente quits or voluntarily ceases to be employed, he shall be
entitled to an amount equal to the then assets of the trust provided for in
Paragraph 5(c) above, plus the income thereafter earned by said trust, paid out
in four annual installments, the first of which shall be due upon such quitting
or ceasing to be employed, and the balance being payable on the first, second,
and third annual anniversaries thereof.
(f) Anything in this Agreement to the contrary notwithstanding, Lucente
shall forfeit all rights hereunder to any amounts not then yet due and payable
if he is discharged by the Board for "Cause", as defined in Paragraph 6 below.
<PAGE>
6. Termination.
(a) QMS, by vote of the majority of the Board of Directors then in office
(excluding Lucente), shall have the right, on written notice to Lucente, to
discharge him and terminate his employment at any time for "Cause" (subject to
Lucente's right of cure and right to dispute as provided hereinbelow). The term
"Cause" shall mean (i) theft, embezzlement, or other criminal act directed
against QMS; (ii) the repeated willful breach of Lucente's material obligations
under this Agreement to the serious and demonstrable detriment of QMS, after QMS
has given Lucente written notice of such breach and Lucente has had a reasonable
opportunity and period of time to cure and a right to dispute such breach, which
period shall be not less than 45 days after (A) Lucente's receipt of such notice
and (B) an opportunity to be heard on such matter (with his counsel present and
participating) at a meeting of the Board of Directors; or (iii) Lucente's
continued disability, as provided for in Paragraph 6(c).
(b) The term "involuntary termination" shall mean any termination of
Lucente's employment by QMS, other than for "Cause", as defined herein.
(c) 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 earned or accrued to the date
of termination, in spite of any such infirmity. The noncompetition 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 or 8, if still in effect, shall cease to be operative.
7. Noncompetition. 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, provided that this provision shall be
effective only to the extent allowed by law.
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
<PAGE>
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, Lucente 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. Other Agreements Replaced. The "Executive Services Agreement" dated
as of January 5, 1998, between QMS and Lucente, as amended, and the "Executive
Agreement" dated as of January 5, 1998, between QMS and Lucente, together with
any other specific agreements between said two parties, are superceded and
replaced by this Agreement and shall be of no further force or effect.
16. 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.
17. 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
<PAGE>
terms and conditions, but the same shall continue and remain in full force and
effect as if no such forbearance or waiver had occurred.
18. 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.
19. 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 AmSouth Bank Building
Post Office Box 123
Mobile, Alabama 36601
If to Lucente: Mr. Edward E. Lucente
c/o QMS, Inc.
One Magnum Pass
Mobile, Alabama 36608
(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/ Albert A. Butler /s/ Edward E. Lucente
-------------------------- ---------------------------
Its CFO
----------------------
ATTEST: /s/ Thomas L.McGoogan
----------------------
Its VP/HR
-------------------
<PAGE>
Exhibit 10(f)(i)
AMENDMENT TO THE EXECUTIVE SERVICES AGREEMENT
---------------------------------------------
THIS AMENDMENT TO THE EXECUTIVE SERVICES AGREEMENT (the "Amendment"),
effective as of the 25th day of October, 1999, by and between QMS, INC., a
Delaware corporation, and EDWARD E. LUCENTE ("Lucente"), an individual. QMS,
Inc. and Lucente are hereinafter referred to in this Amendment as the Parties.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, QMS, Inc. and Lucente, executed the "Executive Services
Agreement," effective as of August 1, 1999 (the "Agreement"); and
WHEREAS, QMS, Inc. and Lucente now desire to amend the Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the Parties to this Amendment, the sufficiency of which is hereby acknowledged,
the Parties hereby amend the Agreement as follows:
1. QMS, Inc. and Lucente hereby amend the Agreement by deleting and
striking the current text of Paragraph Five thereof in its entirety.
2. In all other respects, QMS, Inc. and Lucente hereby ratify and confirm
the Agreement.
IN WITNESS WHEREOF, the Parties have executed and delivered this Amendment
as of the day and year indicated above.
QMS, Inc. Edward E. Lucente
/s/ Edward E. Lucente
-------------------------
By: /s/ Thomas L. McGoogan
---------------------------
Its Vice President, HR
ATTEST: /s/ Albert A. Butler
-----------------------
Its Secretary
<PAGE>
Exhibit 10(f)(ii)
AGREEMENT
---------
THIS AGREEMENT, effective as of the 1st day of September, 1999, and entered
into this 25th day of October, 1999, by and between QMS, Inc. ("QMS"), a
Delaware corporation, and EDWARD E. LUCENTE ("Lucente"), an individual. QMS and
Lucente are collectively referred to in this Agreement as the Parties.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, QMS recently experienced a change in control, which resulted when
Minolta Investments Company acquired a majority share of QMS stock; and
WHEREAS, Lucente contends that he is entitled to payments for his past
services rendered to QMS as a result of the change in control; and
WHEREAS, QMS disputes that Lucente is entitled to such payments; and
WHEREAS, in an effort to resolve this dispute, QMS desires to adopt the
nonqualified deferred compensation plan contained herein for Lucente for such
past services;
NOW, THEREFORE, in consideration of the mutual covenants and promises of
the
<PAGE>
Parties to this Agreement, the sufficiency of which is hereby acknowledged, the
Parties hereby agree as follows:
1. QMS hereby adopts a nonqualified plan which shall provide Lucente
deferred compensation for such past services in the sum of $1,800,000 (plus all
interest earned on the trust provided for in Paragraph 3 below) at the earliest
to occur of the following:
a. August 1, 2002,
b. Lucente's death,
c. Lucente ceasing to be an employee of QMS, or
d. a substantial diminishment of his working conditions, authority,
compensation, benefits, "perks", or status to which he has not previously
consented, including, without limitation, a substantial reduction in the scope
of his duties or authority, his removal from the Board of Directors of QMS (the
"Board") or his failure to be re-elected as Chairman of the Board and/or as a
member of the Board, his removal as president or chief executive officer or his
failure to be re-elected as such, or an unreasonable and continuing refusal by
the Board to support him on a material and/or strategic issue confronting QMS.
2. The $1,800,000 deferred compensation provided in Paragraph 1 above
shall be paid in four equal annual installments of $450,000 each, the first of
which installments shall be due and payable upon Lucente becoming entitled to
said deferred compensation under said Paragraph 1 and subsequent installments
being due and payable on the first, second, and third annual anniversaries of
the said first installment. In addition, an amount equal to one-fourth of the
interest then on hand in the trust provided for in Paragraph 3 shall be paid
with the first of such installments, an amount equal to one-third of the
interest on hand in such trust at the payment of such second installment shall
be paid with such second installment, an amount
-10-
<PAGE>
equal to one-half of the interest on hand in such trust at the payment of such
third installment shall be paid with such third installment, and all interest on
hand in such trust at the payment of the fourth of such installments shall be
paid with such fourth installment.
3. QMS shall fund its obligations under this Agreement by use of a
"rabbi" trust with South Alabama Trust Company or a bank acceptable to Lucente
(which shall not be useable or reachable by QMS for any purpose other than the
payment of its obligations under this Agreement as long as any such obligations
remain and are unpaid, but which trust shall be subject to judicial levy by
creditors of QMS) and depositing therein the sum of $50,000 on the first day of
September, 1999, and a like amount on the first day of each of the next thirty-
five months thereafter. QMS shall pay all expenses of establishing and
maintaining such trust. Lucente shall have no right to reach the assets in such
trust except to the extent QMS fails to pay him the amounts due hereunder. QMS
and Lucente agree that T. Richard Spoor shall handle investing the assets of the
trust. T. Richard Spoor is to invest the assets of the trust in any and all
stocks, bonds, notes, securities, interests in investment trusts and mutual
funds, or other interest bearing investments suitable for investment by a
prudent man and acceptable to Lucente.
4. Any payments due under this Agreement to Lucente shall be paid to
Lucente if he is then living; or if not, to his then living widow, if any; or if
none, to the executors or administrators of his estate.
-11-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement
as of the day and year indicated above.
QMS Edward E. Lucente
By: /s/ Thomas L. McGoogan /s/ Edward E. Lucente
Its Vice President, HR
ATTEST: /s/Albert A. Butler
Its Secretary
-12-
<PAGE>
Exhibit 10(f)(iii)
AMENDMENT TO TRUST AGREEMENT
----------------------------
THIS AMENDMENT TO THE TRUST AGREEMENT (the "Amendment"), effective as of
the 25th day of October, 1999, by and between QMS, INC. (hereinafter referred to
as "Company") and SOUTH ALABAMA TRUST COMPANY, INC. (hereinafter referred to as
the "Trustee").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Company and Trustee, executed a Trust Agreement, effective as of
September 1, 1999 (the "Agreement"); and
WHEREAS, Company and Trustee now desire to amend the Trust Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises the
sufficiency of which is hereby acknowledged, Company and Trustee hereby amend
the Trust Agreement as follows:
1. Company and Trustee hereby amend the Trust Agreement by deleting and
striking therefrom any and all references to the Executive Services Agreement by
and between QMS, Inc. and Edward E. Lucente, with an effective date of August 1,
1999, and substituting
<PAGE>
in lieu thereof the Agreement, by and between QMS, Inc. and Edward E. Lucente,
with an effective date of September 1, 1999.
2. Company and Trustee hereby amend the Payment Schedule to Trust
Agreement by deleting therefrom the following text:
(iii) Edward E. Lucente's involuntary termination other than for
Cause (as such term is defined in the Executive Services
Agreement), or
and substituting in lieu thereof the following:
(iii) Lucente ceases to be an employee of QMS, or
3. In all other respects, Company and Trustee hereby ratify and confirm
the Trust Agreement.
IN WITNESS WHEREOF, the Parties have executed and delivered this Amendment
as of the day and year indicated above.
COMPANY:
QMS, INC.
By: /s/ Albert A. Butler
--------------------------------
As Its: Vice Pres - CFO
----------------------------
TRUSTEE:
SOUTH ALABAMA TRUST COMPANY, INC.
By:________________________________
As Its:____________________________
-16-
<PAGE>
EXHIBIT 10(j)
================================================================================
Credit Agreement
Dated as of August 19, 1999
between
QMS, Inc.
and
Harris Trust and Savings Bank
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Description Page
<S> <C> <C>
Section 1. The Credits............................................................. 1
Section 1.1. Revolving Credit........................................................ 1
Section 1.2. Revolving Credit Loans.................................................. 2
Section 1.3. Letters of Credit....................................................... 2
Section 1.4. Manner and Disbursement of Loans........................................ 3
Section 2. Interest, Fees, term and termination.................................... 3
Section 2.1. Interest Rate Options................................................... 3
Section 2.2. Minimum Amounts......................................................... 5
Section 2.3. Manner of Rate Selection................................................ 5
Section 2.4. Change of Law........................................................... 5
Section 2.5. Unavailability of Deposits or Inability to Ascertain Adjusted LIBOR.... 5
Section 2.6. Taxes and Increased Costs............................................... 5
Section 2.7. Funding Indemnity....................................................... 6
Section 2.8. Lending Branch.......................................................... 7
Section 2.9. Bank's Duty to Mitigate................................................. 7
Section 2.10. Discretion of Bank as to Manner of Funding.............................. 7
Section 3. Fees, Application, Prepayments, Computations, and Notations............. 8
Section 3.1. Facility Fees........................................................... 8
Section 3.2. Unused Line Fee......................................................... 8
Section 3.3. Audit Fees.............................................................. 8
Section 3.4. Letter of Credit Fees................................................... 8
Section 3.5. Computation of Interest and Fees........................................ 8
Section 3.6. Change in Capital Adequacy Requirements................................. 9
Section 3.7. Term and Termination.................................................... 9
Section 3.8. Place and Application of Payments and Collections....................... 10
Section 3.9. Voluntary Prepayments................................................... 11
Section 3.10. Mandatory Prepayment.................................................... 11
Section 3.11. Computation of Obligations Outstanding.................................. 12
Section 3.12. Notations............................................................... 12
Section 4. Collateral and Guaranties............................................... 12
Section 4.1. Collateral.............................................................. 12
Section 4.2. Collateral Proceeds..................................................... 13
Section 4.3. Guaranties.............................................................. 13
Section 4.4. Further Assurances...................................................... 13
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
Section 5. Definitions; Interpretation............................................. 14
Section 5.1. Definitions............................................................. 14
Section 5.2. Interpretation.......................................................... 27
Section 6. Representations and Warranties.......................................... 27
Section 6.1. Organization and Qualification.......................................... 27
Section 6.2. Subsidiaries............................................................ 27
Section 6.3. Corporate Authority and Validity of Obligations......................... 28
Section 6.4. Use of Proceeds; Margin Stock........................................... 28
Section 6.5. Financial Reports....................................................... 29
Section 6.6. No Material Adverse Change.............................................. 29
Section 6.7. Full Disclosure......................................................... 29
Section 6.8. Good Title.............................................................. 29
Section 6.9. Litigation and Other Controversies...................................... 29
Section 6.10. Taxes................................................................... 29
Section 6.11. Approvals............................................................... 30
Section 6.12. Affiliate Transactions.................................................. 30
Section 6.13. Investment Company; Public Utility Holding Company...................... 30
Section 6.14. ERISA................................................................... 30
Section 6.15. Compliance with Laws.................................................... 30
Section 6.16. Other Agreements........................................................ 31
Section 6.17. No Default.............................................................. 31
Section 6.18. Year 2000 Compliance.................................................... 31
Section 7. Conditions Precedent.................................................... 31
Section 7.1. All Advances............................................................ 31
Section 7.2. Initial Advance......................................................... 32
Section 8. Covenants............................................................... 34
Section 8.1. Maintenance of Business................................................. 34
Section 8.2. Maintenance of Properties............................................... 34
Section 8.3. Taxes and Assessments................................................... 34
Section 8.4. Insurance............................................................... 34
Section 8.5. Financial Reports....................................................... 35
Section 8.6. Inspection; Appraisals.................................................. 37
Section 8.7. Tangible Net Worth...................................................... 38
Section 8.8. Unamortized Capitalized Software Development Costs...................... 38
Section 8.9. Fixed Charge Coverage Ratio............................................. 39
Section 8.10. Capital Expenditures.................................................... 39
Section 8.11. Software Development Expenditures....................................... 39
Section 8.12. Covenant Reset.......................................................... 39
Section 8.13. Indebtedness for Borrowed Money......................................... 40
Section 8.14. Liens................................................................... 40
Section 8.15. Investments, Acquisitions, Loans, Advances and Guaranties............... 41
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
Section 8.16. Mergers, Consolidations and Sales................................... 42
Section 8.17. Maintenance of Subsidiaries......................................... 43
Section 8.18. Dividends and Certain Other Restricted Payments..................... 43
Section 8.19. ERISA............................................................... 43
Section 8.20. Compliance with Laws................................................ 43
Section 8.21. Burdensome Contracts With Affiliates................................ 43
Section 8.22. No Changes in Fiscal Year........................................... 43
Section 8.23. Formation of Subsidiaries........................................... 44
Section 8.24. Change in the Nature of Business.................................... 44
Section 8.25. Year 2000 Assessment................................................ 44
Section 8.26. Amendments to Subordinated Indebtedness............................. 44
Section 9. Events of Default and Remedies...................................... 44
Section 9.1. Events of Default................................................... 44
Section 9.2. Non-Bankruptcy Defaults............................................. 47
Section 9.3. Bankruptcy Defaults................................................. 47
Section 9.4. Collateral for Undrawn Letters of Credit............................ 47
Section 10. Miscellaneous....................................................... 48
Section 10.1. Non-Business Days................................................... 48
Section 10.2. No Waiver, Cumulative Remedies...................................... 48
Section 10.3. Amendments, Etc..................................................... 48
Section 10.4. Costs and Expenses.................................................. 48
Section 10.5. Documentary Taxes................................................... 49
Section 10.6. Survival of Representations......................................... 49
Section 10.7. Notices............................................................. 49
Section 10.8. Participations...................................................... 50
Section 10.9. Construction........................................................ 51
Section 10.10. Headings............................................................ 51
Section 10.11. Severability of Provisions.......................................... 51
Section 10.12. Counterparts........................................................ 51
Section 10.13. Binding Nature, Governing Law, Etc.................................. 51
Section 10.14. Submission to Jurisdiction; Waiver of Jury Trial.................... 51
Signature............................................................................... 52
</TABLE>
Exhibit A -- Revolving Credit Note
Exhibit B -- Borrowing Base Certificate
Exhibit C -- Compliance Certificate
Exhibit D -- Maximum MagiColor Slow Moving Amount
Schedule 6.2 -- Subsidiaries
Schedule 8.13 -- Indebtedness
-iii-
<PAGE>
Credit Agreement
This Agreement, made as of the day and date last above written by and
between the undersigned, QMS, Inc., a Delaware corporation (the "Company"), and
the undersigned, Harris Trust and Savings Bank, an Illinois banking corporation
(the "Bank");
Witnesseth That:
Whereas, the Company has applied to the Bank for the Bank's commitment to
extend credit to the Company; and
Whereas, the Bank has agreed to extend credit to the Company subject to the
terms and conditions set forth below and on the basis of the representations and
warranties set forth below;
Now, Therefore, the Company and the Bank agree as follows:
Section 1. The Credits.
Section 1.1. Revolving Credit. Subject to the terms and conditions hereof,
the Bank agrees to extend a revolving credit (the "Revolving Credit") to the
Company which may be availed of by the Company from time to time during the
period from and including the date hereof to but not including the Termination
Date, at which time the commitment of the Bank to extend credit under the
Revolving Credit shall expire. The Revolving Credit may be utilized by the
Company in the form of Loans and Letters of Credit, all as more fully
hereinafter set forth, provided that the aggregate principal amount of Loans and
Letters of Credit outstanding at any one time shall not exceed the lesser of (i)
$20,000,000 (such amount as the same may be reduced pursuant hereto being
hereinafter referred to as the "Revolving Credit Commitment") and (ii) the
Borrowing Base as then determined and computed. During the period from and
including the date hereof to but not including the Termination Date, the Company
may use the Revolving Credit Commitment by borrowing, repaying and reborrowing
Loans in whole or in part and/or by having the Bank issue Letters of Credit,
having such Letters of Credit expire or otherwise terminate without having been
drawn upon or, if drawn upon, reimbursing the Bank for each such drawing, and
having the Bank issue new Letters of Credit, all in accordance with the terms
and conditions of this Agreement. Notwithstanding any other provision of this
Agreement to the contrary, the Bank shall have the right from time to time to
establish reserves against the amount of Revolving Credit which the Company may
otherwise request hereunder in such amounts and with respect to such matters as
the Bank shall reasonably deem necessary or appropriate in its reasonable
judgment. The amount of such reserves shall be subtracted from the Borrowing
Base when calculating the amount of availability under the Revolving Credit
Commitment. Additionally, the Bank may from time to time reduce the percentages
applicable to Eligible Accounts and Eligible Inventory as they relate to the
Borrowing Base if there has been a material adverse change in circumstances
relating to any or all of such Collateral from those circumstances in existence
on the date of this Agreement or in the condition (financial or
<PAGE>
otherwise) of the Company. The Bank agrees to give the Company fifteen (15)
Business Days' prior notice of the establishment of any such reserve or the
reduction of any such percentage.
Section 1.2. Revolving Credit Loans. Subject to the terms and conditions
hereof, the Revolving Credit may be availed of by the Company in the form of
loans (individually a "Loan" and collectively the "Loans"). All Loans shall be
made against and evidenced by a single promissory note of the Company in the
form (with appropriate insertions) attached hereto as Exhibit A (the "Revolving
Credit Note") payable to the order of the Bank in the principal amount of its
Revolving Credit Commitment. The Revolving Credit Note shall be dated the date
of issuance thereof, be expressed to bear interest as set forth in Section 2
hereof, and be expressed to mature on the Termination Date. Without regard to
the principal amount of the Revolving Credit Note stated on its face, the actual
principal amount at any time outstanding and owing by the Company on account of
the Revolving Credit Note shall be the sum of all Loans made hereunder less all
payments of principal actually received by the Bank.
Section 1.3. Letters of Credit. (a) General Terms. Subject to the terms
and conditions hereof, the Revolving Credit may be availed of by the Company in
the form of standby and commercial letters of credit issued by the Bank for the
account of the Company (individually a "Letter of Credit" and collectively the
"Letters of Credit"), provided that the aggregate amount of Letters of Credit
issued and outstanding hereunder shall not at any one time exceed $5,000,000.
For purposes of this Agreement, a Letter of Credit shall be deemed outstanding
as of any time in an amount equal to the maximum amount which could be drawn
thereunder under any circumstances and over any period of time plus any
unreimbursed drawings then outstanding with respect thereto. If and to the
extent any Letter of Credit expires or otherwise terminates without having been
drawn upon, the availability under the Revolving Credit Commitment shall to such
extent be reinstated.
(b) Term. Each Letter of Credit issued hereunder shall expire not later
than the earlier of (i) twelve (12) months from the date of issuance (or be
cancelable not later than twelve (12) months from the date of issuance and each
renewal) or (ii) the Termination Date.
(c) General Characteristics. Each Letter of Credit issued hereunder shall
be payable in U.S. dollars, conform to the general requirements of the Bank for
the issuance of standby or commercial letters of credit, as the case may be, as
to form and substance, and be a letter of credit which the Bank may lawfully
issue.
(d) Applications. At the time the Company requests each Letter of Credit
to be issued (or prior to the first issuance of a Letter of Credit in the case
of a continuing application), the Company shall execute and deliver to the Bank
an application for such Letter of Credit in the form then customarily prescribed
by the Bank (individually an "Application" and collectively the "Applications").
Subject to the other provisions of this subsection, the obligation of the
Company to reimburse the Bank for drawings under a Letter of Credit shall be
governed by the Application for such Letter of Credit. Anything contained in
the Applications to the contrary notwithstanding, (i) in the event the Bank is
not reimbursed by the Company for the amount the Bank pays on any draft drawn
under a Letter of Credit issued hereunder by 11:00 a.m. (Chicago time) on the
date when such drawing is paid, the obligation of the Company to reimburse the
-2-
<PAGE>
Bank for the amount of such draft paid shall bear interest (which the Company
hereby promises to pay on demand) from and after the date the draft is paid
until payment in full thereof at the rate per annum determined by adding 2% to
the Domestic Rate as from time to time in effect, (ii) the Company shall pay
fees in connection with each Letter of Credit as set forth in Section 2 hereof,
(iii) except as otherwise provided in Sections 3 and 4 hereof, prior to the
occurrence of a Default or an Event of Default the Bank will not call for
additional collateral security for the obligations of the Company under the
Applications other than the collateral security contemplated by this Agreement
and the Collateral Documents and collateral security consisting of rights in
goods (or documents of title evidencing the same) financed under such
Applications, and (iv) except as otherwise provided in Sections 3 and 4 hereof,
prior to the occurrence of a Default or an Event of Default the Bank will not
call for the funding of a Letter of Credit by the Company prior to being
presented with a draft drawn thereunder (or, in the event the draft is a time
draft, prior to its due date).
Section 1.4. Manner and Disbursement of Loans. (a) The Company shall give
written or telephonic notice to the Bank (which notice shall be irrevocable once
given) by no later than 1:00 p.m. (Chicago time) on the date the Company
requests the Bank to make a Loan hereunder. Each such notice shall specify the
date of the Loan requested (which must be a Business Day) and the amount of such
Loan. The Company agrees that the Bank may rely upon any written or telephonic
notice given by any person the Bank in good faith believes is an Authorized
Representative without the necessity of independent investigation.
(b) The Company hereby irrevocably authorizes the Bank to make Loans from
time to time hereunder for payment of any Obligation then due and payable
(whether such Obligation is for interest then due on a Loan, reimbursement under
an Application or otherwise), and any such Loan may be made without regard to
the provisions of Section 7 hereof. The Company acknowledges and agrees,
however, that the Bank shall not be under any obligation to make a Loan under
this Section 1.4(b), and the Bank shall incur no liability to the Company or any
other Person for refusing to make a Loan under this Section 1.4(b).
(c) Subject to the provisions of Section 7 hereof, the proceeds of each
Loan made under Section 1.4(a) hereof shall be made available to the Company at
the principal office of the Bank in Chicago, Illinois, in immediately available
funds, in the case of the initial Loan made hereunder, in accordance with the
terms of the written disbursement instructions of the Company, and, in the case
of each subsequent Loan, by deposit to the Company's general account with the
Bank known as Account Number 385-452-8. The proceeds of each Loan made under
Section 1.4(b) hereof shall be disbursed by the Bank by way of direct payment of
the relevant Obligation.
Section 2. Interest, Fees, Term and Termination.
Section 2.1. Interest Rate Options. (a) Generally. Subject to all of the
terms and conditions of this Section 2, portions of the principal indebtedness
evidenced by the Revolving Credit Note (all of the indebtedness evidenced by the
Revolving Credit Note bearing interest at the same rate for the same period of
time being hereinafter referred to as a "Portion") may, at the option of the
Company, bear interest with reference to the Domestic Rate (the "Domestic Rate
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Portion") or with reference to an Adjusted LIBOR ("LIBOR Portions") and Portions
may be converted from time to time from one basis to the other. All of the
indebtedness evidenced by the Revolving Credit Note which is not part of a LIBOR
Portion shall constitute a single Domestic Rate Portion. All of the indebtedness
evidenced by the Revolving Credit Note which bears interest with reference to a
particular Adjusted LIBOR for a particular Interest Period shall constitute a
single LIBOR Portion. There shall not be more than five (5) LIBOR Portions
applicable to the Revolving Credit Note outstanding at any one time. Anything
contained herein to the contrary notwithstanding, the obligation of the Bank to
create, continue or effect by conversion any LIBOR Portion shall be conditioned
upon the fact that at the time no Default or Event of Default shall have
occurred and be continuing. The Company hereby promises to pay interest on each
Portion at the rates and times specified in this Section 2.
(b) Domestic Rate Portion. The Domestic Rate Portion shall bear interest
at the rate per annum determined by adding the Applicable Margin to the Domestic
Rate as in effect from time to time, provided that if the Domestic Rate Portion
or any part thereof is not paid when due (whether by lapse of time, acceleration
or otherwise) such Portion shall bear interest, whether before or after
judgment, until payment in full thereof at the rate per annum determined by
adding 2% to the interest rate which would otherwise be applicable thereto from
time to time. Interest on the Domestic Rate Portion shall be payable monthly in
arrears on the first Business Day of each month in each year (commencing
September 1, 1999) and at maturity of the Revolving Credit Note and interest
after maturity (whether by lapse of time, acceleration or otherwise) shall be
due and payable upon demand. Any change in the interest rate on the Domestic
Rate Portion resulting from a change in the Domestic Rate shall be effective on
the date of the relevant change in the Domestic Rate.
(c) LIBOR Portions. Each LIBOR Portion shall bear interest for each
Interest Period selected therefor at a rate per annum determined by adding the
Applicable Margin to the Adjusted LIBOR for such Interest Period, provided that
if any LIBOR Portion is not paid when due (whether by lapse of time,
acceleration or otherwise) such Portion shall bear interest, whether before or
after judgment, until payment in full thereof through the end of the Interest
Period then applicable thereto at the rate per annum determined by adding 2% to
the interest rate which would otherwise be applicable thereto (provided that if
any Interest Period is longer than one month, then interest on the LIBOR Portion
having such Interest Period shall be due and payable on the date occurring each
month after the date such Interest Period began and on the last day of such
Interest Period), and effective at the end of such Interest Period such LIBOR
Portion shall automatically be converted into and added to the Domestic Rate
Portion and shall thereafter bear interest at the interest rate applicable to
the Domestic Rate Portion after default. Interest on each LIBOR Portion shall be
due and payable on the last day of each Interest Period applicable thereto and
interest after maturity (whether by lapse of time, acceleration or otherwise)
shall be due and payable upon demand. The Company shall notify the Bank on or
before 11:00 a.m. (Chicago time) on the third Business Day preceding the end of
an Interest Period applicable to a LIBOR Portion whether such LIBOR Portion is
to continue as a LIBOR Portion, in which event the Company shall notify the Bank
of the new Interest Period selected therefor, and in the event the Company shall
fail to so notify the Bank, such LIBOR Portion shall automatically be converted
into and added to the Domestic Rate Portion as of and on the last day of such
Interest Period.
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Section 2.2. Minimum Amounts. Each LIBOR Portion shall be in a minimum
amount of $1,000,000 or such greater amount which is an integral multiple of
$100,000.
Section 2.3. Manner of Rate Selection. The Company shall notify the Bank
by 11:00 a.m. (Chicago time) at least three (3) Business Days prior to the date
upon which the Company requests that any LIBOR Portion be created or that any
part of the Domestic Rate Portion be converted into a LIBOR Portion. If any
request is made to convert a LIBOR Portion into another type of Portion
available hereunder, such conversion shall only be made so as to become
effective as of the last day of the Interest Period applicable thereto. All
requests for the creation, continuance and conversion of Portions under this
Agreement shall be irrevocable. Such requests may be written or oral and the
Bank is hereby authorized to honor telephonic requests for creations,
continuances and conversions received by it from any person the Bank reasonably
believes to be an Authorized Representative without the need of independent
investigation, the Company hereby indemnifying the Bank from any liability or
loss ensuing from so acting.
Section 2.4. Change of Law. Notwithstanding any other provisions of this
Agreement or the Revolving Credit Note, if at any time the Bank shall determine
in good faith that any change in applicable laws, treaties or regulations or in
the interpretation thereof makes it unlawful for the Bank to create or continue
to maintain any LIBOR Portion, it shall promptly so notify the Company and the
obligation of the Bank to create, continue or maintain any such LIBOR Portion
under this Agreement shall terminate until it is no longer unlawful for the Bank
to create, continue or maintain such LIBOR Portion. The Company, on demand,
shall, if the continued maintenance of any such LIBOR Portion is unlawful,
thereupon prepay the outstanding principal amount of the affected LIBOR Portion,
together with all interest accrued thereon and all other amounts payable to the
Bank with respect thereto under this Agreement; provided, however, that the
Company may elect to convert the principal amount of the affected Portion into
another type of Portion available hereunder, subject to the terms and conditions
of this Agreement.
Section 2.5. Unavailability of Deposits or Inability to Ascertain Adjusted
LIBOR. Notwithstanding any other provision of this Agreement or the Revolving
Credit Note, if prior to the commencement of any Interest Period, the Bank shall
determine in good faith that deposits in the amount of any LIBOR Portion
scheduled to be outstanding during such Interest Period are not readily
available to the Bank in the relevant market or, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist for
ascertaining Adjusted LIBOR, then the Bank shall promptly give notice thereof to
the Company and the obligations of the Bank to create such new LIBOR Portion,
continue such existing LIBOR Portion for a new Interest Period or effect such
new LIBOR Portion by conversion of the Domestic Rate Portion, as the case may
be, in such amount and for such Interest Period shall terminate until deposits
in such amount and for the Interest Period selected by the Company shall again
be readily available in the relevant market and adequate and reasonable means
exist for ascertaining Adjusted LIBOR.
Section 2.6. Taxes and Increased Costs. With respect to any LIBOR Portion,
if the Bank shall determine in good faith that any change in any applicable law,
treaty, regulation or guideline (including, without limitation, Regulation D of
the Board of Governors of the Federal Reserve System) or any new law, treaty,
regulation or guideline, or any interpretation of any of
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the foregoing by any governmental authority charged with the administration
thereof or any central bank or other fiscal, monetary or other authority having
jurisdiction over the Bank or its lending branch or the LIBOR Portions
contemplated by this Agreement (whether or not having the force of law), shall:
(i) impose, increase, or deem applicable any reserve, special
deposit or similar requirement against assets held by, or deposits in or
for the account of, or loans by, or any other acquisition of funds or
disbursements by, the Bank which is not in any instance already accounted
for in computing the interest rate applicable to such LIBOR Portion;
(ii) subject the Bank, any LIBOR Portion or the Revolving Credit
Note to the extent it evidences such a Portion to any tax (including,
without limitation, any United States interest equalization tax or similar
tax however named applicable to the acquisition or holding of debt
obligations and any interest or penalties with respect thereto), duty,
charge, stamp tax, fee, deduction or withholding in respect of this
Agreement, any LIBOR Portion or the Revolving Credit Note to the extent it
evidences such a Portion, except such taxes as may be measured by the
overall net income or gross receipts of the Bank or its lending branches
and imposed by the jurisdiction, or any political subdivision or taxing
authority thereof, in which the Bank's principal executive office or its
lending branch is located;
(iii) change the basis of taxation of payments of principal and
interest due from the Company to the Bank hereunder or under the Revolving
Credit Note to the extent it evidences any LIBOR Portion (other than by a
change in taxation of the overall net income or gross receipts of the
Bank); or
(iv) impose on the Bank any penalty with respect to the foregoing
or any other condition regarding this Agreement, its disbursement, any
LIBOR Portion or the Revolving Credit Note to the extent it evidences any
LIBOR Portion;
and the Bank shall determine in good faith that the result of any of the
foregoing is to increase the cost (whether by incurring a cost or adding to a
cost) to the Bank of creating or maintaining any LIBOR Portion hereunder or to
reduce the amount of principal or interest received or receivable by the Bank,
then the Company shall pay on demand to the Bank from time to time as specified
by the Bank such additional amounts as the Bank shall reasonably determine are
sufficient to compensate and indemnify it for such increased cost or reduced
amount. If the Bank makes such a claim for compensation, it shall provide to
the Company a certificate setting forth the computation of the increased cost or
reduced amount as a result of any event mentioned herein in reasonable detail
and such certificate shall constitute prima facie evidence of the amount of such
claim if reasonably determined.
Section 2.7. Funding Indemnity. In the event the Bank shall incur any
loss, cost or expense (including, without limitation, any loss (including loss
of profit), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired or
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contracted to be acquired by the Bank to fund or maintain any LIBOR Portion or
the relending or reinvesting of such deposits or other funds or amounts paid or
prepaid to the Bank) as a result of:
(i) any payment of a LIBOR Portion on a date other than the last
day of the then applicable Interest Period for any reason, whether before
or after default, and whether or not such payment is required by any
provisions of this Agreement; or
(ii) any failure by the Company to create, borrow, continue or
effect by conversion a LIBOR Portion on the date specified in a notice
given pursuant to this Agreement;
then upon the demand of the Bank, the Company shall pay to the Bank such amount
as will reimburse the Bank for such loss, cost or expense. If the Bank requests
such a reimbursement, it shall provide to the Company a certificate setting
forth the computation of the loss, cost or expense giving rise to the request
for reimbursement in reasonable detail and such certificate shall constitute
prima facie evidence of the amount of such loss, cost or expense if reasonably
determined.
Section 2.8. Lending Branch. The Bank may, at its option (subject only to
Section 2.9 hereof), elect to make, fund or maintain Portions of the Loans
hereunder at such of its branches or offices as the Bank may from time to time
elect.
Section 2.9. Bank's Duty to Mitigate. The Bank agrees that, as promptly as
practicable after it becomes aware of the occurrence of an event or the
existence of a condition that would cause it to be affected under Section 2.4,
2.5 or 2.6 hereof, the Bank will, to the extent not inconsistent with the Bank's
internal policies and customary business practices, use reasonable efforts to
make, fund or maintain the LIBOR Portions through another lending branch or
office of the Bank if as a result thereof the unlawfulness which would otherwise
require payment of such Loans pursuant to Section 2.4 hereof would cease to
exist or the circumstances which under Section 2.5 hereof would otherwise
terminate such Bank's obligation to make LIBOR Portions would cease to exist or
the increased costs or other compensation which would otherwise be required to
be paid in respect of LIBOR Portions pursuant to Sections 2.6 hereof would be
materially reduced, and if, as determined by the Bank, in its sole discretion,
the making, funding or maintaining of such Portions through such other lending
branch or office would not otherwise adversely affect such Portions or the Bank.
The Company hereby agrees to pay all reasonable expenses incurred by the Bank in
utilizing another lending branch or office of the Bank pursuant to this Section
2.9.
Section 2.10. Discretion of Bank as to Manner of Funding. Subject to
Section 2.9 hereof, but notwithstanding any other provision of this Agreement to
the contrary, the Bank shall be entitled to fund and maintain its funding of all
or any part of the Revolving Credit Note in any manner it sees fit, it being
understood, however, that for the purposes of this Agreement all determinations
hereunder (including, without limitation, determinations under Sections 2.5, 2.6
and 2.7 hereof) shall be made as if the Bank had actually funded and maintained
each LIBOR Portion during each Interest Period applicable thereto through the
purchase of deposits in the
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relevant market in the amount of such LIBOR Portion, having a maturity
corresponding to such Interest Period, and bearing an interest rate equal to the
LIBOR for such Interest Period
Section 3. Fees, Application, Prepayments, Computations, and Notations.
Section 3.1. Facility Fees. (a) Origination Fee. The Company shall pay to
the Bank $275,000 as and for a non-refundable facility fee. The Company has
already paid to the Bank prior to the date hereof $100,000 of such facility fee.
The $175,000 balance of such fee shall be due and payable on the date of the
initial extension of credit hereunder.
(b) Good Faith Deposit. The Company has paid to the Bank prior to the
date hereof a fully-earned deposit in the amount of $50,000. If any extension of
credit occurs hereunder, then promptly after the initial extension of such
credit, the Bank will refund to the Company such $50,000 deposit less any
expenses of the Bank (such as legal fees, audit charges and lien search and
filing costs) incurred in connection with the transactions contemplated hereby.
Section 3.2. Unused Line Fee. For the period from and including the date
hereof to but not including the Termination Date, the Company shall pay to the
Bank a fee at the rate per annum equal to the Applicable Margin on the average
daily unused portion of the Revolving Credit Commitment (the "Unused Line Fee"),
whether or not available. Such fee shall be payable monthly in arrears on the
first day of each month and on the Termination Date.
Section 3.3. Audit Fees. The Company shall pay to the Bank charges for
audits of the Collateral performed by the Bank or its agents or representatives
in such amounts as the Bank may from time to time request (the Bank
acknowledging and agreeing that such charges shall be computed in the same
manner as it at the time customarily uses for the assessment of charges for
similar collateral audits); provided, however, that in the absence of any
Default or Event of Default, the Company shall not be required to pay the Bank
for more than two (2) such audits per calendar year and shall not be required to
pay more than $550 per day per person conducting the audit, plus the Bank's out-
of-pocket costs and expenses. The Company shall also pay to the Bank charges for
appraisals of its inventory by third parties, or furnish at its cost and expense
such appraisals to the Bank, as and to the extent required by Section 8.6
hereof.
Section 3.4. Letter of Credit Fees. On the date of issuance of each
Letter of Credit, and as a condition thereto, and quarter-annually in advance on
the first day of each calendar quarter thereafter, the Company shall pay to the
Bank a letter of credit fee computed at the rate of 1% per annum on the maximum
amount of the related Letter of Credit which is scheduled to be outstanding
during the immediately succeeding twelve (12) months. In addition to the letter
of credit fee called for above, the Company further agrees to pay to the Bank
such processing and transaction fees and charges as the Bank from time to time
customarily imposes in connection with any amendment, cancellation, negotiation
and/or payment of letters of credit and drafts drawn thereunder.
Section 3.5. Computation of Interest and Fees. All interest on the Loans
and on the reimbursement obligations with respect to all Applications and all
fees due hereunder shall be calculated on the basis of a year of 360 days for
the actual number of days elapsed. Any change
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in the interest rate applicable to the Obligations resulting from a change in
the Domestic Rate shall be effective on the date of the relevant change in the
Domestic Rate.
Section 3.6. Change in Capital Adequacy Requirements. If the Bank shall
determine that the adoption after the date hereof of any applicable law, rule or
regulation regarding capital adequacy, or any change in any existing law, rule
or regulation, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank (or any of
its branches) with any request or directive regarding capital adequacy (whether
or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Bank's capital as a consequence of its obligations hereunder or for the
credit which is the subject matter hereof to extend credit constituting a LIBOR
Portion to a level below that which the Bank could have achieved but for such
adoption, change or compliance (taking into consideration the Bank's policies
with respect to liquidity and capital adequacy) by an amount deemed by the Bank
to be material, then from time to time, within fifteen (15) days after demand by
the Bank, the Company shall pay to the Bank such additional amount or amounts
reasonably determined by the Bank as will compensate the Bank for such
reduction.
Section 3.7. Term and Termination. The term of the Revolving Credit
Commitment shall be approximately three years from the date hereof to but
excluding the Termination Date and the Revolving Credit Commitment shall
automatically be renewed thereafter for successive one-year periods unless
sooner terminated pursuant to this Section or as otherwise provided in this
Agreement. The Company and the Bank shall each have the right to terminate the
Revolving Credit Commitment in whole (but not in part) at the end of the initial
term or at the end of any renewal term upon written notice to the other party
not less than sixty (60) days prior to the end of such term. In addition, the
Company may also terminate the Revolving Credit Commitment in whole (but not in
part) at any time upon at least sixty (60) days prior written notice to the Bank
and upon (i) the payment in full of all outstanding Obligations (including,
without limitation, the outstanding principal balance of the Revolving Credit
Note), together with all accrued and unpaid interest thereon, (ii) the payment
of any accrued and unpaid unused line and letter of credit fees to the date of
termination, (iii) the payment of any prepayment premium required pursuant to
the terms of this Section, and (iv) the expiration or termination of all Letters
of Credit and, to the extent any such Letter of Credit has not expired in
accordance with its terms or otherwise been terminated to the satisfaction of
the Bank, accompanied by collateral security or a back-up letter of credit, in
each case in form and in such amounts as shall be satisfactory to the Bank. At
the effective date of any termination of the Revolving Credit Commitment
(excluding any such termination by reason of an Event of Default under Section
9.1(l) hereof), the Company shall pay a prepayment premium to the Bank, as
liquidated damages for the loss of bargain and not as a penalty, in an amount
equal to $400,000 during the initial term if termination occurs during the first
12-month period of the initial term (the date hereof through and including
August 18, 2000), and $200,000 at any time thereafter.
Notwithstanding anything herein or in the Revolving Credit Note to the
contrary, no prepayment premium shall be due hereunder upon any termination of
the Revolving Credit
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Commitment accompanied by any prepayment in full of the Revolving Credit Note
and cash collateralization of the Letters of Credit, if:
(a) such termination, prepayment and collateralization occur
within sixty (60) days after the most recent Discretionary Borrowing Base
Adjustments; and
(b) at the time of any such termination, prepayment and
collateralization, the difference between (1) the Borrowing Base at such
time, computed without giving effect to such most recent Discretionary
Borrowing Base Adjustments (such Borrowing Base as so computed being
hereinafter referred to as the "Reference Borrowing Base"), minus (2) the
Borrowing Base at such time, computed after giving effect to such most
recent Discretionary Borrowing Base Adjustments, equals or exceeds fifteen
percent (15%) of the Reference Borrowing Base.
Section 3.8. Place and Application of Payments and Collections. (a) All
payments of principal, interest, fees and all other Obligations payable
hereunder and under the other Loan Documents shall be made to the Bank at its
office at 111 West Monroe Street, Chicago, Illinois (or at such other place as
the Bank may specify). All such payments shall be made in lawful money of the
United States of America, in immediately available funds at the place of
payment, without set-off or counterclaim and without reduction for, and free
from, any and all present or future taxes, levies, imposts, duties, fees,
charges, deductions, withholdings, restrictions or conditions of any nature
imposed by any government or any political subdivision or taxing authority
thereof (but excluding any taxes imposed on or measured by the net income or
gross receipts of the Bank). Payments received by the Bank after 1:30 p.m.
(Chicago time) shall be deemed received as of the opening of business on the
next Business Day. Unless the Company otherwise directs, principal payments on
the Revolving Credit Note shall be applied first to the Domestic Rate Portion of
the Revolving Credit Note until payment in full thereof, with any balance
applied to the LIBOR Portions of the Revolving Credit Note in the order in which
their Interest Periods expire.
(b) All payments made by the Company and all proceeds of Collateral shall,
upon receipt by the Bank, be applied by the Bank to the Obligations then due and
payable, with any balance of such proceeds not applied to the Obligations to be
held by the Bank as collateral security for the Obligations. Prior to the
occurrence of a Default or Event of Default, except as otherwise specifically
provided for herein, all payments made by the Company and all proceeds of
Collateral shall be applied by the Bank against the outstanding Obligations as
follows:
(i) first, to any outstanding fees, charges and expenses then due
the Bank;
(ii) second, to outstanding interest charges then due in respect of
the Obligations;
(iii) third, to the outstanding principal balance of the Loans and
reimbursement obligations in respect of drafts drawn under Letters of
Credit;
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(iv) fourth, to be applied to, or held as collateral security for,
any remaining unpaid or unsatisfied Obligations under the Applications
until the same are fully secured by the cash so applied; and
(v) finally, to the Company, by deposit to the general account
referenced in Section 1.4(c) hereof.
Except as otherwise specifically provided for herein, the Company hereby
irrevocably waives the right to direct the application of payments and
collections at any time received by the Bank from or on behalf of the Company,
and the Company hereby irrevocably agrees that the Bank shall have the
continuing exclusive right to apply and reapply any and all such payments and
collections received at any time by the Bank against the Obligations in such
manner as the Bank may deem advisable.
(c) The Company hereby irrevocably authorizes the Bank to charge any of
the Company's deposit accounts maintained with the Bank for the amounts from
time to time necessary to pay any then due Obligations; provided that the
Company acknowledges and agrees that the Bank shall be under no obligation to do
so and the Bank shall incur no liability to the Company or any other Person for
the Bank's failure to do so. Except upon the occurrence and during the
continuation of any Event of Default hereunder, the Bank shall not make any such
charge without prior notice to the Company unless the Company consents thereto.
Section 3.9. Voluntary Prepayments. In addition to such prepayments of the
outstanding Obligations as result from the application of proceeds of Collateral
contemplated by this Section 3, the Company shall have the following additional
rights to prepay the Revolving Credit Note:
(a) Domestic Rate Portion. The Company shall have the privilege of
voluntarily prepaying without premium or penalty and in whole or in part (but if
in part, then in an amount not less than $10,000) the Domestic Rate Portion of
the Revolving Credit Note at any time upon notice to the Bank prior to 11:00
a.m. (Chicago time) on the date of such prepayment.
(b) LIBOR Portions. The Company may voluntarily prepay any LIBOR Portion
of the Revolving Credit Note only on the last date of the then applicable
Interest Period, in whole or in part (but if in part, then in an amount not less
than $1,000,000 or such greater amount which is an integral multiple of
$100,000), upon 3 Business Days' prior notice to the Bank (which notice shall be
irrevocable once given, must be received by the Bank no later than 11:00 a.m.
(Chicago time) on the third Business Day preceding the date of such prepayment,
and shall specify the principal amount to be repaid); provided, however, that
the outstanding principal amount of any LIBOR Portion of the Revolving Credit
Note prepaid in part shall not be less than $500,000 or such greater amount
which is an integral multiple of $100,000 after giving effect to such
prepayment. Any such prepayment shall be effected by payment of the principal
amount to be prepaid and accrued interest thereon to the end of the applicable
Interest Period.
Section 3.10. Mandatory Prepayment. The Company covenants and agrees that
if at any time the sum of the then unpaid principal balance of the Loans plus
the then outstanding amount
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of Letters of Credit shall be in excess of the Borrowing Base as then determined
and computed, the Company shall immediately upon demand pay over the amount of
the excess to the Bank as and for a mandatory prepayment on such Obligations,
with each such prepayment first to be applied to the Loans until payment in full
thereof with any remaining balance to be held by the Bank as collateral security
for the Obligations owing under the Applications.
Section 3.11. Computation of Obligations Outstanding. For the purpose of
calculating the aggregate principal balance of Obligations outstanding
hereunder, Obligations shall be deemed to be paid on the date payments or
collections, as the case may be, are applied by the Bank to such Obligations;
provided, however, for purposes of calculating interest payable by the Company
on the Loans and on any other interest-bearing Obligations under this Agreement,
any payment or collection, as the case may be, shall be deemed to be applied to
the Loans or other interest-bearing Obligations two (2) Business Days' after
receipt of such payment or collection by the Bank. Notwithstanding the
foregoing, if any item presented for collection by the Bank is not honored, the
Bank may reverse any provisional credit which has been given for the item and
make appropriate adjustments to the amount of interest and principal otherwise
due hereunder.
Section 3.12. Notations. Each Loan made against the Revolving Credit Note,
the status of all amounts evidenced by the Revolving Credit Note as constituting
part of the Domestic Rate Portion or a LIBOR Portion, and, in the case of any
LIBOR Portion, the rates of interest and Interest Periods applicable to such
Portion shall be recorded by the Bank on its books and records or, at its
option, recorded on a schedule to the Revolving Credit Note and the unpaid
principal balance and status, rates and Interest Periods so recorded or endorsed
by the Bank shall be prima facie evidence in any court or other proceeding
brought to enforce the Revolving Credit Note of the principal amount remaining
unpaid thereon, the status of the Loan or Loans evidenced thereby and the
interest rates and Interest Periods applicable thereto; provided that the
failure of the Bank to record any of the foregoing shall not limit or otherwise
affect the obligation of the Company to repay the principal amount of the
Revolving Credit Note together with accrued interest thereon. Prior to any
negotiation of the Revolving Credit Note, the Bank shall record on a schedule
thereto the status of all amounts evidenced thereby as constituting part of the
Domestic Rate Portion or a LIBOR Portion and, in the case of each LIBOR Portion,
the rate of interest and the Interest Period applicable thereto.
Section 4. Collateral and Guaranties.
Section 4.1. Collateral. The payment and performance of the Obligations
shall at all times be secured by, among other things, (a) all of the Company's,
each Domestic Subsidiary's and each Canadian Subsidiary's accounts, chattel
paper, documents, instruments, general intangibles, inventory, equipment,
fixtures, investment property and certain other assets and property of the
Company, each Domestic Subsidiary and each Canadian Subsidiary, in each case
whether now owned or held or hereafter acquired or arising, in each case as
described in and pursuant to, in the case of assets of the Company, that certain
Security Agreement (the "Security Agreement) dated as of even date herewith by
the Company and, in the case of assets of each Canadian Subsidiary, that certain
Security Agreement (the "Canadian Security Agreement") dated as of even date
herewith by each such Canadian Subsidiary, in each case as the same may be
amended, modified or supplemented from time to time, (b) all of the Company's,
each
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Domestic Subsidiary's and each Canadian Subsidiary's trademarks, trademark
licenses and certain other related assets and property of the Company, each
Domestic Subsidiary and each Canadian Subsidiary, in each case whether now owned
or held or hereafter acquired or arising, pursuant to that certain Trademark
Collateral Agreement dated of even date herewith, as the same may be amended,
modified or supplemented from time to time (the "Trademark Agreement"), and (c)
all of the Company's, each Domestic Subsidiary's and each Canadian Subsidiary's
patents, patent applications and certain other related assets and property of
the Company, each Domestic Subsidiary and each Canadian Subsidiary, in each case
whether now owned or held or hereafter acquired or arising, pursuant to that
certain Patent Collateral Agreement dated of even date herewith, as the same may
be amended, modified or supplemented from time to time (the "Patent Agreement");
provided, however, the Company need not provide any Lien on its capital stock or
other equity interests in QMS Europe or QMS Australia. Such Liens on the
Collateral shall be valid and perfected first Liens; provided, however, such
Liens may be subject to the rights of holders of purchase money security
interest and the rights of lessors under Capitalized Leases, in each case to the
extent such arrangements are permitted by this Agreement.
Section 4.2. Collateral Proceeds. The Company, each Domestic Subsidiary
and each Canadian Subsidiary, agree to make such arrangements as shall be
necessary or appropriate to assure (through the use of a lockbox under the sole
control of the Bank) that all proceeds of the Collateral are deposited (in the
same form as received) in a remittance account maintained with and under the
control of the Bank, such account to constitute a special restricted account.
Any proceeds of Collateral received by the Company, each Domestic Subsidiary and
each Canadian Subsidiary, shall be held by the Company, each Domestic Subsidiary
and each Canadian Subsidiary, in trust for the Bank in the same form in which
received, shall not be commingled with any assets of the Company, each Domestic
Subsidiary and each Canadian Subsidiary, and shall be delivered immediately to
the Bank (together with any necessary endorsements thereto) for deposit into
such account. The Company, each Domestic Subsidiary and each Canadian
Subsidiary, acknowledge that the Bank has (and is hereby granted to the extent
it does not already have) a Lien on such account and all funds contained therein
to secure the Obligations. No amounts deposited in such account shall be
released to the Company, each Domestic Subsidiary and each Canadian Subsidiary,
but shall instead be applied to, or otherwise held as collateral security for,
the outstanding Obligations as set forth in Section 3 hereof, it being
understood and agreed that the Company notwithstanding such application shall
have the right to obtain additional Revolving Credit under this Agreement
subject to the terms and conditions hereof.
Section 4.3. Guaranties. The payment and performance of the Obligations
shall at all times be guaranteed by each existing and hereafter acquired
Domestic Subsidiary and Canadian Subsidiary pursuant to a separate Guaranty
Agreement from each such Subsidiary dated as of the date of its delivery (each
such Guaranty Agreement being hereinafter referred to individually as a
"Guaranty" and collectively as the "Guaranties").
Section 4.4. Further Assurances. The Company covenants and agrees that it
shall, and shall cause each Subsidiary to, comply with all terms and conditions
of each Collateral Document delivered by it and that it shall, at any time and
from time to time as requested by the
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<PAGE>
Bank, execute and deliver, and shall cause such Subsidiary to execute and
deliver, such further instruments and do such other acts as the Bank may
reasonably deem necessary or desirable to provide for or protect or perfect the
Lien of the Bank in the Collateral.
Section 5. Definitions; Interpretation.
Section 5.1. Definitions. The following terms when used herein shall have
the following meanings:
"Adjusted EBITDA" means for any period, the amount (if any) by which (a)
EBITDA for such period exceeds (b) federal, state and local income taxes
(including local income taxes in the form of charges on net worth or changes in
equity) included in such EBITDA amount to the extent paid in cash during such
period.
"Adjusted LIBOR" means a rate per annum determined by the Bank in
accordance with the following formula:
Adjusted LIBOR = LIBOR
-----------------------
100%-Reserve Percentage
"Reserve Percentage" means, for the purpose of computing Adjusted LIBOR, the
maximum rate of all reserve requirements (including, without limitation, any
marginal, emergency, supplemental or other special reserves) imposed by the
Board of Governors of the Federal Reserve System (or any successor) under
Regulation D on Eurocurrency liabilities (as such term is defined in Regulation
D) for the applicable Interest Period as of the first day of such Interest
Period, but subject to any amendments to such reserve requirement by such Board
or its successor, and taking into account any transitional adjustments thereto
becoming effective during such Interest Period. For purposes of this
definition, LIBOR Portions shall be deemed to be Eurocurrency liabilities as
defined in Regulation D without benefit of or credit for prorations, exemptions
or offsets under Regulation D. "LIBOR" means, for each Interest Period, (a) the
LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if
the LIBOR Index Rate cannot be determined, the arithmetic average of the rates
of interest per annum (rounded upward, if necessary, to the nearest 1/100th of
1%) at which deposits in U.S. Dollars in immediately available funds are offered
to the Bank at 11:00 a.m. (London, England time) two (2) Business Days before
the beginning of such Interest Period by three (3) or more major banks in the
interbank eurodollar market selected by the Bank for a period equal to such
Interest Period and in an amount equal or comparable to the applicable LIBOR
Portion scheduled to be outstanding from the Bank during such Interest Period.
"LIBOR Index Rate" means, for any Interest Period, the rate per annum (rounded
upwards, if necessary, to the next higher one hundred-thousandth of a percentage
point) for deposits in U.S. Dollars for a period equal to such Interest Period,
which appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time)
on the day two (2) Business Days before the commencement of such Interest
Period. "Telerate Page 3750" means the display designated as "Page 3750" on the
Telerate Service (or such other page as may replace Page 3750 on that service or
such other service as may be nominated by the British Bankers' Association as
the information vendor for the purpose of displaying British Bankers'
Association Interest Settlement Rates for U.S. Dollar deposits).
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<PAGE>
Each determination of LIBOR made by the Bank shall be conclusive and binding
absent manifest error.
"Affiliate" means any Person directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control another Person for purposes of this
definition if such Person possesses, directly or indirectly, the power to
direct, or cause the direction of, the management and policies of the other
Person, whether through the ownership of voting securities, common directors,
trustees or officers, by contract or otherwise; provided, however, that, in any
event for purposes of this definition, any Person that owns, directly or
indirectly, 5% or more of the securities having the ordinary voting power for
the election of directors or governing body of a corporation or 5% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed to control such
corporation or other Person.
"Agreement" means this Credit Agreement, as the same may be amended,
modified or restated from time to time in accordance with the terms hereof.
"Applicable Margin" means the rate per annum specified below:
Applicable Margin for Domestic Rate Portions under
the Revolving Credit: 0.25%
Applicable Margin for LIBOR Portions under the
Revolving Credit: 3.00%
Applicable Margin for Unused Line Fee: 0.30%
; provided, however, that the Applicable Margin shall be subject to quarterly
adjustment as follows so as to mean a rate per annum determined in accordance
with the following schedule:
<TABLE>
<CAPTION>
Applicable Margin
Fixed Charge for Domestic Rate Applicable Margin
Coverage Ratio Portions under LIBOR Portions
for such Pricing revolving credit under Revolving Applicable Margin for
Date shall be: Credit Shall be: Unused Line Fee Shall Be:
<S> <C> <C> <C>
Greater than or equal to 0.00% 2.00% 0.15%
2.75 to 1.0
Less than 2.75 to 1.0, but 0.00% 2.25% 0.20%
greater than or equal to
2.25 to 1.0
Less than 2.25 to 1.0, but 0.00% 2.50% 0.25%
greater than or equal to
2.0 to 1.0
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Applicable Margin
Fixed Charge for Domestic Rate Applicable Margin
Coverage Ratio Portions under LIBOR Portions
for such Pricing revolving credit under Revolving Applicable Margin for
Date shall be: Credit Shall be: Unused Line Fee Shall Be:
<S> <C> <C> <C>
Less than 2.0 to 1.0, but 0.25% 3.00% 0.30%
greater than or equal to
1.75 to 1.0
Less than 1.75 to 1.0 0.50% 3.50% 0.30%
</TABLE>
Not later than five (5) Business Days after receipt by the Bank of the financial
statements called for by Section 8.5(b) hereof for each month coinciding with
the close of a fiscal quarter of the Company, the Bank shall determine the Fixed
Charge Coverage Ratio as of the close of such fiscal quarter and shall promptly
notify (but in no event more than five (5) Business Days after the Bank's
receipt of such financial statements) the Company of such determination and of
any change in the Applicable Margin resulting therefrom. Any such change in the
Applicable Margin shall be effective as of the date the Bank so notifies the
Company with respect to all Portions outstanding on such date, and such new
Applicable Margin shall continue in effect until the effective date of the next
quarterly redetermination in accordance with this Section. If the Company has
not delivered its financial statements by the date such financial statements are
required to be delivered under Section 8.5(b) hereof, until such financial
statements are delivered, the Applicable Margin shall be the highest Applicable
Margin (i.e., the Fixed Charge Coverage Ratio shall be deemed to be less than
1.75 to 1.0). If the Company subsequently delivers such financial statements
before the next redetermination of the Applicable Margin, the Applicable Margin
established by such late delivered financial statements shall take effect from
the date of the Bank's receipt thereof until the next redetermination of the
Applicable Margin. The Applicable Margins shall first be adjusted upon receipt
of the financial statements for the fiscal quarter ending December 31, 1999.
Each determination of the Applicable Margin made by the Bank in accordance with
the foregoing shall be conclusive and binding on the Company if reasonably
determined.
"Application" is defined in Section 1.3 hereof.
"Authorized Representative" means those persons shown on the list of
officers provided by the Company pursuant to Section 7.2(a) hereof, or on any
update of any such list provided by the Company to the Bank, or any further or
different officer of the Company so named by any Authorized Representative of
the Company in a written notice to the Bank.
"Bank" is defined in the introductory paragraph hereof.
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<PAGE>
"Borrowing Base" means, as of any time it is to be determined, the sum of:
(a) 80% (or such lesser percentage as the Bank may determine from
time to time pursuant to Section 1.1 hereof) of the remainder of the then
outstanding unpaid amount of Eligible Accounts less any and all returns,
rebates, chargebacks, discounts (which may, at the Bank's option, be
calculated on the shortest terms), credits, allowances, finance charges
and/or taxes of any nature at any time issued, owing, available to or
claimed by account debtors, granted, outstanding or payable in connection
with such Eligible Accounts at such time; plus
(b) the lesser of (i) $10,000,000 and (ii) the sum of (x) 40% (or
such lesser percentage as the Bank may determine from time to time pursuant
to Section 1.1 hereof) of the value (computed at the lower of market or
cost using the first-in/first-out method of inventory valuation applied by
the Company in accordance with GAAP) of Eligible Inventory consisting of
raw materials and finished goods (other than spare parts or refurbished
inventory) plus (y) 25% (or such lesser percentage as the Bank may
determine from time to time pursuant to Section 1.1 hereof) of the value
(computed at the lower of market or cost using the first-in/first-out
method of inventory valuation applied by the Company in accordance with
GAAP) of Eligible Inventory consisting of spare parts or refurbished
inventory;
provided, however, that (w) the portion of the Borrowing Base attributable to
Eligible Inventory shall at no time exceed fifty percent (50%) of the Borrowing
Base as then determined, (x) the portion of the Borrowing Base attributable to
Eligible Accounts and Eligible Inventory of QMS Canada shall at no time exceed
ten percent (10%) of the Borrowing Base as then determined, (y) the portion of
the Borrowing Base attributable to Eligible Inventory bearing a third party's
trademark or tradename shall at no time exceed five percent (5%) of the
Borrowing Base as then determined and (z) the Borrowing Base shall be computed
only as against and on so much of such Collateral as is included on the
certificates to be furnished from time to time by the Company pursuant to this
Agreement and, if required by the Bank pursuant to any of the terms hereof or
any Collateral Document, as verified by such other evidence required to be
furnished to the Bank pursuant hereto or pursuant to any such Collateral
Document.
"Business Day" means any day other than a Saturday or Sunday on which the
Bank is not authorized or required to close in Chicago, Illinois and if the
applicable Business Day relates to the advance or continuation of, or conversion
into, or payment of a LIBOR Portion, on which banks are dealing in U.S. Dollar
deposits in the interbank eurodollar market in London, England.
"Canadian Security Agreement" is defined in Section 4.1 hereof.
"Canadian Subsidiary" means (i) any Subsidiary organized under the laws of
Canada or any Province thereof and (ii) any other Subsidiary of which a majority
of its Property is located in, or a majority of its revenues are derived from
operations conducted in Canada.
"Capital Lease" means any lease of Property which in accordance with GAAP
is required to be capitalized on the balance sheet of the lessee.
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<PAGE>
"Capitalized Lease Obligation" means the amount of the liability shown on
the balance sheet of any Person in respect of a Capital Lease as determined in
accordance with GAAP.
"Change of Control" means any of (a) the acquisition after the date hereof
by any "person" or "group" (as such terms are used in sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) at any time of beneficial
ownership of 20% or more of the outstanding capital stock of the Company on a
fully-diluted basis (excluding, for such purposes, such an acquisition by
Minolta), (b) the failure of individuals who are members of the board of
directors of the Company on the date of this Agreement (together with the new
and replacement directors designated from time to time by Minolta) to constitute
a majority of the board of directors of the Company, or (c) any "Change of
Control" (or words of like import), as defined in any agreement or indenture
relating to any issue of Subordinated Indebtedness, shall occur, the effect of
which is to cause the acceleration of any issue of Subordinated Indebtedness or
to enable any holder of Subordinated Indebtedness to cause the Company or any
Subsidiary to repurchase, redeem or retire any Subordinated Indebtedness held by
it.
"Closing Date" means the date of this Agreement or such later Business Day
upon which each condition described in Section 7.2 shall be satisfied or waived
in a manner acceptable to the Bank in its discretion.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"Collateral" means all properties, rights, interests and privileges from
time to time subject to the Liens granted to the Bank by the Collateral
Documents.
"Collateral Documents" means the Security Agreement, Patent Agreement,
Trademark Agreement, Canadian Security Agreement and all other mortgages, deeds
of trust, security agreements, assignments, financing statements and other
documents as shall from time to time secure the Obligations.
"Company" is defined in the introductory paragraph hereof.
"Controlled Group" means all members of a controlled group of corporations
and all trades and businesses (whether or not incorporated) under common control
which, together with the Company or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.
"Discretionary Borrowing Base Adjustments" means the following, to the
extent occurring in the same or a single series of related transactions: (i) the
establishment of reserves pursuant to Section 1.1 hereof other than those of the
type in effect as of the date hereof, (ii) the reduction of the advance rates
pursuant to Section 1.1 hereof below those in effect as of the date hereof (or
such lower rates to which the Company may agree in a written amendment to this
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<PAGE>
Agreement), (iii) the exclusion as ineligible of otherwise Eligible Accounts
which satisfy all of the conditions set forth in subsections (a) through (l),
inclusive, of the definition of "Eligible Account", (iv) the exclusion as
ineligible of otherwise Eligible Inventory which satisfies all of the conditions
set forth in subsections (a) through (d), inclusive, of the definition of
"Eligible Inventory" and (v) the exclusion as ineligible of otherwise Eligible
Accounts because the aggregate unpaid amount thereof exceeds any credit limit
established after the date hereof for the relevant account debtor pursuant to
subsection (j) of the definition of "Eligible Account."
"Domestic Rate" means, for any day, the greater of (i) the rate of interest
announced by the Bank from time to time as its prime commercial rate, as in
effect on such day; and (ii) the sum of (x) the rate determined by the Bank to
be the average (rounded upwards, if necessary, to the next higher 1/100 of 1%)
of the rates per annum quoted to the Bank at approximately 10:00 a.m. (Chicago
time) (or as soon thereafter as is practicable) on such day (or, if such day is
not a Business Day, on the immediately preceding Business Day) by two or more
Federal funds brokers selected by the Bank for the sale to the Bank at face
value of Federal funds in an amount equal or comparable to the principal amount
owed to the Bank for which such rate is being determined, plus (y) 1/2 of 1%
(0.5%).
"Domestic Subsidiary" means (i) any Subsidiary organized under the laws of
the United States of America or any State thereof and (ii) any other Subsidiary
of which a majority of its Property is located in, or a majority of its revenues
are derived from operations conducted in the United States.
"EBITDA" means, with reference to any period, Net Income for such period
plus all amounts deducted in arriving at such Net Income amount in respect of
(i) Interest Expense for such period, plus (ii) federal, state and local income
taxes (including local income taxes in the form of charges on net worth or
changes in equity) for such period, plus (iii) all amounts properly charged for
depreciation of fixed assets and amortization of intangible assets (other than
Unamortized Capitalized Software Development Costs) during such period on the
books of the Company and its Subsidiaries.
"Eligible Accounts" means all accounts receivable of the Company or QMS
Canada which the Bank, in its reasonable judgment, deems to be Eligible
Accounts; provided that in no event shall an account receivable be deemed an
Eligible Account unless all representations and warranties set forth in the
Collateral Documents with respect to such account receivable are true and
correct and such account receivable:
(a) arises out of the sale by the Company or QMS Canada of finished
goods inventory delivered to and accepted by, or out of the rendition by
the Company or QMS Canada, as the case may be, of services fully performed
by the Company or QMS Canada, as the case may be, and accepted by, the
account debtor on such account receivable and such account receivable
otherwise represents a final sale;
(b) the account debtor on such account receivable is located within
the United States of America or Canada or, if such right has arisen out of
the sale of such goods shipped to, or out of the rendition of services to,
an account debtor located in any other
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<PAGE>
country, such right is either (i) supported by insurance issued by the EXIM
Bank or any other insurer acceptable to the Bank, in each case in form and
substance satisfactory to the Bank (which in any event shall insure not
less than ninety percent (90%) of the face amount of such account
receivable and shall be subject to such deductions as are acceptable to the
Bank) or (ii) secured by a valid and irrevocable letter of credit pursuant
to which any of the Company or its transferee may draw on a lender
reasonably acceptable to the Bank for the full amount thereof;
(c) is the valid, binding and legally enforceable obligation of the
account debtor obligated thereon and such account debtor is not (i) a
Subsidiary or an Affiliate of the Company, (ii) a shareholder, director,
officer or employee of the Company or any Subsidiary, (iii) the United
States of America or Canada, or any state or province or other political
subdivision thereof, or any department, agency or instrumentality of any of
the foregoing, unless the Company or QMS Canada, as the case may be, has
complied with the United States Assignment of Claims Act or any similar
national, state, provincial or local statute, as the case may be, to the
satisfaction of the Bank, (iv) a debtor under any proceeding under the
United States Bankruptcy Code, as amended, or any other comparable
bankruptcy or insolvency law, or (v) an assignor for the benefit of
creditors;
(d) is not evidenced by an instrument or chattel paper unless the
same has been endorsed and delivered to the Bank;
(e) is an asset of the Company or QMS Canada to which it has good
and marketable title, is freely assignable, and is subject to a perfected,
first priority Lien in favor of the Bank free and clear of any other Liens;
(f) is not owing from an account debtor who is also a creditor or
supplier of the Company or any Subsidiary (such account receivable to be
rendered ineligible by the foregoing provisions of this clause (f), and
thus the unpaid amount of such account receivable to be deemed reduced
(dollar for dollar), only to the extent of the extent of the aggregate net
amount then owing by the Company and its Subsidiaries to such account
debtor), is not subject to any offset, counterclaim or other defense with
respect thereto and, with respect to said account receivable or the
contract or purchase order out of which the same arose, no surety bond was
required or given in connection therewith;
(g) is not unpaid more than ninety (90) days after the original
invoice date (which invoice date, in the case of a sale of goods, must be
not more than five (5) days subsequent to the shipment date and, in the
case of a performance of services, must be not more than fifteen (15) days
subsequent to the date such services were fully performed by the Company or
QMS Canada, as the case may be);
(h) is not owed by an account debtor who is obligated on accounts
receivable owed to the Company or any Subsidiary more than 50% of the
aggregate unpaid balance of which have been past due for longer than the
relevant periods specified in subsection (g) above unless the Bank has
approved the continued eligibility thereof;
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<PAGE>
(i) would not cause (i) the total accounts receivable owing from any
one account debtor (other than Ingram Micro and Tech Data) and its
Affiliates to exceed 10% of all Eligible Accounts, (ii) the total accounts
receivable owing from Ingram Micro and its Affiliates exceed 40% of all
Eligible Accounts and (iii) would not cause the total accounts receivable
owing from Tech Data and its Affiliates to exceed 25% of all Eligible
Accounts;
(j) would not cause the total accounts receivable owing from any one
account debtor and its Affiliates to exceed any credit limit established
for purposes of determining eligibility hereunder by the Bank in its
reasonable judgment for such account debtor and for which the Bank has
given the Company at least fifteen (15) Business Day's prior notice of the
establishment of any such credit limit; and
(k) does not arise from a sale to an account debtor on a bill-and-
hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or any
other repurchase or return basis.
"Eligible Inventory" means all raw materials and finished goods inventory
of the Company or QMS Canada (other than packaging, crating and supplies
inventory) which the Bank, in its reasonable judgment, deems to be Eligible
Inventory; provided that in no event shall inventory be deemed Eligible
Inventory unless all representations and warranties set forth in the Collateral
Documents with respect to such inventory are true and correct and such
inventory:
(a) is an asset of the Company or QMS Canada to which it has good and
marketable title, is freely assignable, and is subject to a perfected,
first priority Lien in favor of the Bank free and clear of any other Liens;
(b) is located at the Company's facilities in Mobile, Alabama or such
other locations as are approved in writing by the Bank, which are at times
subject to mortgage and/or landlord waiver agreements in form and substance
satisfactory to the Bank;
(c) is not so identified to a contract to sell that it constitutes an
account;
(d) is not obsolete or slow moving ("slow moving" to mean, as of any
time, inventory of the same or similar type which is determined by the Bank
to exceed 120 days' supply on hand, provided that, for the fiscal year of
the Company ending December 31,1999 up to the Maximum MagiColor Slow Moving
Amount of MagiColor 2 engines, printers and related consumables shall in no
event constitute slow-moving inventory for such purposes), and is of good
and merchantable quality free from any defects which might adversely affect
the market value thereof; and
(e) does not bear a third party's trademark or tradename unless (i)
such third party agrees in form and substance satisfactory to the Bank and
its counsel that the Bank or its designee can use such mark in any
foreclosure or other realization on such inventory or (ii) such trademark
or tradename can readily be removed or obliterated without any damage to
the underlying inventory.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
"Event of Default" means any event or condition identified as such in
Section 9.1 hereof.
"Fixed Charges" means, with reference to any period, the sum of (i) the
aggregate amount of payments required to be made by the Company and its
Subsidiaries during such period in respect of principal on all Indebtedness for
Borrowed Money (whether at maturity, as a result of mandatory sinking fund
redemption, mandatory prepayment, acceleration or otherwise), plus (ii) Interest
Expense for such period, plus (iii) to the extent not financed, the aggregate
amount of capital expenditures (as determined in accordance with GAAP) made or
incurred by the Company and its Subsidiaries during such period (other than the
aggregate amount so incurred or expended during such period for development of
software to the extent such amount is capitalized on the books of the Company
and its Subsidiaries in accordance with GAAP).
"Fixed Charge Coverage Ratio" means as of any time the same as to be
determined, the ratio of (x) Adjusted EBITDA for the four then most recently
completed fiscal quarters of the Company to (y) Fixed Charges for the same four
fiscal quarters (provided that the Fixed Charge Coverage Ratio shall be computed
as of December 31, 1999 for the quarter then ended, as of March 31, 2000 for the
period of two quarters then ended, and as of June 30, 2000 for the period of
three quarters then ended).
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied by the Company and its Subsidiaries on a basis consistent
with the preparation of the Company's most recent financial statements furnished
to the Bank pursuant to Section 6.5 hereof.
"Guarantees" is defined in Section 4.3 hereof.
"Indebtedness for Borrowed Money" means for any Person (without
duplication) (i) all indebtedness created, assumed or incurred in any manner by
such Person representing money borrowed (including by the issuance of debt
securities), (ii) all indebtedness for the deferred purchase price of property
or services (other than trade accounts payable arising in the ordinary course of
business which are not more than ninety (90) days past due), (iii) all
indebtedness secured by any Lien upon Property of such Person, whether or not
such Person has assumed or become liable for the payment of such indebtedness,
(iv) all Capitalized Lease Obligations of such Person, and (v) all obligations
of such Person on or with respect to letters of credit, bankers' acceptances and
other extensions of credit whether or not representing obligations for borrowed
money.
"Interest Expense" means, with reference to any period, the sum of all
interest charges (including imputed interest charges with respect to Capitalized
Lease Obligations and all amortization of debt discount and expense) of the
Company and its Subsidiaries for such period determined in accordance with GAAP.
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"Interest Period" means, with respect to (a) any LIBOR Portion, the period
commencing on, as the case may be, the creation, continuation or conversion date
with respect to such LIBOR Portion and ending one (1), two (2) or three (3)
months thereafter as selected by the Company in its notice as provided herein;
provided that all of the foregoing provisions relating to Interest Periods are
subject to the following:
(i) if any Interest Period would otherwise end on a day which is not
a Business Day, that Interest Period shall be extended to the next
succeeding Business Day, unless in the case of an Interest Period for a
LIBOR Portion the result of such extension would be to carry such Interest
Period into another calendar month in which event such Interest Period
shall end on the immediately preceding Business Day;
(ii) no Interest Period may extend beyond the Termination Date; and
(iii) the interest rate to be applicable to each Portion for each
Interest Period shall apply from and including the first day of such
Interest Period to but excluding the last day thereof.
For purposes of determining an Interest Period, a month means a period starting
on one day in a calendar month and ending on a numerically corresponding day in
the next calendar month, provided, however, if an Interest Period begins on the
last day of a month or if there is no numerically corresponding day in the month
in which an Interest Period is to end, then such Interest Period shall end on
the last Business Day of such month.
"Letter of Credit" is defined in Section 1.3 hereof.
"LIBOR Portions" is defined in Section 2.1(a).
"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of a
vendor or lessor under any conditional sale, Capital Lease or other title
retention arrangement.
"Loans" is defined in Section 1.2 hereof.
"Loan Documents" means this Agreement, the Revolving Credit Note, the
Applications, the Guaranty, and the Collateral Documents.
"Maximum MagiColor Slow Moving Amount" means the United States Dollar
amounts set forth on Exhibit D hereto.
"Minolta" means Minolta Co., Ltd., a Japanese corporation.
"Minolta Integration Projection" is defined in Section 8.5(k) hereof.
"Minolta Investments" means Minolta Investments Company, a Delaware
corporation.
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"Minolta Loan" means the indebtedness arising from Minolta's loan of
$12,800,000 in original principal amount of cash to the Company made on June 7,
1999, provided (i) Minolta's only collateral for such loan is the Borrower's
capital stock or other equity interests in QMS Europe and QMS Australia and (ii)
such loan is otherwise on the terms set forth in the Loan Agreement by and
between the Company and Minolta dated as of June 7, 1999, including without
limitation, any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time (but
excluding in any event (x) any increase in the principal amount, interest rate
(other than then prevailing market-based interest rates) and fees applicable
thereto, (y) any acceleration of the maturity dates applicable thereto and (z)
any other material amendment, modification, renewal, refund, replacement or
refinancing on terms and conditions more disadvantageous or burdensome to the
Company and its Subsidiaries than currently applicable thereto).
"Minolta LOI" means that certain letter of intent between the Company and
Minolta dated May 17, 1999, a copy of which the Company has heretofore furnished
to the Bank.
"Minolta Stock Purchase Agreement" means that certain Stock Purchase
Agreement dated as of June 7, 1999 by and among Minolta, Minolta Investments and
the Company.
"Mobile Lease" means that certain Lease Agreement dated as of February 18,
1997 by and between INK (AL) QRS 12-21, Inc. and the Company.
"Net Income" means, with reference to any period, the net income (or net
loss) of the Company and its Subsidiaries for such period as computed on a
consolidated basis in accordance with GAAP.
"Obligations" means all obligations of the Company to pay principal and
interest on the Loans, all reimbursement obligations owing under the
Applications, all fees and charges payable hereunder, and all other payment
obligations of the Company arising under or in relation to any Loan Document, in
each case whether now existing or hereafter arising, due or to become due,
direct or indirect, absolute or contingent, and howsoever evidenced, held or
acquired.
"Opening Day Minolta Equity Infusion" means a contribution in cash of at
least $12,200,000 by Minolta Investments to the Company's equity capital
resulting from the Company's private placement to Minolta Investments of not
more than 19.9% of the Company's then outstanding common stock and otherwise on
the terms set forth in the Minolta LOI.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.
"Patent Agreement" is defined in Section 4.1 hereof.
"Person" means an individual, partnership, corporation, association, trust,
unincorporated organization or any other entity or organization, including a
government or agency or political subdivision thereof.
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"Plan" means any employee pension benefit plan covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the Code that
either (i) is maintained by a member of the Controlled Group for employees of a
member of the Controlled Group or (ii) is maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than one employer
makes contributions and to which a member of the Controlled Group is then making
or accruing an obligation to make contributions or has within the preceding five
plan years made contributions.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"QMS Australia" means QMS Australia Pty. Ltd., a corporation organized
under the laws of Australia.
"QMS BV Acquisition" means the acquisition by the Company of all of the
outstanding common stock of QMS Europe and QMS Australia.
"QMS Canada" means QMS Canada Inc., a corporation organized under the laws
of Canada.
"QMS Europe" means QMS Europe B.V., a corporation organized under the laws
of the Netherlands.
"Revolving Credit" is defined in Section 1.1 hereof.
"Revolving Credit Commitment" is defined in Section 1.1 hereof.
"Revolving Credit Note" is defined in Section 1.2 hereof.
"SEC" means the Securities and Exchange Commission.
"Security Agreement" is defined in Section 4.1 hereof.
"Subordinated Indebtedness" means any Indebtedness for Borrowed Money which
is subordinated in right of payment to the prior payment of the Obligations
pursuant to subordination provisions approved in writing by the Bank and is
otherwise pursuant to documentation that is, which is in an amount that is, and
which contains interest rates, payment terms, maturities, amortization
schedules, covenants, defaults, remedies and other material terms that are in
form and substance, in each case satisfactory to the Bank.
"Subsidiary" means any corporation or other Person more than 50% of the
outstanding ordinary voting shares or other equity interests of which is at the
time directly or indirectly owned by the Company, by one or more of its
Subsidiaries, or by the Company and one or more of its Subsidiaries.
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"Tangible Net Worth" means, as of any time the same is to be determined,
the amount (if any) by which (a) the sum of (i) the total shareholders' equity
(including capital stock, additional paid-in-capital and retained earnings after
deducting treasury stock, but excluding minority interests in Subsidiaries)
which would appear on the balance sheet of the Company and its Subsidiaries
determined on a consolidated basis in accordance with GAAP plus (ii) the
principal amount of the then outstanding Subordinated Indebtedness exceeds (b)
the sum of (i) all assets which would be classified as intangible assets under
GAAP, including, without limitation, goodwill, patents, trademarks, trade names,
copyrights, franchises and deferred charges (including, without limitation,
unamortized debt discount and expense, organization costs and deferred research
and development expense) and similar assets, and (ii) the write-up of assets
above cost.
"Termination Date" means August 19, 2002, or such earlier date on which the
Revolving Credit Commitment is terminated in whole pursuant to Section 3.7, 9.2
or 9.3 hereof.
"Total Funded Debt" means, at any time the same is to be determined, the
aggregate of all Indebtedness for Borrowed Money of the Company and its
Subsidiaries at such time, plus all Indebtedness for Borrowed Money of any other
Person which is directly or indirectly guaranteed by the Company or any of its
Subsidiaries or which the Company or any of its Subsidiaries has agreed
(contingently or otherwise) to purchase or otherwise acquire or in respect of
which the Company or any of its Subsidiaries has otherwise assured a creditor
against loss.
"Trademark Agreement" is defined in Section 4.1 hereof.
"Unamortized Capitalized Software Development Costs" means any unamortized
expenditures and costs associated with the development of software and properly
capitalized on the balance sheet of the Company and its Subsidiaries in
accordance with GAAP and Statement of Financial Accounting Standards No. 86 (so-
called "FAS 86") relating to accounting treatment of unamortized capitalized
costs.
"Unfunded Vested Liabilities" means, for any Plan at any time, the amount
(if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"Unused Line Fee" is defined in Section 3.2 hereof.
"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of ERISA.
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the issued and
outstanding shares of capital stock (other than directors' qualifying shares as
required by law) or other equity interests are owned by the Company and/or one
or more Wholly-Owned Subsidiaries within the meaning of this definition.
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"Year 2000 Problem" means any significant risk that computer hardware,
software, or equipment containing embedded microchips essential to the business
or operations of the Company or any of its Subsidiaries will not, in the case of
dates or time periods occurring after December 31, 1999, function at least as
efficiently and reliably as in the case of times or time periods occurring
before January 1, 2000, including the making of accurate leap year calculations.
Section 5.2. Interpretation. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The words
"hereof", "herein", and "hereunder" and words of like import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All references to time of day herein are references
to Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, it shall be done in
accordance with GAAP except where such principles are inconsistent with the
specific provisions of this Agreement.
Section 6. Representations and Warranties.
The Company represents and warrants to the Bank as follows:
Section 6.1. Organization and Qualification. The Company is duly
organized, validly existing and in good standing as a corporation under the laws
of the State of Delaware, has full and adequate corporate power to own its
Property and conduct its business as now conducted, and is duly licensed or
qualified and in good standing in each jurisdiction in which the nature of the
business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying.
Section 6.2. Subsidiaries. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, as the case may be, has full and adequate power to
own its Property and conduct its business as now conducted, and is duly licensed
or qualified and in good standing in each jurisdiction in which the nature of
the business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying. Schedule 6.2 hereto identifies each
Subsidiary, the jurisdiction of its incorporation or organization, as the case
may be, the percentage of issued and outstanding shares of each class of its
capital stock or other equity interests owned by the Company and the
Subsidiaries and, if such percentage is not 100% (excluding directors'
qualifying shares as required by law). All of the outstanding shares of capital
stock and other equity interests of each Subsidiary are validly issued and
outstanding and fully paid and nonassessable and all such shares and other
equity interests indicated on Schedule 6.2 as owned by the Company or a
Subsidiary are owned, beneficially and of record, by the Company or such
Subsidiary free and clear of all Liens. There are no outstanding commitments or
other obligations of any Subsidiary to issue, and no options, warrants or other
rights of any Person to acquire, any shares of any class of capital stock or
other equity interests of any Subsidiary.
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Section 6.3. Corporate Authority and Validity of Obligations. The Company
has full right and authority to enter into this Agreement and the other Loan
Documents delivered by it, to make the borrowings herein provided for, to issue
its Revolving Credit Note in evidence thereof, to grant to the Bank the Liens
described in the Collateral Documents delivered by it, and to perform all of its
obligations hereunder and under the other Loan Documents delivered by it. Each
Subsidiary has full right and authority to execute and deliver each Loan
Document delivered by it, to grant to the Bank the Liens described in the
Collateral Documents delivered by it, and to perform all of its obligations
under the Loan Documents delivered by it. The Loan Documents delivered by the
Company and each Subsidiary have been duly authorized, executed and delivered by
the Company or such Subsidiary, as the case may be, and constitute valid and
binding obligations of the Company or such Subsidiary (as applicable)
enforceable in accordance with their terms except as enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance or similar laws
affecting creditors' rights generally and general principles of equity
(regardless of whether the application of such principles is considered in a
proceeding in equity or at law); and each Loan Document delivered by the Company
or any Subsidiary does not, nor does the performance or observance by the
Company or such Subsidiary, as the case may be, of any of the matters and things
therein provided for, contravene or constitute a default under any provision of
law or any judgment, injunction, order or decree binding upon the Company (and
also, such Subsidiary in the case of a Loan Document executed by it) or any
provision of the charter, articles of incorporation or by-laws of the Company
(and also, such Subsidiary in the case of a Loan Document executed by it) or any
covenant, indenture or agreement of or affecting the Company (and also, such
Subsidiary in the case of a Loan Document executed by it) or any of its
Properties, or result in the creation or imposition of any Lien on any Property
of the Company (and also, such Subsidiary in the case of a Loan Document
executed by it).
Section 6.4. Use of Proceeds; Margin Stock. The Company shall use the
proceeds of the Loans and other extensions of credit made available hereunder
solely for its general working capital purposes and for such other legal and
proper purposes as are consistent with all applicable laws and the terms of this
Agreement. Neither the Company nor any Subsidiary is engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Loan or any other extension of
credit made hereunder will be used to purchase or carry any such margin stock or
to extend credit to others for the purpose of purchasing or carrying any such
margin stock.
Section 6.5. Financial Reports. The consolidated balance sheet of the
Company and its Subsidiaries as at October 2, 1998 and the related consolidated
statements of income, retained earnings and cash flows of the Company and its
Subsidiaries for the fiscal year then ended, and accompanying notes thereto,
which financial statements are accompanied by the audit report of Deloitte &
Touche LLP, independent public accountants, and the unaudited interim
consolidated balance sheet of the Company and its Subsidiaries as at July 2,
1999 and the related consolidated statements of income, retained earnings and
cash flows of the Company and its Subsidiaries for the six (6) months then
ended, heretofore furnished to the Bank, fairly present the consolidated
financial condition of the Company and its Subsidiaries as at said dates and the
consolidated results of their operations and cash flows for the periods then
ended in conformity with generally accepted accounting principles applied on a
consistent basis. Neither the Company nor any
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Subsidiary has contingent liabilities which are material to it other than as
indicated on such financial statements or, with respect to future periods, on
the financial statements furnished pursuant to Section 8.5 hereof.
Section 6.6. No Material Adverse Change. Since October 2, 1998, there has
been no change in the condition (financial or otherwise) or business prospects
of the Company or any Subsidiary except those occurring in the ordinary course
of business, none of which individually or in the aggregate have been materially
adverse.
Section 6.7. Full Disclosure. The statements and information furnished to
the Bank in connection with the negotiation of this Agreement and the other Loan
Documents and the commitment by the Bank to provide all or part of the financing
contemplated hereby do not contain any untrue statements of a material fact or
omit a material fact necessary to make the material statements contained herein
or therein not misleading, the Bank acknowledging that as to any projections
furnished to the Bank, the Company only represents that the same were prepared
on the basis of information and estimates the Company believed to be reasonable.
Section 6.8. Good Title. The Company and its Subsidiaries each have good
and defensible title to their assets as reflected on the most recent
consolidated balance sheet of the Company and its Subsidiaries furnished to the
Bank (except for sales of assets by the Company and its Subsidiaries in the
ordinary course of business), subject to no Liens other than such thereof as are
permitted by Section 8.13 hereof.
Section 6.9. Litigation and Other Controversies. Except to the extent
appropriately disclosed in the Company's Form 10-K filing with the SEC for its
fiscal year ended December 31, 1998, there is no litigation or governmental
proceeding or labor controversy pending, nor to the knowledge of the Company
threatened, against the Company or any Subsidiary which if adversely determined
would (a) impair the validity or enforceability of, or impair the ability of the
Company to perform its obligations under, this Agreement or any of the other
Loan Documents or (b) result in any material adverse change in the financial
condition, Properties, business or operations of the Company or any Subsidiary.
Section 6.10. Taxes. All tax returns required to be filed by the Company
or any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes,
assessments, fees and other governmental charges upon the Company or any
Subsidiary or upon any of their respective Properties, income or franchises,
which are shown to be due and payable in such returns, have been paid. The
Company does not know of any proposed additional tax assessment against it or
its Subsidiaries for which adequate provision in accordance with GAAP has not
been made on its accounts. Adequate provisions in accordance with GAAP for taxes
on the books of the Company and each Subsidiary have been made for all open
years, and for its current fiscal period.
Section 6.11. Approvals. No authorization, consent, license, or exemption
from, or filing or registration with, any court or governmental department,
agency or instrumentality, nor any approval or consent of the stockholders of
the Company or any other Person, is or will be necessary to the valid execution,
delivery or performance by the Company of this Agreement or any other Loan
Document.
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Section 6.12. Affiliate Transactions. Neither the Company nor any
Subsidiary is a party to any contracts or agreements with any of its Affiliates
(other than with Wholly-Owned Subsidiaries) on terms and conditions which are
less favorable to the Company or such Subsidiary than would be usual and
customary in similar contracts or agreements between Persons not affiliated with
each other, other than the Company's existing arrangements with Jim Busby whose
departure from the Company's management gave rise to the management transition
and executive retirement liabilities described in the Form 10-K filing by the
Company with the SEC for its fiscal year ended December 31, 1998.
Section 6.13. Investment Company; Public Utility Holding Company. Neither
the Company nor any Subsidiary is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "public utility holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 6.14. ERISA. The Company and each other member of its Controlled
Group has fulfilled its obligations under the minimum funding standards of and
is in compliance in all material respects with ERISA and the Code to the extent
applicable to it and has not incurred any liability to the PBGC or a Plan under
Title IV of ERISA other than a liability to the PBGC or a Plan under Title IV of
ERISA for premiums under Section 4007 of ERISA. Neither the Company nor any
Subsidiary has any contingent liabilities with respect to any post-retirement
benefits under a Welfare Plan, other than liability for continuation coverage
described in article 6 of Title I of ERISA.
Section 6.15. Compliance with Laws. The Company and its Subsidiaries each
are in compliance with the requirements of all federal, state and local laws,
rules and regulations applicable to or pertaining to their Properties or
business operations (including, without limitation, the Occupational Safety and
Health Act of 1970, the Americans with Disabilities Act of 1990, and laws and
regulations establishing quality criteria and standards for air, water, land and
toxic or hazardous wastes and substances), non-compliance with which could have
a material adverse effect on the financial condition, Properties, business or
operations of the Company or any Subsidiary. Neither the Company nor any
Subsidiary has received notice to the effect that its operations are not in
compliance with any of the requirements of applicable federal, state or local
environmental, health and safety statutes and regulations or are the subject of
any governmental investigation evaluating whether any remedial action is needed
to respond to a release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action could have a material
adverse effect on the financial condition, Properties, business or operations of
the Company or any Subsidiary.
Section 6.16. Other Agreements. Neither the Company nor any Subsidiary is
in default under the terms of any covenant, indenture, lease (including without
limitation the Mobile Lease) or agreement of or affecting the Company, any
Subsidiary or any of their Properties, which default, if uncured, would have a
material adverse effect on the financial condition, Properties, business or
operations of the Company or any Subsidiary.
Section 6.17. No Default. No Default or Event of Default has occurred and
is continuing.
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Section 6.18. Year 2000 Compliance. The Company has conducted a
comprehensive review and assessment of the computer applications of the Company
and its Subsidiaries and has made reasonable inquiry of their material
suppliers, service vendors (including data processors) and customers, with
respect to any defect in computer software, data bases, hardware, controls and
peripherals related to the occurrence of the year 2000 or the use at any time of
any date which is before, on and after December 31, 1999, in connection
therewith. Based on the foregoing review, assessment and inquiry, the Company
believes that no such defect could reasonably be expected to have a material
adverse effect on the business or financial affairs of the Company (or of the
Company and its Subsidiaries taken on a consolidated basis).
Section 7. Conditions Precedent.
The obligation of the Bank to make any Loan or to issue any Letter of
Credit under this Agreement is subject to the following conditions precedent:
Section 7.1. All Advances. As of the time of the making of each
extension of credit (including the initial extension of credit) hereunder:
(a) each of the representations and warranties set forth in Section
6 hereof and in the other Loan Documents shall be true and correct as of
such time, except to the extent the same expressly relate to an earlier
date;
(b) the Company shall be in full compliance with all of the terms
and conditions of this Agreement and of the other Loan Documents, and no
Default or Event of Default shall have occurred and be continuing or would
occur as a result of making any such extension of credit;
(c) in the case of any request for an extension of credit under the
Revolving Credit, after giving effect to such extension of credit the
aggregate principal amount of all Loans and Letters of Credit outstanding
under this Agreement shall not exceed the lesser of (i) the Revolving
Credit Commitment and (ii) the Borrowing Base;
(d) in the case of the issuance of any Letter of Credit, the Bank
shall have received a properly completed Application therefor together with
the fees called for hereby; and
(e) such extension of credit shall not violate any order, judgment or
decree of any court or other authority or any provision of law or
regulation applicable to the Bank (including, without limitation,
Regulation U of the Board of Governors of the Federal Reserve System) as
then in effect.
The Company's request for any Loan or Letter of Credit shall constitute its
warranty as to the facts set forth in subsections (a) through (e), both
inclusive, above.
Section 7.2. Initial Advance. At or prior to the making of the initial
extension of credit hereunder, the following conditions precedent shall also
have been satisfied:
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(a) the Bank shall have received the following (each to be properly
executed and completed) and the same shall have been approved as to form
and substance by the Bank:
(i) the Revolving Credit Note;
(ii) the Collateral Documents, including the lockbox agreement
required pursuant to Section 4.2 hereof together with any financing
statements requested by the Bank in connection with the Collateral
Documents;
(iii) the Guarantees from QMS Canada and QMS Circuits, Inc.;
(iv) copies (executed or certified, as may be appropriate) of
all legal documents or proceedings taken in connection with the
execution and delivery of this Agreement and the other Loan Documents
to the extent the Bank or its counsel may reasonably request;
(v) an incumbency certificate containing the name, title and
genuine signatures of each of the Company's Authorized
Representatives;
(vi) evidence of insurance required by Section 8.4 hereof; and
(vii) a payoff letter from Foothill Capital Corporation to the
Company setting forth the amount of indebtedness and obligations owed
such lender by the Company and containing an agreement to release all
Liens in such lender's favor upon receipt of such payoff amount;
(b) the Bank shall have received the initial fees called for hereby;
(c) the Bank shall have received and approved as to substance
consolidated and consolidating proforma projected financial statements for
the Company and its Subsidiaries, including a balance sheet as of July 2,
1999 (in each case immediately after giving effect to the QMS BV
Acquisition, the Minolta Loan and the Opening Day Minolta Equity Infusion)
and such other valuations and certifications as it may require in order to
satisfy itself as to the value of the Collateral, the financial condition
of the Company and its Subsidiaries, and the lack of material contingent
liabilities of the Company and its Subsidiaries;
(d) legal matters incident to the execution and delivery of this
Agreement and the other Loan Documents and to the transactions contemplated
hereby and thereby shall be satisfactory to the Bank and its counsel; and
the Bank shall have received the favorable written opinion of counsel for
the Company in form and substance satisfactory to the Bank and its counsel;
(e) the Bank shall have received a Borrowing Base certificate in the
form attached hereto as Exhibit B showing the computation of the Borrowing
Base in
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reasonable detail as of the close of business not earlier than three (3)
days prior to the making of the initial extension of credit hereunder and
showing, among other things, excess availability of at least $5,000,000
after deeming as borrowed hereunder an amount equal to all but $100,000 of
the Company's accounts payable over ninety (90) days past due and all
transaction expenses related to the transactions contemplated hereby and
the QMS BV Acquisition;
(f) the QMS BV Acquisition shall have been consummated for an
aggregate consideration (inclusive of out-of-pocket transaction fees and
charges directly incident to the QMS BV Acquisition, but in any event
excluding business restructuring charges) of not more than U.S.
$31,000,000, and the Bank shall have received assurances satisfactory to it
of the foregoing;
(g) the Bank shall have received a good standing certificate (or
equivalent certificate) for the Company and each Domestic Subsidiary and
QMS Canada (dated as of the date no earlier than thirty (30) days prior to
the date hereof) from the office of the secretary of state of the state (or
province) of its incorporation and the state (or province) in which its
principal place of business is located;
(h) the Liens granted to the Bank under the Collateral Documents
shall have been perfected in a manner satisfactory to the Bank and its
counsel;
(i) the Bank shall have received evidence satisfactory to it that the
Company received cash proceeds of at least $12,800,000 from the Minolta
Loan;
(j) the Bank shall have received evidence satisfactory to it that the
Company received cash proceeds of at least $12,200,000 from the Opening Day
Minolta Equity Infusion;
(k) the Bank shall have received (i) satisfactory evidence that the
Company shall have entered into an employment contract with Ed Lucente for
him to perform the duties and functions of chief executive officer for the
Company for whatever period of time the Company deems appropriate and (ii)
(A) assurances satisfactory to it of the remedy, within applicable grace
periods, of any default under the Mobile Lease or (B) a written waiver of
any currently existing default under the Mobile Lease; and
(l) the Bank shall have received such other agreements, instruments,
documents, certificates and opinions as the Bank may reasonably request.
Section 8. Covenants.
The Company agrees that, so long as any credit is available to or in use by
the Company hereunder, except to the extent compliance in any case or cases is
waived in writing by the Bank:
Section 8.1. Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each
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Subsidiary to, preserve and keep in force and effect all leases (including
without limitation the Mobile Lease), licenses, permits and franchises necessary
to the proper conduct of its business. Notwithstanding the foregoing, this
Section shall neither apply to nor operate to prevent the dissolution of QMS
Circuits, Inc. if (i) such Subsidiary as of the time of its dissolution is a
shell corporation which owns no Property, (ii) such dissolution is, in the
judgment of the Company, desirable in the conduct of its business and (iii) such
dissolution is not disadvantageous in any material respect to the Bank.
Section 8.2. Maintenance of Properties. The Company shall maintain,
preserve and keep its property, plant and equipment in good repair, working
order and condition (ordinary wear and tear excepted) and shall from time to
time make all needful and proper repairs, renewals, replacements, additions and
betterments thereto so that at all times the efficiency thereof shall be fully
preserved and maintained, and shall cause each Subsidiary to do so in respect of
property, plant and equipment owned or used by it.
Section 8.3. Taxes and Assessments. The Company shall duly pay and
discharge, and shall cause each Subsidiary to duly pay and discharge, all taxes,
rates, assessments, fees and governmental charges upon or against it or its
Properties, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings which prevent enforcement of the
matter under contest and adequate reserves are provided therefor.
Section 8.4. Insurance. The Company shall insure and keep insured, and
shall cause each Subsidiary to insure and keep insured, with good and
responsible insurance companies, all insurable Property owned by it which is of
a character usually insured by Persons similarly situated and operating like
Properties against loss or damage from such hazards and risks, and in such
amounts, as are insured by Persons similarly situated and operating like
Properties; and the Company shall insure, and shall cause each Subsidiary to
insure, such other hazards and risks (including employers' and public liability
risks) with good and responsible insurance companies as and to the extent
usually insured by Persons similarly situated and conducting similar businesses.
The Company shall in any event maintain insurance on the Collateral to the
extent required by the Collateral Documents. The Company shall upon request
furnish to the Bank a certificate setting forth in summary form the nature and
extent of the insurance maintained pursuant to this Section.
Section 8.5. Financial Reports. The Company shall, and shall cause each
Subsidiary to, maintain a standard system of accounting in accordance with GAAP
and shall furnish to the Bank and its duly authorized representatives such
information respecting the business and financial condition of the Company and
its Subsidiaries as the Bank may reasonably request; and without any request,
shall furnish to the Bank:
(a) as soon as available, and in any event no later than the last
Business Day of each calendar week, a Borrowing Base certificate in the
form attached hereto as Exhibit B showing the computation of the Borrowing
Base (with the Company's Eligible Inventory to be calculated, on a so-
called perpetual basis, weekly for the first 120 days after the Closing
Date and bi-monthly (every second calendar week) thereafter and
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Eligible Receivables at all times to be calculated weekly), each in
reasonable detail as of the close of business on the last day of the
immediately preceding week, together with such other information as is
therein required, prepared by the Company and certified to by the President
or chief financial officer of the Company;
(b) as soon as available, and in any event within thirty (30) days
after the close of each monthly accounting period (including each monthly
accounting period that ends concurrently with the close of any quarter
annual accounting period of the Company) and forty-five (45) days after the
close of each quarter-annual accounting period of the Company, a copy of
the consolidated and consolidating balance sheet of the Company and its
Subsidiaries as of the last day of such monthly or quarter-annual
accounting period, as applicable, and the consolidated and the
consolidating statements of income, retained earnings and cash flows of the
Company and its Subsidiaries for the month and quarter and for the fiscal
year-to-date period then ended, each in reasonable detail and (within six
(6) months from the date hereof) showing in comparative form the figures
for the corresponding date and period in the previous fiscal year, prepared
by the Company in accordance with GAAP and certified to by the President or
chief financial officer of the Company;
(c) within thirty (30) days after the close of each monthly
accounting period, an accounts receivable and accounts payable aging, each
in reasonable detail prepared by the Company and certified to by the
President or chief financial officer of the Company;
(d) as soon as available, in any event no later than the last
Business Day of each calendar week for the first one hundred twenty days
after the closing hereof and on the 10th and the 25th day of each month
thereafter, an inventory report (containing at least a perpetual inventory
report and in the case of each such report for a week which includes the
close of any calendar month, a walk-forward as of the close of such month)
in reasonable detail prepared by the Company and certified to by the
President or chief financial officer of the Company;
(e) as soon as available, and in any event within ninety (90) days
after the last day of each annual accounting period of the Company, a copy
of the consolidated and consolidating balance sheet of the Company and its
Subsidiaries as of the close of such period and the consolidated and
consolidating statements of income, retained earnings and cash flows of the
Company and its Subsidiaries for the period then ended, and accompanying
notes thereto, each in reasonable detail and (within six (6) months from
the date hereof) showing in comparative form the figures for the previous
fiscal year, in each case accompanied by an unqualified opinion thereon of
Deloitte & Touche LLP or another firm of independent public accountants of
recognized national standing, selected by the Company and satisfactory to
the Bank, to the effect that the financial statements have been prepared in
accordance with GAAP and present fairly in accordance with GAAP the
consolidated financial condition of the Company and its Subsidiaries as of
the close of such fiscal year and the results of their operations and cash
flows for the fiscal year then ended and that an examination of such
accounts in connection with such financial statements has been made in
accordance with generally accepted auditing
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standards and, accordingly, such examination included such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(f) within the period provided in subsection (e) above, the written
statement of the accountants who certified the audit report thereby
required that in the course of their audit they have obtained no knowledge
of any Default or Event of Default, or, if such accountants have obtained
knowledge of any such Default or Event of Default, they shall disclose in
such statement the nature and period of the existence thereof;
(g) promptly after receipt thereof, any additional written reports,
management letters or other detailed information contained in writing
concerning significant aspects of the Company's or any Subsidiary's
operations and financial affairs given to it by its independent public
accountants;
(h) as soon as available and in any event within ninety (90) days
after the date hereof, a balance sheet for the Company as of the close of,
and immediately after giving effect to, the QMS BV Acquisition, prepared in
reasonable detail in accordance with GAAP by the Company and certified to
by its chief financial officer;
(i) promptly after the sending or filing thereof, copies of all
proxy statements, financial statements and reports which the Company sends
to its shareholders, and copies of all other regular, periodic and special
reports and all registration statements which the Company files with the
SEC or any successor thereto, or with any national securities exchange;
(j) as soon as available, and in any event within thirty (30) days
after the commencement of each fiscal year of the Company, a business plan
for the Company for such fiscal year, such business plan to include a
projected income statement, balance sheet and cash flow statement for such
year in reasonable detail, prepared by the Company and in form reasonably
satisfactory to the Bank;
(k) as soon as available, and in any event no later than May 31,
2000, financial projections for the Company for a period of at least three
calendar years reflecting the impact of the integration (to the extent, if
any, then contemplated) of Minolta's U.S. printer operations into the
Company, such projections to show (based on reasonable assumptions) the
Company's projected revenues, expenses and balance sheet on a quarter-by-
quarter basis in reasonable detail, prepared by the Company and in form
reasonably satisfactory to the Bank (the "Minolta Integration Projection");
and
(l) promptly after knowledge thereof shall have come to the
attention of any responsible officer of the Company, written notice of any
threatened or pending litigation or governmental proceeding or labor
controversy against the Company or any Subsidiary which, if adversely
determined, would adversely affect the financial condition, Properties,
business or operations of the Company or any Subsidiary or of the
occurrence of any Default or Event of Default hereunder.
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Each of the financial statements furnished to the Bank pursuant to subsections
(b) and (e) of this Section 8.5 shall be accompanied by a written certificate in
the form attached hereto as Exhibit C signed by the President or chief financial
officer of the Company to the effect that to the best of such officer's
knowledge and belief no Default or Event of Default has occurred during the
period covered by such statements or, if any such Default or Event of Default
has occurred during such period, setting forth a description of such Default or
Event of Default and specifying the action, if any, taken by the Company to
remedy the same. Such certificate shall also set forth the calculations
supporting such statements in respect of Sections 8.7, 8.8, 8.9, 8.10 and 8.11
of this Agreement.
Section 8.6. Inspection; Appraisals. The Company shall, and shall cause
each Subsidiary to, permit the Bank and its duly authorized representatives and
agents to visit and inspect any of the Properties, corporate books and financial
records of the Company and each Subsidiary, to examine and make copies of the
books of accounts and other financial records of the Company and each
Subsidiary, and to discuss the affairs, finances and accounts of the Company and
each Subsidiary with, and to be advised as to the same by, its officers,
employees and independent public accountants (and by this provision the Company
authorizes such accountants to discuss with the Bank the finances and affairs of
the Company and of each Subsidiary) at such reasonable times and reasonable
intervals as the Bank may designate. The Bank may obtain (or direct the Company
to obtain and provide to the Bank) updated appraisals on the Company's
inventory, or portion thereof, from time to time as the Bank may designate,
which appraisal reports shall in each case be prepared by an independent third
party appraiser reasonably acceptable to the Bank and the Company and be in such
format and contain such detail as the Bank may reasonably request. The costs and
expenses incurred in obtaining any such appraisal shall in each case be borne by
the Company (whether obtained by the Bank or by the Company), provided that
prior to the occurrence of a Default or Event of Default, the Company shall not
be required to pay for more than one such appraisal of the Company's inventory
in any period of six calendar months. The Company shall, at the Bank's request,
provide, at the Company's expense, updated environmental questionnaires
concerning activities and conditions affecting the real property owned, leased
or operated by the Company or any of its Subsidiaries and/or environmental
reports prepared for the Bank by an environmental consultant or an environmental
engineering firm acceptable to the Bank concerning any real property owned,
leased or operated by the Company or any of its Subsidiaries; provided, however,
that the Bank shall not request any new environmental report be prepared by any
such third party unless the Bank reasonably believes there is a reasonable
prospect of material liability to the Company or any Subsidiary for
noncompliance with environmental, health and safety laws of the type which are
the subject of Section 6.15 hereof.
Section 8.7. Tangible Net Worth. The Company shall, at all times during
each of the periods specified below, maintain Tangible Net Worth at not less
than:
<TABLE>
<CAPTION>
Tangible Net Worth
From and To and shall not be
including including less than:
<S> <C> <C>
The date hereof December 31, 1999 $6,500,000
</TABLE>
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<TABLE>
<S> <C> <C>
January 1, 2000 March 31, 2000 $7,000,000
April 1, 2000 June 30, 2000 $8,000,000
July 1, 2000 September 29, 2000 $7,500,000
September 30, 2000 December 29, 2000 $6,800,000
December 30, 2000 March 29, 2001 $6,000,000
March 30, 2001 June 28, 2001 $4,500,000
June 29, 2001 At all times thereafter $3,000,000
</TABLE>
Section 8.8. Unamortized Capitalized Software Development Costs. The
Company shall not, nor shall it permit any Subsidiary to, allow Unamortized
Capitalized Software Development Costs to exceed the sum of (i) for the fiscal
year of the Company ended October 2, 1998, the amount of Unamortized Capitalized
Software Development Costs reflected in the consolidated balance sheet of the
Company and its Subsidiaries for such fiscal, plus (ii) for each fiscal year of
the Company ending after October 2, 1998, $1,000,000 for each such fiscal year.
Section 8.9. Fixed Charge Coverage Ratio. Subject to Section 8.11 hereof,
the Company shall, as of the last day of each fiscal quarter of the Company
ending during each of the periods specified below, maintain the Fixed Charge
Coverage Ratio of not less than:
<TABLE>
<CAPTION>
Fixed Charge Coverage
From and To and Ratio shall not be
including including less than:
<S> <C> <C>
October 1, 1999 December 31, 1999 0.90 to 1
January 1, 2000 March 31, 2000 1.05 to 1
April 1, 2000 At all times thereafter 1.10 to 1
</TABLE>
Section 8.10. Capital Expenditures. The Company shall not, nor shall it
permit any Subsidiary to, expend or become obligated for unfinanced capital
expenditures other than expenditures for development of software (as determined
in accordance with GAAP) in excess of $3,500,000 in an aggregate amount during
any fiscal year of the Company.
Section 8.11. Capitalized Software Development Expenditures. The Company
shall not, nor shall it permit any Subsidiary to, expend or become obligated for
expenses for development of software that are or could be capitalized in
accordance with GAAP on the books of the Company or its Subsidiaries in excess
of $11,000,000 in an aggregate amount during any fiscal year of the Company.
Section 8.12. Covenant Reset. No later than March 31, 2000 or if earlier,
the Company's submission to the Bank of the Minolta Integration Projection, the
Company shall negotiate in good faith with the Bank to reset the levels of
performance required by the financial
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covenants in Sections 8.7, 8.8, 8.9, 8.10 and 8.11 hereof to reflect the
information set forth in the Minolta Integration Projection. If no definitive
amendment to this Agreement reflecting such covenant modifications has been
agreed to in writing by the Company and the Bank and become effective by June
30, 2000, then the reference to "1.10" appearing in Section 8.9 hereof shall be
deemed deleted as of June 30, 2000 and "1.5" shall be deemed inserted in lieu
thereof.
Section 8.13. Indebtedness for Borrowed Money. The Company shall not, nor
shall it permit any Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness for Borrowed Money; provided, however, that the
foregoing shall not restrict nor operate to prevent:
(a) the Obligations of the Company owing to the Bank and other
indebtedness and obligations of the Company or any Subsidiary from time to
time owing to the Bank;
(b) purchase money indebtedness and Capitalized Lease Obligations
secured by Liens permitted by Section 8.14(e) hereof in an aggregate amount
not to exceed $2,000,000 at any one time outstanding;
(c) the Minolta Loan;
(d) indebtedness of the Company to Minolta aggregating not more
than $5,000,000 arising from the $5,000,000 advance made by Minolta to the
Company pursuant to the Minolta LOI;
(e) the indebtedness of certain Subsidiaries organized under the
laws of jurisdictions outside the United States of America and described on
Schedule 8.13 hereto (and any renewals or refinancings but not any increase
thereof);
(f) unsecured indebtedness of the Company to Alto Imaging N.V. in
an aggregate principal amount not in excess of $7,000,000 for the balance
of the purchase price payable in connection with the QMS BV Acquisition;
and
(g) other unsecured indebtedness not otherwise permitted by this
Section aggregate not more than $5,000,000 at any one time outstanding.
Section 8.14. Liens. The Company shall not, nor shall it permit any
Subsidiary to, create, incur or permit to exist any Lien of any kind on any
Property owned by the Company or any Subsidiary; provided, however, that the
foregoing shall not apply to nor operate to prevent:
(a) Liens arising by statute in connection with worker's
compensation, unemployment insurance, old age benefits, social security
obligations, taxes, assessments, statutory obligations or other similar
charges, good faith cash deposits in connection with tenders, contracts or
leases to which the Company or any Subsidiary is a party or other cash
deposits required to be made in the ordinary course of business, provided
in each case that the obligation is not for borrowed money and that the
obligation secured is not overdue or, if overdue, is being contested in
good faith by appropriate proceedings which
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prevent enforcement of the matter under contest and adequate reserves have
been established therefor;
(b) mechanics', workmen's, materialmen's, landlords', carriers', or
other similar Liens arising in the ordinary course of business with respect
to obligations which are not due or which are being contested in good faith
by appropriate proceedings which prevent enforcement of the matter under
contest;
(c) the pledge of assets for the purpose of securing an appeal,
stay or discharge in the course of any legal proceeding, provided that the
aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest
and penalties thereon, if any, shall not be in excess of $1,000,000 at any
one time outstanding;
(d) the Liens granted in favor of the Bank by the Collateral
Documents;
(e) Liens on property of the Company or any of its Subsidiaries
created solely for the purpose of securing indebtedness permitted by
Section 8.13(b) hereof, representing or incurred to finance, refinance or
refund the purchase price of Property, provided that no such Lien shall
extend to or cover other Property of the Company or such Subsidiary other
than the respective Property so acquired, and the principal amount of
indebtedness secured by any such Lien shall at no time exceed the original
purchase price of such Property;
(f) Liens on the stock or other equity interests of the Company in
QMS Europe and QMS Australia, including without limitation, (i) Liens on
the Shares and New Rights (as defined in the Share Mortgage dated June 7,
1999 (11:00 am EST) between the Company and Minolta and (ii) Liens on the
Present Shares, the Future Shares and the Future Rights (as defined in the
Deed of Pledge, dated June 7, 1999, among QMS Europe, the Company and
Minolta), in each case to secure the Minolta Loan; and
(g) Liens upon accounts, receivables and other personal property of
QMS Europe arising in connection with the indebtedness permitted under
Section 8.13(e) hereof.
Section 8.15. Investments, Acquisitions, Loans, Advances and Guaranties.
The Company shall not, nor shall it permit any Subsidiary to, directly or
indirectly, make, retain or have outstanding any investments (whether through
purchase of stock or obligations or otherwise) in, or loans or advances (other
than for travel advances and other similar cash advances made to employees in
the ordinary course of business) to, any other Person, or acquire all or any
substantial part of the assets or business of any other Person or division
thereof, or be or become liable as endorser, guarantor, surety or otherwise for
any debt, obligation or undertaking of any other Person, or otherwise agree to
provide funds for payment of the obligations of another, or supply funds thereto
or invest therein or otherwise assure a creditor of another against loss, or
apply for or become liable to the issuer of a letter of credit which supports an
obligation of
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another, or subordinate any claim or demand it may have to the claim or demand
of any other Person; provided, however, that the foregoing shall not apply to
nor operate to prevent:
(a) investments in direct obligations of the United States of
America or of any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America, provided that any such obligations shall mature within one year of
the date of issuance thereof;
(b) investments in commercial paper rated at least P-1 by Moody's
Investors Services, Inc. and at least A-1 by Standard & Poor's Corporation
maturing within 270 days of the date of issuance thereof;
(c) investments in certificates of deposit issued by any United
States commercial bank having capital and surplus of not less than
$100,000,000 which have a maturity of one year or less;
(d) endorsement of items for deposit or collection of commercial
paper received in the ordinary course of business;
(e) the acquisition by the Company of QMS Japan Kabushiki Kaisha
("QMS Japan") provided (i) at the time of such acquisition and immediately
after giving effect thereto, no Default or Event of Default shall occur or
be continuing, (ii) the Board of Directors or other governing body of QMS
Japan has approved the terms of such acquisition, (iii) the Company shall
have delivered to the Bank an updated Schedule 6.2 to reflect QMS Japan as
a new Subsidiary, (iv) the aggregate amount expended by the Company and its
Subsidiaries as consideration for such acquisition (and in any event (i)
including as such consideration, any Indebtedness for Borrowed Money
assumed or incurred as a result of such acquisition and (ii) excluding as
such consideration, any equity securities issued by the Company as
consideration for such acquisition) does not aggregate more than $500,000
and (iii) the Company can demonstrate that on a proforma basis (including
financial projections for the twelve calendar months following such
acquisition) after giving effect to such acquisition, the Company will
continue to comply with all the terms and conditions of the Loan Documents;
and
(f) investments, loans, advances and guarantees not otherwise
permitted by this Section aggregating not more than $500,000 at any one
time outstanding.
In determining the amount of investments, acquisitions, loans, advances and
guarantees permitted under this Section 8.15, investments and acquisitions shall
always be taken at the original cost thereof (regardless of any subsequent
appreciation or depreciation therein), loans and advances shall be taken at the
principal amount thereof then remaining unpaid, and guarantees shall be taken at
the amount of obligations guaranteed thereby.
Section 8.16. Mergers, Consolidations and Sales. The Company shall not,
nor shall it permit any Subsidiary to, be a party to any merger or
consolidation, or sell, transfer, lease or otherwise dispose of all or any
substantial part of its Property, including any disposition of
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Property as part of a sale and leaseback transaction, or in any event sell or
discount (with or without recourse) any of its notes or accounts receivable;
provided, however, that this Section shall not apply to nor operate to prevent
(i) the proposed merger of the peripheral products division of Minolta and QMS
Europe and the Company, with the Company surviving such merger, and (ii) the
Company or any Subsidiary from selling its inventory in the ordinary course of
its business. Any sale, transfer, lease or other disposition of more than five
percent (5%) of the Company's total assets shall be deemed "substantial" for
purposes of this Section.
Section 8.17. Maintenance of Subsidiaries. The Company shall not assign,
sell or transfer, or permit any Subsidiary to issue, assign, sell or transfer,
any shares of capital stock of a Subsidiary; provided that the foregoing shall
not operate to prevent (i) the issuance, sale and transfer to any person of any
shares of capital stock of a Subsidiary solely for the purpose of qualifying,
and to the extent legally necessary to qualify, such person as a director of
such Subsidiary, (ii) the dissolution of QMS Circuits, Inc. permitted by Section
8.1 hereof and (iii) any transfer of shares of capital stock of a Subsidiary
subject to Liens permitted by Section 8.14(f) hereof and related to, arising out
of or in connection with the Minolta Loan (including without limitation the
administration or enforcement thereof).
Section 8.18. Dividends and Certain Other Restricted Payments. The Company
shall not during any fiscal year (a) declare or pay any dividends on or make any
other distributions in respect of any class or series of its capital stock
(other than dividends payable solely in its capital stock) or (b) directly or
indirectly purchase, redeem or otherwise acquire or retire any of its capital
stock.
Section 8.19. ERISA. The Company shall, and shall cause each Subsidiary
to, promptly pay and discharge all obligations and liabilities arising under
ERISA of a character which if unpaid or unperformed might result in the
imposition of a Lien against any of its Properties. The Company shall, and shall
cause each Subsidiary to, promptly notify the Bank of (i) the occurrence of any
reportable event (as defined in ERISA) with respect to a Plan, (ii) receipt of
any notice from the PBGC of its intention to seek termination of any Plan or
appointment of a trustee therefor, (iii) its intention to terminate or withdraw
from any Plan, and (iv) the occurrence of any event with respect to any Plan
which would result in the incurrence by the Company or any Subsidiary of any
material liability, fine or penalty, or any material increase in the contingent
liability of the Company or any Subsidiary with respect to any post-retirement
Welfare Plan benefit.
Section 8.20. Compliance with Laws. The Company shall, and shall cause
each Subsidiary to, comply in all respects with the requirements of all federal,
state and local laws, rules, regulations, ordinances and orders applicable to or
pertaining to their Properties or business operations, non-compliance with which
could have a material adverse effect on the financial condition, Properties,
business or operations of the Company or any Subsidiary or could result in a
Lien upon any of their Property.
Section 8.21. Burdensome Contracts With Affiliates. The Company shall
not, nor shall it permit any Subsidiary to, enter into any contract, agreement
or business arrangement with any of its Affiliates on terms and conditions which
are less favorable to the Company or such
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Subsidiary than would be usual and customary in similar contracts, agreements or
business arrangements between Persons not affiliated with each other, except for
the Company's existing arrangements with Jim Busby referenced in Section 6.12
above.
Section 8.22. No Changes in Fiscal Year. Neither the Company nor any
Subsidiary shall change its fiscal year from its present basis without the prior
written consent of the Bank; provided, however, that the foregoing shall neither
apply to nor operate to prevent the Company from changing its fiscal year so as
to end on March 31 if such change is substantially concurrent with a similar
modification in the fiscal year of the Company's other Subsidiaries and the
Company shall enter into such instruments and documents as the Bank shall
reasonably require to confirm and assure that compliance with the terms and
conditions of the Loan Documents is not affected by such change in the Company's
fiscal year.
Section 8.23. Formation of Subsidiaries. Except for existing Subsidiaries
designated on Schedule 6.2 hereto, the Company shall not, nor shall it permit
any Subsidiary to, form or acquire any Subsidiary without the prior written
consent of the Bank, which consent shall not be unreasonably withheld.
Section 8.24. Change in the Nature of Business. The Company shall not, and
shall not permit any Subsidiary to, engage in any business or activity if as a
result the general nature of the business of the Company or any Subsidiary would
be changed in any material respect from the general nature of the business
engaged in by the Company or such Subsidiary on the date of this Agreement.
Section 8.25. Year 2000 Assessment. The Company shall take all actions
necessary and commit adequate resources to assure that its computer-based and
other systems (and those of all Subsidiaries) are able to effectively process
dates, including dates before, on and after January 1, 2000, without
experiencing any Year 2000 Problem that could reasonably be expected to cause a
material adverse effect on the business or financial affairs of the Company (or
of the Company and its Subsidiaries taken on a consolidated basis). At the
request of the Bank, the Company will provide the Bank with written assurances
and substantiations (including, but not limited to, the results of internal or
external audit reports prepared in the ordinary course of business) reasonably
acceptable to the Bank as to the capability of the Company and its Subsidiaries
to conduct its and their businesses and operations before, on and after January
1, 2000, without experiencing a Year 2000 Problem causing a material adverse
effect on the business or financial affairs of the Company and its Subsidiaries
as a whole.
Section 8.26. Amendments to Subordinated Indebtedness. The Company will
not, and will not permit any Subsidiary to, amend or modify the terms and
conditions applicable to any Subordinated Indebtedness, except the Company may
agree to a decrease in the interest rate applicable thereto or to a deferral of
repayment of any of the principal of or interest on the Subordinated
Indebtedness beyond the current due dates therefor.
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Section 9. Events of Default and Remedies.
Section 9.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" hereunder:
(a) default in the payment when due of all or any part of any
Obligation payable by the Company hereunder or under any other Loan
Document (whether at the stated maturity thereof or at any other time
provided for in this Agreement), or default shall occur in the payment when
due of any other indebtedness or obligation (whether direct, contingent or
otherwise) of the Company owing to the Bank; or
(b) default in the observance or performance of any covenant set
forth in Sections 8.5, 8.7, 8.8, 8.9, 8.10, 8.11, 8.13, 8.14, 8.15, 8.16,
8.18, 8.19 and 8.26 hereof or of any provision of any Loan Document
requiring the maintenance of insurance on the Collateral subject thereto or
dealing with the use or remittance of proceeds of Collateral; or
(c) default in the observance or performance of any other provision
hereof or of any other Loan Document which is not remedied within thirty
(30) days after the earlier of (i) the date on which such failure shall
first become known to any officer of the Company or (ii) written notice
thereof is given to the Company by the Bank; or
(d) any representation or warranty made by the Company herein or in
any other Loan Document, or in any statement or certificate furnished by it
pursuant hereto or thereto, or in connection with any extension of credit
made hereunder, proves untrue in any material respect as of the date of the
issuance or making thereof; or
(e) any event occurs or condition exists (other than those
described in subsections (a) through (d) above) which is specified as an
event of default under any of the other Loan Documents, or any of the Loan
Documents shall for any reason not be or shall cease to be in full force
and effect, or any of the Loan Documents is declared to be null and void,
or any of the Collateral Documents shall for any reason fail to create a
valid and perfected first priority Lien in favor of the Bank in any
Collateral purported to be covered thereby except as expressly permitted by
the terms thereof; or
(f) default shall occur under (i) the Mobile Lease beyond any
applicable cure period and to the extent not waived in writing by the
Landlord (as defined therein) or (ii) any Indebtedness for Borrowed Money
in an aggregate amount exceeding $1,000,000 issued, assumed or guaranteed
by the Company or any Subsidiary, or under any indenture, agreement or
other instrument under which the same may be issued, and such default shall
continue for a period of time sufficient to permit the acceleration of the
maturity of any such Indebtedness for Borrowed Money (whether or not such
maturity is in fact accelerated), or any such Indebtedness for Borrowed
Money shall not be paid when due (whether by lapse of time, acceleration or
otherwise); or
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(g) any judgment or judgments, writ or writs, or warrant or
warrants of attachment, or any similar process or processes in an aggregate
amount in excess of $1,000,000 shall be entered or filed against the
Company or any Subsidiary or against any of their Property and which
remains unvacated, unbonded, unstayed or unsatisfied for a period of thirty
(30) days; or
(h) the Company or any member of its Controlled Group shall fail to
pay when due an amount or amounts aggregating in excess $1,000,000 which it
shall have become liable to pay to the PBGC or to a Plan under Title IV of
ERISA; or notice of intent to terminate a Plan or Plans having aggregate
Unfunded Vested Liabilities in excess of $1,000,000 (collectively, a
"Material Plan") shall be filed under Title IV of ERISA by the Company or
any other member of its Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan or a proceeding shall be instituted by a
fiduciary of any Material Plan against the Company or any member of its
Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA and such
proceeding shall not have been dismissed within thirty (30) days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Material Plan must be
terminated; or
(i) dissolution or termination of existence of the Company or
(except as permitted by Section 8.1 hereof) and Subsidiary; or
(j) there shall occur any material adverse change in the condition
(financial or otherwise) or business prospects of the Company or any
Subsidiary; or
(k) any Change of Control shall occur; or
(l) the duties and functions of chief executive officer of the
Company are not performed by Ed Lucente for a period in excess of three
consecutive calendar months for any reason (including death, resignation,
retirement or incapacity) and a new chief executive officer acceptable to
the Bank shall not commence performance of the duties and functions of that
office within said three month period, provided that such acceptance of the
new chief executive by the Bank shall not be unreasonably withheld; or
(m) any agreement or instrument purporting to subordinate payment
of any Subordinated Indebtedness to the prior payment of the Loans or any
other Obligations shall be terminated or shall otherwise cease to have full
force and effect; or
(n) the Company or any Subsidiary makes any payment on account of
the principal of or interest on any indebtedness which payment is
prohibited under the terms of any agreement or instrument subordinating
such indebtedness to the Loans or any other Obligations; or
(o) any payment or distribution of principal or interest shall be
made on or in respect of, or the Company or any Subsidiary shall acquire,
prepay or retire, any
-45-
<PAGE>
Subordinated Indebtedness, in each case prior to the stated maturity
thereof or prior to any other times required for payment thereof as are in
force and effect as of the date hereof; or
(p) the Company or any Subsidiary shall (i) have entered
involuntarily against it an order for relief under the United States
Bankruptcy Code, as amended, or any analogous action is taken under any
other applicable law relating to bankruptcy or insolvency, (ii) not pay, or
admit in writing its inability to pay, its debts generally as they become
due, (iii) make an assignment for the benefit of creditors, (iv) apply for,
seek, consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for it or any
substantial part of its Property, (v) institute any proceeding seeking to
have entered against it an order for relief under the United States
Bankruptcy Code, as amended, to adjudicate it insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail to
file an answer or other pleading denying the material allegations of any
such proceeding filed against it, (vi) take any corporate action in
furtherance of any matter described in parts (i) through (v) above, or
(vii) fail to contest in good faith any appointment or proceeding described
in Section 9.1(q) hereof;
(q) a custodian, receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Company or any Subsidiary or any
substantial part of any of their Property, or a proceeding described in
Section 9.1(p)(v) shall be instituted against the Company or any
Subsidiary, and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of thirty (30) days.
Section 9.2. Non-Bankruptcy Defaults. When any Event of Default described
in subsection (a) through (o), both inclusive, of Section 9.1 has occurred and
is continuing, the Bank may, by notice to the Company, take one or more of the
following actions:
(a) terminate the obligation of the Bank to extend any further
credit hereunder on the date (which may be the date thereof) stated in such
notice;
(b) declare the principal of and the accrued interest on the
Revolving Credit Note to be forthwith due and payable and thereupon the
Revolving Credit Note, including both principal and interest and all fees,
charges and other Obligations payable hereunder and under the other Loan
Documents, shall be and become immediately due and payable without further
demand, presentment, protest or notice of any kind; and
(c) enforce any and all rights and remedies available to it under
the Loan Documents or applicable law.
Section 9.3. Bankruptcy Defaults. When any Event of Default described in
subsection (p) or (q) of Section 9.1 has occurred and is continuing, then the
Revolving Credit Note, including both principal and interest, and all fees,
charges and other Obligations payable hereunder and under the other Loan
Documents, shall immediately become due and payable
-46-
<PAGE>
without presentment, demand, protest or notice of any kind, and the obligation
of the Bank to extend further credit pursuant to any of the terms hereof shall
immediately terminate. In addition, the Bank may exercise any and all remedies
available to it under the Loan Documents or applicable law.
Section 9.4. Collateral for Undrawn Letters of Credit. When any Event of
Default, other than an Event of Default described in subsections (p) or (q) of
Section 9.1, has occurred and is continuing, the Company shall, upon demand of
the Bank, and when any Event of Default described in subsections (p) or (q) of
Section 9.1 has occurred the Company shall, without notice or demand from the
Bank, immediately pay to the Bank the full amount of each Letter of Credit then
outstanding, the Company agreeing to immediately make such payment and
acknowledging and agreeing that the Bank would not have an adequate remedy at
law for failure of the Company to honor any such demand and that the Bank shall
have the right to require the Company to specifically perform such undertaking
whether or not any draws have been made under any such Letters of Credit.
Section 10. Miscellaneous.
Section 10.1. Non-Business Days. If any payment hereunder becomes due and
payable on a day which is not a Business Day, the due date of such payment shall
be extended to the next succeeding Business Day on which date such payment shall
be due and payable. In the case of any payment of principal falling due on a day
which is not a Business Day, interest on such principal amount shall continue to
accrue during such extension at the rate per annum then in effect, which accrued
amount shall be due and payable on the next scheduled date for the payment of
interest.
Section 10.2. No Waiver, Cumulative Remedies. No delay or failure on the
part of the Bank in the exercise of any power or right shall operate as a waiver
thereof or as an acquiescence in any default, nor shall any single or partial
exercise of any power or right preclude any other or further exercise thereof or
the exercise of any other power or right. The rights and remedies hereunder of
the Bank are cumulative to, and not exclusive of, any rights or remedies which
it would otherwise have.
Section 10.3. Amendments, Etc. No amendment, modification, termination or
waiver of any provision of this Agreement or of any other Loan Document, nor
consent to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Bank. No notice
to or demand on the Company in any case shall entitle the Company to any other
or further notice or demand in similar or other circumstances.
Section 10.4. Costs and Expenses. The Company agrees to pay on demand the
reasonable costs and expenses of the Bank in connection with the negotiation,
preparation, execution and delivery of this Agreement and the other Loan
Documents and the other instruments and documents to be delivered thereunder,
and in connection with the recording and filing of any of the foregoing as well
as in connection with lien searches from time to time obtained by the Bank in
its administration of the credit facilities provided for herein, and in
connection with the transactions contemplated hereby or thereby, and in
connection with any consents hereunder and
-47-
<PAGE>
any waivers or amendments hereto or thereto, including the reasonable fees and
expenses of Messrs. Chapman and Cutler, counsel for the Bank, with respect to
all of the foregoing (whether or not the transactions contemplated hereby are
consummated). The Company further agrees to pay to the Bank or any other holder
of the Obligations all reasonable costs and expenses (including court costs and
attorneys' fees), if any, incurred or paid by the Bank or any other holder of
the Obligations in connection with any Default or Event of Default or in
connection with the enforcement of this Agreement or any other Loan Document or
any other instrument or document delivered thereunder. The Company further
agrees to indemnify the Bank, and any security trustee, and their respective
directors, officers and employees, against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including, without limitation,
all reasonable expenses of litigation or preparation therefor, whether or not
the indemnified person is a party thereto) which any of them may pay or incur
arising out of or relating to any Loan Document or any of the transactions
contemplated thereby or the direct or indirect application or proposed
application of the proceeds of any extension of credit made available hereunder,
other than those which arise from the gross negligence or willful misconduct of
the party claiming indemnification. The Company, upon demand by the Bank at any
time, shall reimburse the Bank for any reasonable legal or other expenses
incurred in connection with investigating or defending against any of the
foregoing except if the same is directly due to the gross negligence or willful
misconduct of the party to be indemnified. The obligations of the Company under
this Section 10.4 shall survive the termination of this Agreement.
Section 10.5. Documentary Taxes. The Company agrees to pay on demand any
documentary, stamp or similar taxes payable in respect of this Agreement or any
other Loan Document, including interest and penalties, in the event any such
taxes are assessed, irrespective of when such assessment is made and whether or
not any credit is then in use or available hereunder.
Section 10.6. Survival of Representations. All representations and
warranties made herein or in any of the other Loan Documents or in certificates
given pursuant hereto or thereto shall survive the execution and delivery of
this Agreement and the other Loan Documents, and shall continue in full force
and effect with respect to the date as of which they were made as long as any
credit is in use or available hereunder.
Section 10.7. Notices. Except as otherwise specified herein, all notices
hereunder shall be in writing (including cable, telecopy or telex) and shall be
given to the relevant party at its address, telecopier number or telex number
set forth below, or such other address, telecopier number or telex number as
such party may hereafter specify by notice to the other given by United States
certified or registered mail, by telecopy or by other telecommunication device
capable of creating a written record of such notice and its receipt. Notices
hereunder shall be addressed:
-48-
<PAGE>
to the Company at:
One Magnum Pass
Mobile, Alabama 36618
Attention: Chief Financial Officer
Telephone: (334) 633-4300 Ext. 1400
Telecopy: (334) 633-8729
(with a copy in case of notices of default to:
Hand Arendall, L.L.C.
3000 AmSouth Bank Building
107 St. Francis Street
Mobile, Alabama 36602
Attention: Gregory R. Jones, Esq.
Telephone: (334) 432-5511
Telecopy: (334) 694-6375
to the Bank at:
Harris Trust and Savings Bank
P.O. Box 755
111 West Monroe Street
Chicago, Illinois 60690
Attention: Commercial Finance Group
Telephone: (312) 461-2116
Telecopy: (312) 765-1641
Telex: 254157
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section 10.7 and a confirmation of such telecopy has been
received by the sender, (ii) if given by telex, when such telex is transmitted
to the telex number specified in this Section 10.7 and the answerback is
received by sender, (iii) if given by mail, five (5) days after such
communication is deposited in the mail, certified or registered with return
receipt requested, addressed as aforesaid, or (iv) if given by any other means,
when delivered at the addresses specified in this Section 10.7; provided that
any notice given pursuant to Section 1 hereof shall be effective only upon
receipt.
Section 10.8. Participations. The Bank may grant participations in its
extensions of credit hereunder to any other bank or other lending institution (a
"Participant"), provided that (i) no Participant shall thereby acquire any
direct rights under this Agreement or the other Loan Documents and (ii) unless
the Company so consents, no sale of such a participation in extensions of credit
hereunder shall in any manner relieve the Bank of its obligations hereunder.
-49-
<PAGE>
Section 10.9. Construction. The provisions of this Agreement relating to
Subsidiaries shall only apply during such times as the Company has one or more
Subsidiaries. Nothing contained herein shall be deemed or construed to permit
any act or omission which is prohibited by the terms of any of the other Loan
Documents, the covenants and agreements contained herein being in addition to
and not in substitution for the covenants and agreements contained in the other
Loan Documents.
Section 10.10. Headings. Section headings used in this Agreement are for
convenience of reference only and are not a part of this Agreement for any other
purpose.
Section 10.11. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 10.12. Counterparts. This Agreement may be executed in any number
of counterparts, and by different parties hereto on separate counterpart
signature pages, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 10.13. Binding Nature, Governing Law, Etc. This Agreement shall be
binding upon the Company and its successors and assigns, and shall inure to the
benefit of the Bank and the benefit of its successors and assigns, including any
subsequent holder of the Obligations. The Company may not assign its rights
hereunder without the written consent of the Bank. This Agreement constitutes
the entire understanding of the parties with respect to the subject matter
hereof and any prior agreements, whether written or oral, with respect thereto
are superseded hereby. This Agreement and the rights and duties of the parties
hereto shall be governed by, and construed in accordance with, the internal laws
of the State of Illinois without regard to principles of conflicts of laws.
Section 10.14. Submission to Jurisdiction; Waiver of Jury Trial. The
Company hereby submits to the nonexclusive jurisdiction of the United States
District Court for the Northern District of Illinois and of any Illinois State
court sitting in the City of Chicago for purposes of all legal proceedings
arising out of or relating to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby. The Company irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum. The Company and the Bank each hereby irrevocably waive
any and all right to trial by jury in any legal proceeding arising out of or
relating to any Loan Document or the transactions contemplated thereby.
-50-
<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this 19th day of August, 1999.
QMS, Inc.
By: /s/ Albert A. Butler
-------------------------------------
Name: Albert A. Butler
--------------------------------
Title: Sr. Vice President CFO
-------------------------------
Accepted and agreed to in Chicago, Illinois as of the day and year last
above written.
Harris Trust and Savings Bank
By: /s/ Haren P. Buck
-------------------------------------
Name: Haren P. Buck
--------------------------------
Title: Vice President
-------------------------------
-51-
<PAGE>
Exhibit A
QMS, Inc.
Revolving Credit Note
Chicago, Illinois
$20,000,000 August 19, 1999
On the Termination Date, for value received, the undersigned, QMS, INC., a
Delaware corporation (the "Company"), hereby promises to pay to the order of
HARRIS TRUST AND SAVINGS BANK (the "Bank") at its office at 111 West Monroe
Street, Chicago, Illinois, the principal sum of (i) TWENTY MILLION and no/100
DOLLARS ($20,000,000), or (ii) such lesser amount as may at the time of the
maturity hereof, whether by acceleration or otherwise, be the aggregate unpaid
principal amount of all Loans owing from the Company to the Bank under the
Revolving Credit provided for in the Credit Agreement hereinafter mentioned.
This Note evidences Loans made and to be made to the Company by the Bank
under the Revolving Credit provided for under that certain Credit Agreement
dated as of August 19, 1999 between the Company and the Bank (said Credit
Agreement, as the same may be amended, modified or restated from time to time,
being referred to herein as the "Credit Agreement"), and the Company hereby
promises to pay interest at the office specified above on each Loan evidenced
hereby at the rates and at the times and in the manner specified therefor in the
Credit Agreement.
Each Loan made against this Note and any repayment of principal hereon
shall be endorsed by the holder hereof on a schedule to this Note or recorded on
the books and records of the holder hereof (provided that such entries shall be
endorsed on a schedule to this Note prior to any negotiation hereof), and the
Company agrees that in any action or proceeding instituted to collect or enforce
collection of this Note, the entries endorsed on a schedule to this Note or
recorded on the books and records of the holder hereof shall be prima facie
evidence of the unpaid principal balance of this Note.
This Note is issued by the Company under the terms and provisions of the
Credit Agreement and is secured by, among other things, the Collateral
Documents, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, to which
reference is hereby made for a statement thereof. This Note may be declared to
be, or be and become, due prior to its expressed maturity, voluntary prepayments
may be made hereon, and certain prepayments are required to be made hereon, all
in the events, on the terms and with the effects provided in the Credit
Agreement. All capitalized terms used herein without definition shall have the
same meanings herein as such terms are defined in the Credit Agreement.
<PAGE>
The Company hereby promises to pay all costs and expenses (including
attorneys' fees) suffered or incurred by the holder hereof in collecting this
Note or enforcing any rights in any collateral therefor. The Company hereby
waives presentment for payment and demand. This Note shall be construed in
accordance with, and governed by, the internal laws of the State of Illinois
without regard to principles of conflicts of laws.
QMS, Inc.
By:_____________________________________
Name:________________________________
Title:_______________________________
-2-
<PAGE>
Harris Bank
Exhibit B
Borrowing Base Certificate
Report Number ____________ Date ____________
Total Approved Revolving Line $___________ Maximum Inventory Loan $__________
<TABLE>
<CAPTION>
==========================================================
Accounts Receivable Update
==========================================================
<S> <C>
Additions:
(A) New Sales (See Attached) __________
(B) Miscellaneous (+) __________
Total Gross Additions (2) __________
Deductions:
(A) Collections (See Attached) __________
(B) Discounts Allowed __________
(C) Credit Memos __________
(D) Miscellaneous (-) __________
Total Gross Deductions (3) __________
=========================================================
<CAPTION>
=========================================================
Loan Balance Update
=========================================================
<S> <C>
Loan Outstanding as of _____
From Previous Report # __________
Less Collections __________
Additional Advance Requested __________
New Loan Balance This Report __________
Plus L/C or Other Reserves __________
Total Loans and Other Liabilities Carry to __________
Line 12
=========================================================
<CAPTION>
========================================================================
Collateral Status
========================================================================
Raw matrl. Spare
and finished Parts &
Accounts goods refurbished
Receivbl. Inventory Inventory
- ------------------------------------------------------------------------
<S> <C> <C> <C>
As of Date MM/DD/YY MM/DD/YY MM/DD/YY
-------- -------- --------
- ------------------------------------------------------------------------
(1) Previous Collateral
Balance
- ------------------------------------------------------------------------
(2) + Additions
- ------------------------------------------------------------------------
(3) - Collections/Deductions
- ------------------------------------------------------------------------
(4) = New Collateral Balance
- ------------------------------------------------------------------------
(5) Less Total Ineligibles
as of ________
- ------------------------------------------------------------------------
(6) = Eligible Collateral
- ------------------------------------------------------------------------
(7) x Rate of Advance 80% 40%* 25%*
- ------------------------------------------------------------------------
(8) = Loan Value (A) (B) (C)
- ------------------------------------------------------------------------
(9) Total Loan Value =
A/R + Inv:
A+B+C
- ------------------------------------------------------------------------
(10) Maximum Borrowing Limit =
Lesser of Total Loan Value
OR Total Approved Revolving Line
- ------------------------------------------------------------------------
(11) Less Total Loans and Other Liabilities
- ------------------------------------------------------------------------
(12) New Availability
(Line 10 minus 11)
========================================================================
</TABLE>
Pursuant to the terms of the Credit Agreement dated as of August 19, 1999
between us (the "Credit Agreement"), we submit this Borrowing Base Certificate
to you and certify that the information set forth above and on any attachments
to this Certificate is true, correct and complete as of the date of this
Certificate.
Borrower: QMS, Inc.
Authorized Signer: _____________________
* An overall inventory cap on all inventory of $10,000,000. At no time shall the
portion of Eligible Inventory exceed 50% of the Borrowing Base as then
determined.
<PAGE>
Exhibit C
Compliance Certificate
This Compliance Certificate is furnished to Harris Trust and Savings Bank
(the "Bank") pursuant to that certain Credit Agreement dated as of August 19,
1999, by and between QMS, Inc. (the "Company") and the Bank (the "Credit
Agreement"). Unless otherwise defined herein, the terms used in this Compliance
Certificate have the meanings ascribed thereto in the Credit Agreement.
The Undersigned hereby certifies that:
1. I am the duly elected _____________________________________ of
the Company;
2. I have reviewed the terms of the Credit Agreement and I have
made, or have caused to be made under my supervision, a detailed review of
the transactions and conditions of the Company and its Subsidiaries during
the accounting period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or the occurrence of
any event which constitutes a Default or Event of Default during or at the
end of the accounting period covered by the attached financial statements
or as of the date of this Certificate, except as set forth below;
4. The financial statements required by Section 8.5 of the Credit
Agreement and being furnished to you concurrently with this certificate
are, to the best of my knowledge, true, correct and complete as of the
dates and for the periods covered thereby; and
5. The Attachment hereto sets forth financial data and computations
evidencing the Company's compliance with certain covenants of the Credit
Agreement, all of which data and computations are, to the best of my
knowledge, true, complete and correct and have been made in accordance with
the relevant Sections of the Credit Agreement.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Company has taken, is taking, or proposes to
take with respect to each such condition or event:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
<PAGE>
The foregoing certifications, together with the computations set forth
in the Attachment hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this _________ day of
______________, ____.
QMS, Inc.
By
Name:_________________________________
Title:________________________________
-2-
<PAGE>
Attachment to Compliance Certificate
QMS, Inc.
Compliance Calculations for Credit Agreement
Dated as of August 19, 1999
Calculations as of _____________, 19___
________________________________________________________________________________
<TABLE>
<S> <C>
A. Tangible Net Worth (Section 8.7)
-------------------------------
1. Total shareholder's equity $___________
A1
2. Sum of:
(i) intangibles $___________
(ii) write-up of assets $___________ $___________
A2
3. Line A1 minus Line A2 $___________
A3
4. Subordinated Debt $___________
A4
5. Line A3 plus Line A4 $___________
(Tangible Net Worth) A5
6. Line A6 must be greater than or equal to $___________
B. Unamortized Capitalized Software Development Costs (Section 8.8)
----------------------------------------------------------------
1. Unamortized Capitalized Software Development
Costs for fiscal year $___________
2. Line B2 must not be more than $___________
</TABLE>
<PAGE>
<TABLE>
<S> <C>
C. Fixed Charge Coverage Ratio (Section 8.9)
-----------------------------------------
1. Net Income for past 4 quarters $___________
C1
2. Interest Expense for past 4 quarters $___________
C2
3. Federal, state and local income $___________
taxes for past 4 quarters C3
4. Depreciation and Amortization for past 4 quarters $___________
C4
5. Add Lines C1, C2, C3 and C4 $___________
(EBITDA) C5
6. Principal payments for past 4 quarters $___________
C6
7. Interest Expense for past 4 quarters (Line C2 above) $___________
C7
8. Capital Expenditures (other than for capitalized
software development) for past 4 quarters $___________
C8
9. Add Lines C6, C7 and C8 $___________
(Fixed Charges) C9
10. Ratio of Line C5 to Line C9 _______:1.0
11. Line C10 ratio must not be less than _______:1.0
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
D. Capital Expenditures (Section 8.10)
-----------------------------------
1. Capital Expenditures (other than for software
development) for month $___________
D1
2. Capital Expenditures fiscal year to date $___________
D2
3. Line D2 must be less than or equal to $___________
E. Software Development Expenditures (Section 8.11)
1. Software Development Expenditures for month $___________
E1
2. Software Development Expenditures for fiscal $___________
year to date E2
3. Line E2 must be less than or equal to $___________
F. Indebtedness for Borrowed Money (Section 8.12)
1. Purchase Money Indebtedness $___________
F1
2. Capitalized Lease Obligations $___________
F2
3. Add Lines F1 and F2 $___________
F3
4. Line F3 must be less than or equal to $___________
G2
</TABLE>
-3-
<PAGE>
Exhibit D
Maximum MagiColor Slow Moving Amount
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
As Of As Of As Of As Of As of
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Type of Inventory August 31, 1999 September 30, 1999 October 31, 1999 November 30, 1999 December 31, 1999
- ---------------------------------------------------------------------------------------------------------------------
Engines 3,844 3,197 2,595 1,973 1,313
- ---------------------------------------------------------------------------------------------------------------------
Print Systems 170 151 152 170 153
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 6.2
Subsidiaries of QMS, Inc.
<TABLE>
<CAPTION>
Jurisdiction of Percentage
Name Incorporation Ownership
<S> <C> <C>
QMS Circuits, Inc. Florida 100%
QMS Kabushiki Kaisha Tokyo, Japan 100%
QMS Canada, Inc. Ontario, Canada 100%
QMS Europe B.V. Netherlands 100%
QMS Australia Pty, Ltd. Australia 100%
<CAPTION>
Subsidiaries of QMS Europe B.V.
QMS GmbH Munich, Germany 100%
QMS SARL Paris, France 100%
QMS (UK) Ltd. Egham, United Kingdom 100%
QMS Nordic AB Stockholm, Sweden 100%
</TABLE>
<PAGE>
Schedule 8.13
Indebtedness
1. Three (3) Loan Agreements, dated as of January 22, 1999 and January 25,
1999, by and among ING Bank Corporate Investments B.V. and NMB-Heller
N.V., QMS Europe, Alto Imaging Group N.V. and Jalak Investments B.V.
2. Agreement on Advances and the Provision of Services, Also Being a General
Deed of Pledge, dated as of February 8, 1999, by and between NMB-Heller
N.V. and QMS Europe.
<PAGE>
EXHIBIT 10(t)(iv)
WAIVER AGREEMENT & LEASE AMENDMENT
WAIVER AGREEMENT AND LEASE AMENDMENT (the "Waiver Agreement"), made as of
this 7th day of June, 1999, between INK (AL) QRS 12-21, INC., an Alabama
corporation ("Landlord"), with an address c/o W.P. Carey & Co., Inc., 50
Rockefeller Plaza, 2nd Floor, New York, New York 10020, and QMS INC., a Delaware
corporation ("Tenant"), with an address at One Magnum Pass, Mobile, Alabama
36618.
WITNESSETH
----------
WHEREAS, Landlord and Tenant entered into a Lease Agreement made as of the
18th day of February, 1997, (the "Lease Agreement"), for certain property
located in Mobile County, Alabama (the "Leased Premises");
WHEREAS, the Lease Agreement provides for the payment of rents by Tenant to
Landlord and for Tenant's compliance with certain financial covenants;
WHEREAS, Tenant desires to exercise a purchase option (the "Purchase
Option") Tenant has to re-acquire QMS Europe B.V. and QMS Australia Pty Ltd
(together the "Affiliated Companies");
WHEREAS, Tenant desires to enter into certain strategic and financial
relationships (the "Minolta Transaction") with Minolta Co., Ltd. ("Minolta") as
attached hereto as Exhibit A;
WHEREAS, Tenant intends to enter into a certain banking relationship (the
"Debt Transaction") by July 31, 1999 (the "Credit Facility");
WHEREAS, Tenant anticipates the Tenant will not be in compliance with a
certain financial covenant because of the Minolta Transaction and/or the Debt
Transaction;
WHEREAS, Tenant prepaid certain rent in the amount of $1,300,000 (the
"Prepaid Rent") pursuant to a Waiver Agreement dated December 8, 1997, and was
to have such Prepaid Rent applied to future rent payments due on December 1,
1998 through September 7, 1999;
WHEREAS, Tenant and Landlord subsequently agreed that the Prepaid Rent was
to be applied to the rent payments due from Tenant on December 1, 1999; March 1,
2000; and June 1, 2000; and the balance of $32,968.75 applied against the rent
payment due from Tenant on September 1, 2000.
In consideration of the rents and provisions herein stipulated to be paid
and performed, Landlord and Tenant hereby covenant and agree as follows:
<PAGE>
1. Prepaid Rent
------------
Tenant shall provide Landlord with a security deposit in the amount of
$1,300,000 (the "Security Deposit"). The prepaid Rent shall be applied
to fund the Security Deposit.
The Security Deposit shall be released back to Tenant at such time as
Tenant achieves a credit rating of BB or Ba2 from S&P ("Required
Rating") or Moody's, respectively, so long as, if at the time Tenant
achieves the Required Rating Tenant has a split credit rating, the
split is not greater than one notch. For example, if Tenant's credit
ratings are BB and Ba1, the Security Deposit shall not be released. If
the latter is Baa3 and the former remains BB, the Security Deposit
shall be released to Tenant.
Tenant shall continue to pay rent in accordance with the Lease
Agreement, including the periods for which the Prepaid Rent was
previously to be applied (i.e., December 1, 1999; March 1, 2000; and
June 1, 2000; and the partial payment due on September 1, 2000).
2. Financial Covenant (Exhibit G) Amendments.
-----------------------------------------
A) Upon full execution of this Waiver Agreement and the attached
lender consent form, Paragraph 6 of the financial covenants
specified in Exhibit G of the Lease Agreement shall be modified
as follows:
From the date hereof until December 31, 1999; Tenant's Debt to
Equity Ratio ("the Ratio") shall not exceed of 1.25:1.00. From
January 1, 2000 through December 31, 2001, Tenant's Ratio shall
not exceed 1.0:1.0. From January 1, 2002 through December 31,
2002, Tenant's Ratio shall not exceed .75:1.00. Thereafter,
Tenant's Ratio shall not exceed .50:1.0. If Tenant's Ratio
exceeds the applicable ratios during the applicable time period,
an Event of Default shall exist under the Lease Agreement. This
test shall be a quarterly test. That is, on the last day of each
quarter during the above time periods, Tenant must be in
compliance with the related ratio.
B) The following covenant shall be added as Section 9 to Exhibit G:
---------
"9.
If Minolta, its affiliates, related parties, successors or
assigns, together or individually, acquire or control more than
66.6% of Tenant's outstanding common stock, an Event of Default
shall exist under the Lease Agreement."
<PAGE>
3. Execution of Counterparts.
-------------------------
This Waiver Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts each of
which, when so executed, shall be deemed an original, but all
counterparts shall constitute but one and the same instrument.
4. Other.
-----
A) This Waiver Agreement is conditional upon (a) the consummation of
the Minolta Transaction, excluding the Tender Offer described
---------
therein, by no later than June 18, 1999; (b) the consummation of
the Tender Offer described in the Minolta Transaction no later
than October 1, 1999; and (c) Lessee's receipt of fully-executed
documents associated therewith.
B) Tenant represents and warrants that all loans, credit facilities
and similar borrowings of Affiliated Companies ("Affiliate
Borrowings") are and will remain non recourse to Tenant.
C) Tenant, shall no later than 30 days from the date hereof, shall
provide Landlord with executed copies of all documentation
associated to the Minolta Transaction and Affiliated Borrowings.
D) Tenant will pay all costs of Landlord's counsel within five days
of receipt of invoice.
Additionally, not later than 30 days following Tenant's closing of the
Debt Transaction, Tenant shall provide Landlord with copies of all
documents associated therewith.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Waiver Agreement
to be duly executed as of the day and year first above written.
LANDLORD:
INK (AL) QRS 12-21, INC. an Alabama
corporation
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: First Vice President
TENANT:
QMS, INC., a Delaware corporation
By: /s/ Edward E. Lucente
-------------------------------------
Title: President
<PAGE>
CONSENT
Creditanstalt Bankverein, an Austrian banking corporation, as Assignee,
pursuant to the Assignment of Rentals and Leases dated February 18, 1997,
recorded in Real Property Book 4441, page 0693, in the records in the Office of
the Judge of Probate for Mobile County, Alabama, does hereby consent to terms
and conditions of the Waiver Agreement made as of June 7, 1999, between INK (AL)
QRS 12-21, Inc. and QMS, Inc.
Consent given this 7 day of June, 1999.
CREDITANSTALT BANKVEREIN
By: /s/ Scott Kray
------------------------------------
Title: VP
----------------------------------
Scott Kray
-----------------------------------
/s/ Gary W. Andresen
-----------------------------------
Associate
-----------------------------------
Gary W. Andresen
-----------------------------------
<PAGE>
EXHIBIT A
as of 99/06/17 15:07
Summary of Terms
1. Proposed Acquisition Credit Facility - Term Loan
- ----------------------------------------------------
Borrower: QMS Inc., a Delaware corporation
Lender: Minolta Co., Ltd., a Japanese corporation or affiliate
("Minolta")
Amount: $12,800,000
Term: Four (4) year
Amortization: Year 1: No amortization
Year 2 - 4: Equal monthly installments (355,500 x 35 +
357,500 x 1)
Purpose: To finance the acquisition of QMS Europe B.V. ("BV") and
QMS Australia Pty. Ltd. ("Australia"), to pay fees and
expenses and to refinance existing Foothill Capital
Corporation Credit Facility.
Security: Pledge of capital stock of BV and Australia
Interest: Thirty (30) day LIBOR + 2.50% payable monthly in arrears
Intercreditor issues: Pari pasu with secured working capital facility which
facility shall be on terms reasonably acceptable to
Minolta
Change of Control: Mandatory prepayment upon change of the control of
Borrower (other than Minolta)
Closing: Conditioned upon and simultaneous with acquisition of BV
and Australia
2. Proposed Purchase of Common Stock
- -------------------------------------
Issue: Common stock, par value $.01 per share, of QMS, Inc.
Purchaser: Minolta Co., Ltd. or wholly-owned subsidiary
Amount: 19.9% of outstanding QMS common stock (approximately 2.129
million shares)
Purchase Price: $5.75 per share (aggregate price of approximately $12.24
million)
Purpose: To finance acquisition of BV and Australia and to pay
related fees and expenses and to refinance existing
Foothill Capital Corporation Credit Facility
Closing: Conditioned upon and simultaneous with acquisition of BV
and Australia
Shareholder rights: Amendment of Rights Plan to exclude Minolta from
definition of "Acquiring Person"
Board of Directors: 2 Minolta designees to be added upon closing
<PAGE>
3. Proposed Tender Offer
- -------------------------
Purchaser: Minolta Co., Ltd or wholly-owned subsidiary
Securities: Common stock, par value $.01 per share, of QMS, Inc.
Price: To be determined but not less than $6.25 per share
Amount: Number of shares necessary for Minolta to own 51% of shares on a
fully-diluted basis (approximately 5.43 million) or such other
amount reasonably determined by Minolta
Board of Directors: 9 directors: 5 designated by Minolta
2 members of management
2 outside directors
<PAGE>
Promissory Note
QMS, Inc.
Minolta Co., Ltd.
Exhibit 10(x)(v)
PROMISSORY NOTE
QMS, Inc.
November 10, 1999
U.S. $15,000,000
Lender: Minolta Co., Ltd.
For value received, the undersigned, QMS, Inc., a Delaware corporation (the
"Borrower"), promises to pay to the order of the Lender set forth above (the
"Lender"), the principal sum of FIFTEEN MILLION UNITED STATES DOLLARS (US
$15,000,000) plus interest payable at such times, and in such amounts, to be
specified in the Loan Agreement to be executed by and between Lender and
Borrower by December 10, 1999 (including all annexes, exhibits and schedules
thereto and as the same may be amended, restated, modified or supplemented from
time to time, the "Second Loan Agreement").
Each of Lender and Borrower agrees to negotiate in good faith and use reasonable
commercial efforts to complete and execute the Second Loan Agreement on or prior
to December 10, 1999, which shall include the following summary terms and any
other terms agreed between Lender and Borrower and approved by the respective
Boards of Directors:
Summary Terms
Borrower: QMS Inc., a Delaware corporation
Lender: Minolta Co., Ltd., a Japanese corporation
Amount: $15,000,000
Term: Four (4) years
Amortization: Year 1: No amortization
Year 2 - 4: Equal monthly installments ($416,600 x 35 +
$419,000 x 1)
Purpose: Working Capital
Security: Pledge of capital stock of QMS BV and QMS Australia
Interest: Thirty (30) day LIBOR + 2.50% payable monthly in arrears
Intercreditor Issues: Pari pasu with secured working capital facility which
facility shall be on terms reasonably acceptable to
Minolta
Change of Control: Mandatory prepayment upon change of the control of
Borrower (other than Minolta)
Closing: November 10, 1999 upon approval of Lender's Board of
Directors
In case Lender and Borrower shall not execute the Second Loan Agreement by the
end of December 10, 1999 (Japan time), the outstanding principal and all
interest thereon and all other amounts payable under this Note shall become and
be forthwith due and payable without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower.
The Second Loan Agreement and this Promissory Note shall be governed by, and
shall be construed and enforced in accordance with, the laws of the State of New
York.
<PAGE>
Promissory Note
QMS, Inc.
Minolta Co., Ltd.
The Borrower promises to pay all costs and expenses, including reasonable
attorney's fees and disbursements incurred in the collection and enforcement of
this Promissory Note or any appeal of a judgment rendered thereon all in
accordance with the provisions of the Second Loan Agreement. Time is of the
essence in respect of this Promissory Note. The Borrower hereby waives
diligence, presentment, protest, demand and notice of every kind except as
required pursuant to the Second Loan Agreement and to the full extent permitted
by law the right to plead any statute of limitations as a defense to any demands
hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Promissory Note to be executed
and delivered by its duly authorized officer, as of the day and year first above
written.
QMS, Inc.
By: /s/ Edward E. Lucente
---------------------
Name: Edward E. Lucente
Title: President & CEO
QMS, Inc.
<PAGE>
EXHIBIT 10(x)(vi)
PROMISSORY NOTE
U.S. $4,000,000.00 November 10, 1999
FOR VALUE RECEIVED, the undersigned, QMS Europe B.V., a corporation organized
under the laws of The Netherlands ("Maker"), promises to pay to the order of
QMS, Inc., a corporation organized under the laws of the State of Delaware
(herein, along with each subsequent holder of this Note, referred to as
"Holder"), the principal sum of FOUR MILLION AND 00/100 DOLLARS (US
$4,000,000.00) plus interest as provided herein.
The applicable interest rate for this Note (the "Applicable Rate") shall be an
adjustable rate per annum equal to three percent (3.00%) in excess of "LIBOR"
(as defined herein) from time to time in effect, but in no event less than a
rate of six and one-half percent (6.50%) per annum. "LIBOR" refers to (i) the
London Interbank Offered Rate for the applicable LIBOR Adjustment Period as
quoted on the Telerate Information System on the date of determination of the
Applicable Rate (or in the event no such quotation is available on such data, as
quoted on the day most immediately preceding the date of determination on which
such a quotation was available), or (ii) in the event the Telerate Information
System ceases to be available or ceases to provide information sufficient to
determine the London Interbank Offered Rate for the applicable LIBOR Adjustment
Period (as defined herein), the London Interbank Offered Rate for the applicable
LIBOR Adjustment Period as published in the Wall Street Journal on the date of
determination of the interest rate (or in the event no such quotation is
available on such date, as quoted on the day most immediately preceding the date
of determination on which such a quotation was available). The Applicable Rate
shall be determined as of the date hereof and as of the fist day following the
end of each succeeding ninety (90) day period ("LIBOR Adjustment Period")
during the remaining term of this Note (or in the event no such quotation is
available on such date, as quoted on the day most immediately preceding the date
of determination on which such a quotation was available) (the "Interest
Adjustment Dates") and will be adjusted as of each Interest Adjustment Date to
correspond to any change in the ninety (90) day LIBOR rate.
Throughout the term of this Note, interest payments shall be made in monthly
installments, commencing on December 10, 1999. Interest payments shall be
computed on the basis of the prevailing Applicable Rate and the actual principal
sum outstanding from time to time. Principal due hereunder shall be repaid in
forty-seven (47 consecutive monthly installments in the amount of $83,333.33
each commencing on December 10, 1999, and a final forty-eighth (48th) payment of
all principal, interest and other amounts due under this Note, which forty-
eighth (48th) payment shall be due and payable on November 10, 2003, the
maturity date of this Promissory Note.
<PAGE>
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, in which event the remaining
principal balance due and unpaid hereunder shall bear interest at a per annum
rate equal to the Applicable Rate in force from time to time, plus two percent
(2%).
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 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.
In no event shall the amount of interest due and 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 Holder, then
such excess shall be credited as a payment of principal, unless Maker shall
notify the Holder, in writing, that Maker elected to have such excess sum
returned to it forthwith. It is the express intent hereof that Maker not pay
and 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
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 and (b) agrees that the Holder shall not be required to
institute any suit, or to exhaust its remedies against Maker in order to enforce
payments of this Note.
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
-2-
<PAGE>
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 Alabama.
IN WITNESS WHEREOF, the undersigned Maker has executed this instrument under
seal as of the day and year first above written.
MAKER:
[SEAL] QMS Europe B.V., a corporation
organized under the laws of The
Netherlands
By: /s/ Jan Sundelin
-----------------
Jan Sundelin
Title: Managing Director
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> OCT-01-1999
<CASH> 5,189
<SECURITIES> 0
<RECEIVABLES> 49,145
<ALLOWANCES> 641
<INVENTORY> 48,426
<CURRENT-ASSETS> 110,438
<PP&E> 40,872
<DEPRECIATION> 34,900
<TOTAL-ASSETS> 151,618
<CURRENT-LIABILITIES> 107,191
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 22,404
<TOTAL-LIABILITY-AND-EQUITY> 151,618
<SALES> 157,029
<TOTAL-REVENUES> 157,029
<CGS> 125,236
<TOTAL-COSTS> 125,236
<OTHER-EXPENSES> 47,300
<LOSS-PROVISION> 8,206
<INTEREST-EXPENSE> 1,638
<INCOME-PRETAX> (17,892)
<INCOME-TAX> 315
<INCOME-CONTINUING> (18,207)
<DISCONTINUED> 0
<EXTRAORDINARY> (393)
<CHANGES> 0
<NET-INCOME> (18,600)
<EPS-BASIC> (1.58)
<EPS-DILUTED> (1.58)
</TABLE>
